Prices and knowledge: A market-process perspective

96 Prices and knowledgeBefore presenting this outline, the chapter first summarizesNelson’s arguments and tries to show how they are fully withinSimon’s framework despite his emphasis on change. It then analyseshis views and explains the importance of change for a marketprocessperspective.WELFARE ECONOMICS AND ADVOCACY OF THEMARKETNelson starts by pointing out that advocacy of a market regime cannotbe based on the ‘twin theorems’ of welfare economics 2 because‘everyone realizes that the real conditions do not meet the assumptionsneeded to produce’ them (Nelson 1981:94). 3 In fact, he says, someeconomists have hailed as the main achievement of normative theoryits demonstration of the implausibility of any claim that unregulatedmarkets in reality may ever produce optimal results (Nelson andWinter 1982:357–8). In addition, even welfare economics ‘does nothold that competition can outperform central planning or any otherorganizational alternative’. Instead, it only proves that all otheralternatives can at best match the results of competitive equilibrium(ibid.). The theorems of welfare economics, Nelson notes, do notsupport the negative reactions of many economists towardsgovernment planning and regulation of the economy: ‘nothing in thesetheorems says that planning or regulation cannot be made to work(optimally)’ (ibid.).The arguments for the marketIn Nelson’s view, the arguments presented by market advocates arein fact based on criteria that are not part of conventional welfareeconomics. He discerns two types of problems emphasized incontemporary discussion about different forms of socialorganization:1. Problems of information and computation. Nelson argues that,even conceding the way equilibrium economics poses the economicproblem, to achieve the competitive solution ‘an enormous amountof disparate data needs to be somehow acquired, brought toappropriate places for computation, and combined in a computationtask of staggering scope.’