Prices and knowledge: A market-process perspective

48 Prices and knowledgeas devices for the ‘reduction’ of data and widely adopted andfurther developed by statisticians. The basic idea there is to find aset of numbers which adequately summarizes a much moredetailed body of information for the purposes of a certain class ofdecisions. 26More recently, in an attempt to outline the market-process position,Loasby (1982:114–15) has described it as arguing, among otherthings, thata decentralized economy needs only to establish a set of prices.Each economic agent can then apply his own specificknowledge of resources and of technology and his ownparticular pattern of preferences to those prices: there is no needfor information about these matters to be communicated. Whatis more, as F. A.Hayek, for example, has emphasized, no oneneeds to know why the price of some particular commodity iswhatever it is. A particular material may rise in price because itssupply is becoming exhausted, because new uses have beenfound for it, or because existing uses are becoming morepopular. The cause does not matter: whatever that may be, theconsequence is that more effort should now be devoted to waysof increasing the supply, using it more effectively, or replacing itby some alternative. But in a pure market economy no one needsto be instructed to do any of these things. The increased priceprovides the only signal needed, and anyone who has theknowledge, or the particular pattern of preferences, tocontribute in any of these ways will do so. 27But, Loasby realizes, this interpretation leaves one questionunanswered: how are these prices to be arrived at? Agents in thisversion of Hayek’s story act as price takers. What is needed is a‘theory of price setting’, a theory which Loasby believes Kirznerprovides in his work on entrepreneurship (1982:115). Loasby sees thislack as a problem, in contrast to Grossman and Stiglitz, who do notseem worried about it, 28 because he is not concerned only withequilibrium states but also with the processes by which they might bearrived at.Loasby’s interpretation has been criticized by Garrison (1982).Garrison quotes from Hayek’s tin example to show that Hayek didnot envisage an economy in which nobody possessed the relevant