Prices and knowledge: A market-process perspective

104 Prices and knowledgeAs with Simon, the differences between Nelson and anentrepreneurial approach hinge to a large extent on the distinctionbetween the ignorance due exclusively to complexity (in the senseseen in chapter 4) and the ignorance that has to be overcome bydiscovery. This difference leads each approach to adopt a differentinterpretation of the working and the limitations of alternativeeconomic systems.The comparison of economic systemsNelson apparently assumes an arrangement in which firms (or plants)are not saturated by the facts of their local environment. Given thatthese units (firms or plants) perceive the new facts about their ownenvironment, the alternatives (traditional central planning having beendiscarded) are a Langian planned regime, with a ‘sluggish’, but fairlyco-ordinated, adjustment process, or private enterprise, producing anagile (‘light on its feet’) decentralized response with (potentiallyserious) co-ordination-of-response problems. This seems to suggestthat mixed systems that combine government planning and marketforces could be preferable.The entrepreneurial approach, with its emphasis on the need fordiscovery of knowledge, perceives the alternatives differently. Theproblem with the Langian ‘trial-and-error’ solution is not that it isstill too complex (i.e. that it doesn’t simplify the task enough) for acentral planner in a world of change. Instead, it is that it provides asolution only by assuming away the knowledge problem. LikeSimon, Nelson seems to hold a theory of perception that assumes thatat least the plant managers are ‘hit in the face’ by new configurationsof their local data (or that they can easily ‘see’ them). The mainproblem is then to convey this information to the planner, solve thelarge computational problem, and send the results back to themanagers. But this assumes too much knowledge to be alreadysomehow given to the different individuals in the planned regime.Although mistaken courses of action may often be noticed byplant managers (through, say, shortages or surpluses of goods), thisdoes not imply that they will automatically perceive correctly whattheir circumstances are. As argued before, it is necessary thatindividuals discover, or ‘zero in’ on, the previously unknownknowledge. This does not happen automatically but requiressomething to attract their attention. Pecuniary profits do this in a