Conflict

The theme that runs throughout the book is the conflict between two economic systems. The one system is what Hayek refers to as liberalism. This is the laissez faire market economic system that prevailed at the time, or the economics of Adam Smith. This is a system based on individual freedoms and competition. The individual has the freedom to decide his own occupation and to undertake business ventures if he chooses to take the risk. If his venture is successful, he profits; if not, he loses. However, the system allows him the freedom of choice to decide and to try. Income is determined on scarcity of the factor and the factors' contribution to output. Since not all factors are equal, the resulting income distribution is unequal. Adjustments in the allocation of resources, like labor, come about due to changes in market conditions that affect supply, demand, wages, and...