Convention, Competition, and Coordination: A Classical Economic Perspective in Hayek's Price Mechanism

Motonori Ishii ()
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Motonori Ishii: Waseda University, Graduate School of Economics

No 2608, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: The purpose of this paper is to reinterpret F. A. Hayek's theory of prices within the context of British classical economics (hereinafter referred to as "the Classical School"). Although Hayek hailed from the Austrian School, which was founded on a critique of the Classical School, he viewed modern economics—from the Marginal Revolution onward—as an economics in which subjectivism had been grafted onto the Classical School. In fact, Hayek reinterpreted the concept of the "natural price" in the Classical School—a price determined in light of social and historical circumstances and converging toward that level through competition. Hayek interpreted this as a system of negative feedback and recognized Smith as its pioneer. Hayek's interest lay in elucidating why markets move toward equilibrium even though people possess only fragmentary and unsystematized knowledge; he identified conventions—which stabilize people's expectations—as the key factor. Hayek defended the natural price as a price supported by convention, and in that sense, his theory of prices owes much to Smith's theory of the natural price.

Keywords: Hayek; Classical Economics; Austrian School; Marginal Revolution; Natural Price (search for similar items in EconPapers)
JEL-codes: B12 B13 B31 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2026-06
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