Prices and knowledge: A market-process perspective

100 Prices and knowledgeapples in local region X ought to be reflected in a rise in the price ofapples in local region X. To channel excess-demand informationback to the center for processing and to wait for centraldetermination that prices ought to rise would be time-consumingand cumbersome. Farmers and grocers in region X would act toincrease prices much more rapidly if they themselves had theauthority to do so. A consequence is that internal supply would bestimulated and apples would flow into the region from outside morequickly under real free enterprise than under Langian socialism.Hayek also argued that private profit-seeking farmers and grocershave greater incentive to take the appropriate output actions inresponse to changed prices than would bureaucrats occupying thesame jobs.(Nelson and Winter 1982:361; emphasis added)In Nelson’s view, the Lange ‘trial-and-error solution is not aninappropriate response that simply assumes the knowledge problemaway (as modern market-process economists, such as Lavoie(1985a:160–72), have argued). For him the problem with Langiansocialism is that under conditions of change in the data the systembecomes ‘time-consuming and cumbersome’ compared to the market.NELSON’S POSITION; THE ‘RESPONSIVENESS’ ISSUENelson believes that from the earliest days of the disciplineeconomists have seen as virtues of the market system ‘an ability togenerate a variety of innovations, to screen and select from these, andto assure that in the long run most of the gains would accrue toconsumers’ (Nelson and Winter 1982:361). While proclaiminghimself sympathetic towards this tradition and with what he calls‘contemporary informal normative discussion’ (in which he includesHayek). Nelson has some points of disagreement. The main one is that‘advocates of free enterprise have been too facile in arguing the meritsof the stylized system in a stylized dynamic environment’ (ibid.: 362).Their arguments, he says, are not only not supported by conventionaleconomic theory, but also ‘poorly articulated’, and more often theresult of casual empiricism and prejudice than of careful study (ibid.:358–9). He believes there is ‘little in the way of theoreticaljustification’ for the argument that free enterprise outperforms centralplanning in a dynamic environment.