Prices and knowledge: A market-process perspective

46 Prices and knowledgeinformational advantages of market prices over other alternatives. Acomparison of, for example, the performance of markets with that ofa centrally planned economy, both of them under conditions ofdispersed, costly knowledge, would show the market providingpecuniary incentives for information-gathering activities, incentivesthat would not seem available under central planning. WithinGrossman and Stiglitz’s framework, there would appear to be norewards for costly information-gathering under a central planningsystem without prices and profit-motivated arbitrageurs.However, it is here that the information-as-a-commodityapproach makes a difference. From this perspective there might beno theoretical reason why an incentive system could not be devisedfor a centrally planned economy to achieve similar, if not better,results than a market economy. After all, given the way ignorance istreated in the economics of information, the knowledge that couldpossibly be found out and is worth knowing must be, as theprevious chapter described, already known, at leastprobabilistically, by the deciding agent (in this case, the centralplanner or the designer of this economic system). There would benothing in this approach, it would seem, preventing the design of anincentive scheme that would lead to an optimal amount ofinformation-gathering. 23 Then, the relative efficiency of the twoeconomic systems, as Grossman and Stiglitz argued in a quotationabove, could be established only after determining their respectiveinformational costs, an empirical matter not answerable by puretheory.On the other hand, the type of ignorance considered by marketprocesseconomists cannot be overcome easily by a central planner.The problem is not that the planner will have no incentive to engagein activities (including information-gathering) that he knows wouldbe desirable (which may, of course, also be the case). It is that therewill be nothing (such as pecuniary profits in a market economy) tospur his entrepreneurial discovery of what the desirable activities are.In Bartley’s (1985:31) words,the problem is not only how to utilize uncommon existing dispersedknowledge, but also how to elicit implicit and not yet fathomedknowledge…Competition not only makes the best use of existingdispersed knowledge, but also generates new knowledge whichnone of the participants in the process yet possesses. [Emphasis inoriginal.] 24