Solution:

b. His argument that because of 'specific knowledge' capitalism would require extensive state planning.

Explanation:

Hayek's arguments should be understood in the conditions of time. Rationally, in the late 1930s many believed that capitalism had failed and that only through the consequences of economic planning. Planning for freedom was used widely among the people of Western Europe. Though his ultimate argument was led upon the premise that in civil society every individual pursues his own set of values. Most of the time in the form of planning, however implicitly assume that a common set of values exists; or else it would be impossible to gain unity on how resources are to be allocated. Hayek argued that without a shared set of values, the planners would inevitably impose some set of values on society. In other words, government planners could not accomplish their tasks without applying the control beyond the economic to political rule. Hayek then felt that his opponents had it exactly backwards. Planning would discourage rather than promote freedom. Only in a free market system is associated with democratic political institutions would freedom of choice be allowed to carry on.

Hayek identified the social institutions in the constitution of liberty and felt that it would be most effective to achieve the goal of freedom. He argued that a system of free markets in a democratic poliicies with a well defined and the enforcement of the property rights that should be governed by the rule of law in their own localized knowledge. In law legislation and liberty, he argued the concept of 'social justice' that was often requested in defending the policies of the modern welfare of the state was without meaning because it focused on outcomes, rather than actions.