As I understand the work of Hayek, he asserts that prices encapsulate the true societal worth of the item being sold by integrating the compound need for all of the ingredients and work which go into that item.

I get the notion that he concludes (though I cannot cite him verbatim on this) that in order to facilitate the greatest societal benefit one should produce what is most expensive and consume what is least expensive (which a rational actor would do anyway, thus providing a more explicit mechanistic argument for Smith's "invisible hand" notion).

While I totally see this playing out in the middle and low price ranges, taken to the letter, this concept would be a directive to try and produce not high-tech, but luxury goods.

I can't see this being of the greatest benefit to society, since the price of luxury goods (e.g. higher-end Montblanc stationary) derives not from the materials, and only marginally from the craftsmanship, but primarily from the brand identity and the rigidity of the niche (by virtue of which it is possible to keep supply low).

I'm wondering if someone who understands Hayek better than I do could either explain to me why this is in fact the choice which would best benefit society, or why this conclusion does not in fact follow from Hayek's theory.


1 Answer 1


Having mulled over this for a while, I think the answer is actually quite simple. While luxury goods might have some of the highest margins and highest prices per unit, they don't actually make the producers the most money because of the low quantities in which they are sold. So I think my summary might have been ill formulated. Instead of “produce what is most expensive”, a better summary would be “produce what is most profitable”.

Clearly luxury goods are not what is most profitable. Currently this would rather be high-tech services such as data analysis and reliable forecasts.


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