Prices and knowledge: A market-process perspective

106 Prices and knowledgerealized that one of them has no mechanism to stimulate suchperception.The knowledge problem and changeTo understand the effect of change on the knowledge problem it isuseful to imagine a situation without it. The knowledge required by aLange-type system would still have to be discovered in an imaginaryunchanging world. If a centralized planning system has no discoveryprocedure comparable to that of the market it will be much less able todiscover and exploit the most desirable alternatives—i.e. reach anequilibrium—even if the data were to remain unchanged. 11This casts some doubt on the appropriateness of assuming that theeconomic systems are in equilibrium when comparing them underhypothetical conditions of no change. Nelson makes such anassumption explicitly when saying that with unchanging conditionsboth the ‘information and computation’ and the ‘command andcontrol’ problems could be solved once and for all, with few if anysignificant differences remaining between central planning andprivate enterprise. 12 This assumption could, presumably, be justifiedif there were reason to believe that any system could reach the‘optimum’ if given enough time. Additional time may be of use understatic conditions if what has to be overcome is complexity in Simon’sand Nelson’s sense—particularly if change is believed to be one ofthe main sources of this complexity. However, additional time wouldnot make much of a difference to a planned regime if its problem wasits lack of entrepreneurial incentives and, thus, of a discoveryprocedure. The planned regime could, presumably, persistindefinitely in a state in which many desirable alternatives remainedunnoticed. It can be argued that ‘under static conditions every personwould soon find out…everything in his situation and surroundingswhich affected his conduct’ (Knight 1921:79) only if there are profitincentives to stimulate entrepreneurial discovery.Although it is easy to agree with Nelson’s statements regardingthe irrelevance of standard welfare economics to the debate regardingeconomic systems, his interpretation of the content of argumentssuch as Hayek’s cannot be accepted uncritically. Not only ignorancedue to the complexity caused, or increased, by change, but also‘sheer’ ignorance, has to be overcome by any economic system.Change only complicates the knowledge problem even more,