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Sagot :
The major problem for any economy, he argued, is how people's actions are coordinated.
He pointed out that, like Adam Smith, the price system - the free market - has done an amazing job of coordinating people's behavior. According to Hayek, the market was an impromptu order. By spontaneous, Hayek meant haphazard. Markets weren't designed by anyone, they evolved slowly as a result of human activity.But markets don't work perfectly. Hayek asked why the market would not adjust people's plans so that at times many people would be out of work.
One reason is the increase in the money supply by central banks. Such a rise, he argued, would lower interest rates and make credit artificially cheap in price and output. If we had, we would have made a capital investment that we would not have invested in. But investments are not uniform. Long-term investments are more interest-rate sensitive than short-term investments, and long-term bonds are more interest-rate sensitive than treasury bills.
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