Prices and knowledge: A market-process perspective

Chapter 6ConclusionsTHE ARGUMENT RESUMEDHayek’s 1945 essay gave rise to a much broader understanding ofprices by economists. Prices are generally seen nowadays not only asincentives for individuals to make decisions consistent with thescarcity of resources, but also as performing some informational role.Both the economics of information and the bounded-rationalityapproaches have been interested in this role of prices and haveacknowledged Hayek’s influence. Economists working in these areashave analysed critically, in more or less detail, his arguments (andsometimes Mises’s).This book argues that some implications to be derived fromHayek’s approach to prices have gone unperceived. While theeconomics of information and bounded-rationality theory haveyielded interesting insights into some possible informational roles ofprices, they have missed an important one. The previous chapterstried to remedy this failing by examining representative work donefrom these perspectives and contrasting it with a third approach toproblems of knowledge in an economy. This third approach, adevelopment of the work of Mises, Hayek, Kirzner, and othermodern Austrians, highlights the disequilibrium role of prices.Economists have mistakenly tended to think that whatever insightsthe Austrians have to offer in this respect have already been absorbedinto their theories. This book tries to show that such is not the case.The three approaches to the informational role of prices can bedescribed in summary fashion:1. One approach taken by a large part of the literature is to analysethe informational role of prices within an equilibrium framework.This approach has been concerned mostly with what were shown in