Which individual ends are satisfied and at what cost is thus fundamentally driven by billions of individual decisions

The clearest and simplest explanation I have seen in a long time of the principles of the Austrian economist, F. Hayek. From Dionne v. Hayek by Todd Zywicki.

A sample:

Hayek’s argument in The Road to Serfdom is straightforward. There is a reality of existence that can be called the “economic problem” (my term, not his). And anyone who has taken Economics 101 knows what it is–the reality of scarce resources in the world and unlimited wants. “Scarce” in the economic sense–that everything has an opportunity cost attached to it. Right now I can either be writing this blog post or shoveling my walkway, but I can’t be doing both. Unlimited wants in the sense that people generally prefer more to less of most goods.

So why does that matter? Hayek’s point is that given this reality–scarce resources and unlimited wants–there are fundamentally only two ways to allocate scarce resources among unlimited wants. The first is through impersonal processes such as the market process, or more accurately, the market process consists of billions of individuals making billions of decisions every single day on how to spend their time and other resources. In the market process, the guiding principle is the price system–prices are fundamentally amoral in the sense that they simply provide information about what these billions of people believe is the most important allocation of scarce resources. It may be that this means it is children’s vaccines or it may mean Honey Boo Boo marathons. In this sense, the price system is completely bottom-up–it is the aggregation of all these marginal and constantly-changing expressions of preferences of people deciding how to allocate their resources and a signal of how resources are valued by other people. Which individual ends are satisfied and at what cost is thus fundamentally driven by billions of individual decisions. You may wish for a career as a Knight of the Roundtable, but in the modern economy it will be prohibitively expensive to pursue that career. In this world, then, Hayek says the role of the government is provide the rules of the road, i.e., should be organized around the rule of law, which is a set of purpose-independent rules that tell people how to go about pursuing their own freely-chosen ends, but doesn’t tell them what ends they must choose. To put it another way, the rule of law provides traffic rules, but doesn’t tell you which exit you have to get off when you are on the highway.