Prices and knowledge: A market-process perspective

22 Prices and knowledgeauxiliary’: the fundamental part of economics is the ‘positivedescription’, which shows how the price discrepancies thatcharacterize disequilibrium provide profit opportunities forentrepreneurs who, in the process of successfully exploiting them,improve the co-ordination of the economy, without, in reality at least,ever reaching equilibrium. From such a perspective, theconcentration on the study of equilibrium states distracts attentionfrom the crucial problem. Hence Mises’s provocative statements that‘the mathematical description of various states of equilibrium is mereplay. The problem is the analysis of the market process’ (Mises1949:356), and that the ‘problems of process analysis’ are ‘the onlyeconomic problems that matter’ (ibid.). In this view, the equilibriumapproach has led not only to a neglect but, even worse, also to amisunderstanding of crucial aspects of the market. 17For thinkers such as Mises and Hayek an equilibrium state is notonly a useful, though unrealistic, imaginary construction. For them itis also a description of a state towards which real markets ‘tend’.This has become an increasingly controversial idea among marketprocesseconomists, 18 and will be only briefly described here. ForMises, it is the activity of entrepreneurs, bent on discovering andexploiting profit opportunities, that produces a ‘tendency’ towardsequilibrium (which is why, although markets are viewed as always indisequilibrium, they are at the same time not viewed as chaotic). Thistendency would be fully realized were it not that the facts areconstantly changing in reality (Mises 1949: 337–8). 19 Markets do notachieve a state of co-ordination; instead, market competition is a coordinatingprocess. It is this entrepreneurial process that is deemedworthy of attention, and not a state in which people are alreadyassumed to know all that is worth knowing.Ignorance and the economics of informationStarting perhaps with George Stigler’s 1961 article, the problems ofinformation in an economy have attracted much attention. Since thatessay, the field known as the economics of information has grownvery rapidly. As Machlup (1984:13) put it with characteristicthoroughness, this new specialization studiesthe complexities that may arise from the fact that information, newor old, may be inordinately uncertain, incomplete, partial, biased,