Prices and knowledge: A market-process perspective

Equilibrium prices and information 45prices as summaries or surrogates of knowledge rather than withtheir disequilibrium role as stimulators of entrepreneurialdiscovery. 22 (In Sowell’s argument, as opposed to Grossman andStiglitz’s, prices perform the role satisfactorily, although this, ofcourse, has something to do with what standard of efficiency isused.)Although acting as summaries is an important function of prices,Sowell seems to be unaware of the entrepreneurial one, or to take itfor granted. In fact, he could frequently be read as believing thatmarket prices are not too different from equilibrium prices. Thus hesays, ‘nobody needs to know the whole story in order for theeconomy to convey the relevant information through prices andsecure the same adjustments as if everyone had known’ (Sowell1980: 75; emphasis added), that ‘accurate prices resulting fromvoluntary exchange permit the economy to achieve optimalperformance’ (79; emphasis added), that ‘knowledge transmitted bylow prices (wages) is generally accurate knowledge’ (174), and thatwith respect to changing technology, tastes, etc., ‘price changes arevirtually instantaneous’ (216). These are statements anentrepreneurial perspective would not endorse without qualifications.However, this chapter will later argue that most of Hayek’s, andSowell’s, argument can be reinterpreted from an entrepreneurialperspective and remain valid.Kirzner’s emphasis is more on the discovery of knowledge thanon its summarization or its transmission. But the question could beraised: could this discovery role perhaps be accommodated withinthe approach of Grossman and Stiglitz? It is, after all, their argumentthat imperfectly arbitraged prices provide incentives for informationgatheringactivities; in other words, it is because of price disparitiesthat the production of new knowledge becomes economically viable.Therefore, even in Grossman and Stiglitz’s framework pricesperform another informational role, although it is not highlighted:imperfectly arbitraged prices, as in market-process theory, lead to theappearance of new information. Of course, as has already beenindicated, Grossman and Stiglitz refer implicitly to production ofinformation-as-a-commodity, not to genuine discovery in the marketprocesssense. A consideration of some differing implications ofthese approaches will show that this distinction matters here.The apparent similarity of this implication of Grossman andStiglitz’s approach to the modern Austrian argument could mean, forexample, that they would share the latter’s conclusions regarding the