As Hayek established in his critique of Walras, the economic notion of “equilibrium” is tautologous in that it makes a number of aporetic assumptions (“apory” is intended here as “historico-logical contradiction”). The assumption that Hayek demolished was that market participants had full and immutable information about the endowments and preferences of all other participants. The effect of this assumption was that “Walrasian equilibrium” was transformed into a totalitarian “social brain” simultaneously holding and clearing all the information socially available about the desired allocation of resources. This “impossible” assumption Hayek dubbed “the Pure Logic of Choice”, and it summarised his objection to socialism. Tersely put, a socialist state’s economic system would not be able to reach its goal of “administratively” knowing the preferences of its citizens without removing their “political independence” – thus turning into a totalitarian state – simply because, in order to do so, these preferences would have to be “co-ordinated” simultaneously without the possibility of “intertemporal” change between their notification and their execution.
Hayek extended this critique also to the neoclassical notion of “pure competition” which he easily disposed of along the same line of attack he adopted for Walrasian equilibrium. Accordingly, Hayek went on to outline his notion of “intertemporal equilibrium” where market participants are allowed to change their preferences and communicate these through free market-pricing mechanisms. The reason why “co-ordination” is needed in a society is that its citizens specialise in different inter-dependent activities, that there is a “division of labour”. Indeed, this is why in Walrasian equilibrium there is exchange at all! But although there is a “need” for individuals to exchange, this exchange must be “free”, that is, it must be according to their spontaneous preferences. As Brian Loasby remarked, given the propensity of individuals to collude for personal gain, “a world of [“enforced”, my addition] universal perfect competition is almost as repellent as a world of perfect slavery; indeed the two are not easily distinguished” (in ‘Equilibrium and Evolution’, p.16).
The greater this “division of information”, the more freely “competitive” the market, the greater will be the degree of economic freedom, and consequently the legal and political liberty of individuals in society. It follows that any “political” interference on the part of the State through fiscal or monetary policy will distort the “co-ordination mechanism” in ways that will impede the freely-determined “division of information” of individuals and its “co-ordination” through the market “price mechanism”.
Hayek’s attempt is quite obviously circuitous – and therefore tautologous, a posteriori, ex post facto, a petition principii – because it requires us to accept that “the price mechanism”, however “imperfect” or “suboptimal”, constitutes the “best” available form of economic “co-ordination” consistent with “freedom”. But this conclusion is entirely “unfounded” because it assumes what it wishes to prove. The most notable feature of Hayek’s approach is that it substitutes the notion of “the division of labour” which sociologically and economically highlights the “physical interdependence” of the process of production…with “the division of information”, which subtly but decisively shifts the emphasis to the “independence” and subjective “separation” of individuals in society.