Prices and knowledge: A market-process perspective

Change, responsiveness and co-ordination 107creating a constantly renewed need for the discovery of what the newcircumstances are. For Nelson, on the other hand, as also for Simon,change seems to be important mainly because it requires anexcessively large amount of information to be continuously movedaround and processed by a central planner. From such a point ofview, in the absence of change the differences between the economicsystems might not be significant. It is therefore not surprising that forNelson it is Hayek’s supposedly stronger emphasis on change ratherthan Mises’s argument that is most damaging to the Langianproposal.Nelson’s ‘co-ordination problems’In pointing out the co-ordination problems that, in his view, amarket economy is likely to suffer Nelson appears, perhapssurprisingly, to have a rather ‘static’ view of firms under privateenterprise and to neglect the wide variety of alternatives (such asdifferent types of organizations, vertical or horizontal integration,contracts, and so on) that are available and are, in fact, used in amarket economy for the solution of these co-ordination problems.This has led to his approach being labelled ‘organizationally static’(Pelikan 1985). 13However, the possible occurrence of such co-ordination problemscannot be denied. Although profit opportunities stimulateentrepreneurial alertness, not all of them will be discovered. Also,some courses of action will be pursued because they are mistakenlybelieved to be profitable. In other words, there will be entrepreneurialmistakes in spite of the strong incentives to avoid them provided byprofits and losses. Nelson’s ‘co-ordination problems’ are examples ofsuch mistakes—mistakes that could probably have been avoided bythe parties concerned had they been aware of them. But theselimitations of the market should not be compared with those of ahypothetical centralized system whose only liability is its‘sluggishness’. Instead, they must be compared with the limitationsof a system in which, because of its lack of any discovery procedure,widespread ignorance of the correct courses of action—and, thus,mistakes—will be the rule.Even if only limited government intervention in the market isbeing advocated, there is no clear reason why the intervener shouldbe assumed to know which market situations could benefit from his