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Hi Frederick,

I wholeheartedly agree with your statement that government is there to provide a stable environment of markets, provide frameworks for interaction, and etc. Your idea of the business cycle is also very concurring as my idea of economy also states that economy alters depending on human behavior.

However, I would have to disagree with your idea that if the government gets involve with market, economy would deteriorate. I believe that the presence of dynamic economy will make the economy thrive immensely. Here, the assistance of government is extremely important where it constantly regulates individual and whole markets, making an effective economy present. Therefore, I do not understand your stance where the involvement of government will cause a slow development in economy. To reiterate my point, I strongly believe that the involvement of government helps economy to be well-regulated under certain circumstances and not deteriorate it.

- Alfred Marshall

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Greeting, Mr. Hayek

I do agree with your stance on government intervention, as I too believe that government should help the economy, but they should not be interfering with the economy while they are flourishing. When an economy is doing well, the government should not be involved with it, as things are the way that they should be. However, I do agree with you about the notion of government intervention during the recession of the economy. While the economy is in a recession, people tend to have less spending power, which drives the economy into an even more unhealthy state. However, if the government were to step in and spend money, there would be money circulating in the economy, which would help the economy get out of a recession much quicker.

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Public education is not actually required, not because these institutions are essential. Rather such institutions do not need to be part of central planning and thus is not a crucial aspect in a free society.

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The capital theory is the production  of increased capital. Capital theory examines the special role played by time in resource allocation studies. The determination of the interest rate and functional distribution of income as well as how rational agents invest are analysed within single- and multi-sector general equilibrium frameworks. Here, agents exercise perfect foresight over alternative consumption and capital accumulation programs. Efficient programs are characterized. Representative and multi-agent infinitely lived households are studied. Equivalence principles link the equilibrium programs and optimal paths. Heterogeneous agent models with borrowing constraints are reviewed. A behavioral model of inter temporal choice is also compared to its constant discounting counterpart.

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The aim of a government is to provide a stable environment for industries to thrive and succeed. The government provides the framework for interaction. Ideally, as mentioned, a government operates only within a stable and known framework of rules. If the government intervenes in the market, the market would be too dependent on the government, causing slow development in the economy.

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I was born in Vienna in 1899 into a family steeped in academic life and scientific research. I worked as a statistician from 1927–31, became a Lecturer in Economics at the University of Vienna in 1929, then moved to the University of London in 1931, the University of Chicago in 1950, and the University of Freiburg in 1962, retiring in 1967. I continued writing into the late 1980s. I died in 1992.

I worked in the areas of philosophy of science, political philosophy, the free will problem, and epistemology. My life’s work, for which I won a Nobel Prize in 1974, illuminated the nature and significance of spontaneous order. The concept seems simple, yet I spent six decades refining my idea.

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Business cycles are dated according to when the direction of economic activity changes. The peak of the cycle refers to the last month before several key economic indicators—such as employment, output, and retail sales— begin to fall.

Each business cycle has four phases. They are expansion, peak, contraction and trough.The first phase, expansion, is when the economy is growing. The second phase, which is the peak, is the month when the expansion transitions into the contraction phase. After the peak, economic growth weakens, GDP growth falls below 2 percent, which then turns into  the third section, which is contraction. The last phase is the trough, which is the month when the economy transitions from the contraction phase to the expansion phase. It is when the economy hits rock bottom, during this time the government manages the business cycle. Legislators uses fiscal policy to influence the economy.

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Schmidtz, David. “Friedrich Hayek.” Stanford Encyclopedia of Philosophy, Stanford University, 15 Sept. 2012, plato.stanford.edu/entries/friedrich-hayek/.

Christina D. Romer, "Business Cycles." The Concise Encyclopedia of Economics.2008. Library of Economics and Liberty. 21 September 2017.

BBC, Buisness. “Keynes v Hayek: Two Economic Giants Go Head to Head.” BBC News, BBC, 3 Aug. 2011.

Becker, Robert A. "capital theory." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online.Palgrave Macmillan. 20 September 2017