Carl Menger). He held academic positions at the London School
of Economics and the University of Chicago. He returned to
Europe in 1962 to the University of Freiburg in what was then
West Germany and the University of Salzburg in Austria. He was
awarded the Nobel Prize in Economics in 1974.
Hayek contributed new ideas and theories in many different
areas of economics, but he is perhaps best known for his
general conception of economics as a “coordination problem.”
His observation of market economies suggested that the
relative prices determined in free markets provided the signals
that allowed the actions of all decision makers to mesh—even
though there was no formal planning taking place to
coordinate these actions. He emphasized this “spontaneous
order” at work in the economy as the subject matter for
economics. The role of knowledge and information in the
market process became central to Hayek, an idea that has
grown in importance to the economics profession over the
years.
Hayek’s theory of business cycles provided an example of the
breakdown of this coordination. A monetary disturbance (e.g.,
an increase in the money supply) would distort the signals
(relative prices) by artificially raising the return to certain types
of economic activity. When the disturbance disappeared, the
boom caused by these distorted signals would be followed by a
slump. Although Hayek’s business-cycle theory was eclipsed by
the Keynesian revolution, his emphasis on economics as a