Prices and knowledge: A market-process perspective

110 Prices and knowledgeframework stimulating a discovery process the way a market systemdoes. On the other hand, there are a number of difficulties that canapparently be dealt with better by such a form of organization. Theavoidance of the duplication of effort and investment that may bepresent in competitive situations (Kirzner 1984a:417), problems ofco-ordination of decisions and activities, the reduction of transactioncosts, and other problems studied by the economic theory oforganizations, seem to sometimes make some forms of plannedorganization desirable. However, the choice of what arrangement toadopt is not made in the same way by profit-motivated privateindividuals and government planners. Knowledge regarding what thetrade-offs are between markets, with their scope forentrepreneurship, and organizations, with their own advantages,cannot be assumed to be ‘given’ to these decision-makers.As individuals are not assumed always to ‘know what it is theydo not know’, the choice between carrying out an activity withinan organization or leaving it in the market cannot be made interms of costs and benefits: knowing the latter would requireindividuals to know and evaluate what could or could not bediscovered if scope were left for entrepreneurship, a logicalimpossibility. In the market system, different combinations ofplanning and markets can be tried out and are allowed to competeagainst each other. Although in a world in which equilibrium isnever achieved this will not lead to the revelation of the optimalextent of planning, it will at least lead to the abandonment of theless successful forms of organization. Although more research isnecessary to make this last statement more precise, 18 nothingsimilar can be said of government planning. As Kirzner(1984a:417) has argued,if central planning is imposed on an otherwise free market, whetherin comprehensive terms or not, such planning will almost alwaysinvolve the knowledge problem, and to an extent not likely to bejustified by any advantages that centralization might otherwiseafford [emphasis in original].The knowledge requirements of creating an organization should notbe underestimated. Suppose there is an individual (a ‘planner’) whobelieves a certain task should be undertaken. This ‘planner’ has alsosomehow decided that it would be best to do so through a hierarchicalorganization. For this he must know which of the numerous