Prices and knowledge: A market-process perspective

Notes 13137 No example is drawn from Kirzner’s writings because the issue of complexityhardly appears explicitly in them. It is largely due to his concentration onentrepreneurial discovery, even in simple contexts, that the need for thedistinctions made here becomes evident.38 For example, Hayek’s concern has recently been interpreted to be overwhether the central planner will be able to cope with the enormous amount ofinformation, ‘whether the king can handle the job of collecting and using therelevant information…’, given that he ‘has a limited ability to process [it]’(Farrell 1987:117, 121). See also Buchanan (1985:16), although he seems tobe aware there is more to the problem.39 See, for example, Hayek (1935b:155). Also Lavoie (1985a:161–2).40 An idea that also appears in Schultz (1975:831–2).41 See, for example, O’Driscoll (1977)42 This, for example, is what seems to be happening in those anecdotes aboutsocialist economies that describe plant managers as unable to comply withtheir output quotas because the production of the required inputs was notcontemplated.43 Although co-ordination of actions can coexist with disco-ordination ofknowledge, it is not clear whether there could be co-ordination of knowledgeand disco-ordination of actions—the latter due to ‘complexity’. This woulddepend on whether co-ordination of knowledge includes knowledge of theappropriate arrangements to overcome complexity successfully. (Coordinationof knowledge would perhaps lead to optimal disco-ordination ofactions!)44 See, for example, High (1986:114).45 The full elucidation of this point and of the whole issue would require muchmore space than can be devoted to it here.46 Another implication of the distinction made here is that, although in thehabitual use disco-ordination of actions refers to observable problems, thoseof Kirzner’s type that take the form of missed opportunities may neverbecome visible. This is important because, from this entrepreneurialperspective, the disco-ordination that occurs in a planned economy, forexample, is not limited to the observed shortages or surpluses of goods. Italso includes the unknown number of alternative ‘facts’ (types and qualitiesof products that could be made, what quantities of them to produce, withwhat production technologies, what resources are available and in whatquantities, etc.) that were never discovered and exploited. The ignorance ofthese facts constitutes probably the most serious source of inefficiency inthose economies.5 Change, responsiveness and co-ordination1 Nelson (1977:132–43; 1981). The argument also appears, unmodified, inNelson and Winter (1982), but it seems reasonable to attribute it to Nelson.2 That is, (1), that under certain assumptions a competitive equilibrium isPareto-optimal, and (2), that any Pareto-optimal outcome can be achieved asa competitive equilibrium by a suitable distribution of initial endowments.