Prices and knowledge: A market-process perspective

Notes 12724 Bartley says that his is a generalization of ‘Hayek’s approach somewhat infull harmony with his intentions’, suggesting he also has some doubts aboutthe theoretical framework (i.e. equilibrium or disequilibrium) used by Hayekin his 1945 article.25 Of course, agents have to know a number of other things, such as theirpreferences, available technologies, etc., to adopt the best course of action forgiven prices.26 For another interpretation of Hayek’s view in terms of prices as sufficientstatistics, see Williamson (1975:5, 25).27 The added emphasis is the same as in Garrison’s article, quoted below. Thesame argument appears in Koopmans (1957:22, 53).28 See, e.g., Grossman’s (1981:545) statement: ‘Of course, the theory does notexplain how equilibrium comes about.’29 In their example, described above, it matters whether the price of the assetincreases because of a larger ‘informed’ demand or because of a smallersupply. This is not the case for Hayek’s tin example, in which any of thesecauses requires the same adjustment.30 ‘Hayek was not contending that prices as numbers are the only pieces ofinformation that the market requires’ (Lavoie 1985b:80–1). This moremoderate claim is consistent with Frydman’s (1982:664) remark that ‘inaddition to information contained in market prices, social norms (inparticular business practices) imposing some restrictions and coherence onthe individual decisions and information generated by institutions external tothe market may play important roles in understanding decentralized marketprocesses’. The informational role of institutions is analysed in Schotter(1981).31 For a survey of his experimental work, see Smith (1982b). For an example ofother experimental work on prices and information, see Plott and Sunder(1982). About the field in general, see Roth (1986).32 Smith does not claim that his results constitute such a refutation.33 However, these authors seem to be close to Demsetz’s ‘comparativeinstitution approach’ when they conclude, on the same page, that they‘cannot provide an answer to whether a centralized or decentralizedorganization is more efficient, without more knowledge of the costs ofoperating a centralized informational mechanism…’.34 Also see Streit (1983:9–10).35 See also Hirshleifer and Riley (1979:1414).36 ‘It is only in equilibrium that it can be claimed that a market participantguided by market prices is automatically steered toward those actions thatwill coordinate smoothly with the actions of all the other (similarlyguided) market participants’ (Kirzner 1984a:415). See also Kirzner(1984b:204–5).37 Cf. ‘Economic calculation, despite its imperfect configuration ofdisequilibrium relative prices, still…enables entrepreneurs to eliminate fromconsideration the innumerable possibilities of technologically feasible butuneconomic production processes’ (Lavoie 1985a:57).38 Of course, strictly speaking, profitable production of a good using theresource is also a form of arbitrage, in a broader than usual sense of theterm.