Prices and knowledge: A market-process perspective

Change, responsiveness and co-ordination 113chapter 4, leaves unanswered the question of what differences, if any,there are between a market and a decentralized bureaucracy.The distinction this section will make is between price-mediatedtransacting and appropriately decentralized organizations in general,although the differences pointed out in the previous section betweenmarket and non-market hierarchies are also important here.Even though Simon may be right in criticizing some economistsfor holding excessively simplified notions of organizations, there isa sense in which economists are ultimately right in regarding anyorganization as being centralized. This can be better explained withthe help of an example. Suppose that an individual believes that theorganization he is creating should be designed as a decentralizedhierarchy (perhaps because of the complexity he thinkscharacterizes the task to be performed). He will then specify whichdecisions will require his intervention and which will better be leftto the different individuals in his organization. 20 He will perhapseven reward the latter, through some incentive system, for makingwhat he regards as successful decisions (thus stimulating the use ofthe entrepreneurial abilities he may have perceived them topossess).This description should start to suggest that markets anddecentralized hierarchies, even though they might be consideredequally good simplifying devices by a perspective thatemphasizes the need for economizing the individual’s limitedcomputational capacities, are quite different when viewed from aperspective concerned with discovery. Even if this organizationmay be said to be decentralized, the perceived need for it and itsspecific design has come from a single entrepreneurial mind—that of the ‘planner’ —and the members of the organizationoperate within the guidelines, and for the purposes, set by thismind.Hayek (1973: esp. 46–54) deals with a similar issue when hecontrasts the ‘rules’ (as opposed to detailed commands) of anorganization with those of a ‘spontaneous order’ —a category inwhich he includes the market. According to Hayek,what distinguishes the rules which will govern action within anorganization is that they must be rules for the performance ofassigned tasks. They presuppose that the place of each individual ina fixed structure is determined by command and that the rules eachindividual must obey depend on the place which he has been