Prices and knowledge: A market-process perspective

40 Prices and knowledgethose returns, hence allowing no profits to be made. Several ofGrossman and Stiglitz’s results may therefore not resist criticalexamination.One, perhaps minor, point that deserves brief mention is thatGrossman and Stiglitz use equilibrium theory because of anexplicit dissatisfaction with disequilibrium analysis. Whenexplaining that they have chosen to describe an economy affectedby different shocks—which requires new information to betransmitted to trading agents—by a ‘stationary stochastic process’they say, ‘others have described this as a disequilibrium situation,but have been unable to say much about it’ (Grossman and Stiglitz1976: 248). Unfortunately, they do not specify who these othersare and what Grossman and Stiglitz would have wanted them tosay, although there is reason to suspect that this is a reflection ofthe methodological differences regarding the role of mathematicalformalism mentioned in the introduction. What Grossman andStiglitz do instead is to construct a model with ‘an equilibriumdegree of disequilibrium: prices reflect the information ofinformed individuals (arbitrageurs) but only partially, so thatthose who expend resources to obtain information do receivecompensation’ (1980:393). 18 It is with such a model that theyanalyse Hayek’s argument.Two informational roles of equilibrium pricesThe writings of Grossman and Stiglitz serve to highlight asignificant difference between Hayek and other authors regardingthe informational role attributed to prices. Hayek was saying thatagents, by economizing with respect to market prices, respond toevents they are not—or, rather, need not be—aware of. (Anindividual engaged in central planning, Hayek’s argument went,would have to know about these events.) Although Grossman andStiglitz seem to understand this, their work is often concerned witha different point, apparently without them noticing it. They analysesituations in which individuals infer information from market prices,in the Rational Expectations fashion (Grossman 1981:557). In otherwords, individuals facing market prices do not act as if they knew therelevant information but, instead, they obtain information fromprices. This interpretation is confirmed by Grossman’s example inwhich