Prices and knowledge: A market-process perspective

54 Prices and knowledgeknowledge standard in the form of an at least highly informedgovernment when he concludes that welfare improvements can inmany cases be achieved through appropriate combinations of taxes,subsidies, and centralization of decision-making (1987:14).At a later point, when in a comparison of government planningand market allocation he assumes that the government may haveno more information than private individuals, Stiglitz does notargue why even this should be an acceptable assumption. Evenfrom a perspective of costly information, it may turn out to beeconomically impossible to put in a government’s hands as muchinformation as exists in a decentralized form in a marketeconomy. The assumption becomes even less acceptable for amarket-process perspective: Stiglitz does not specify forgovernment any mechanism that will replace the discoveryprocedure provided by prices and competition to individuals in amarket economy.The ambiguities regarding which standard to use persist over allGrossman and Stiglitz’s work, as in much of the literature on theeconomics of information. These ambiguities become particularlynoticeable when, on the one hand, Grossman (1981:555; emphasisadded), in his description of Hayek’s argument, says, ‘a plannerwithout all of that information could not have done as well’, and, onthe other, Grossman and Stiglitz (1976:252; emphasis added), afterarguing about the informational inefficiency of prices, conclude that‘in this case a central planner with all the information can improve onthe competitive equilibrium’. 33Of course, most of these comments can be made from anequilibrium, somewhat Demsetzian, perspective that still acceptssome variant of Pareto efficiency as its norm. As the previous chapterstated, a disequilibrium, market-process approach will adopt adifferent normative standard. Streit (1984:394) seems to have it inmind when he says:As in other cases of socially useful competition, inefficiency from astatic point of view can be the source of dynamic efficiency. Andfrom this perspective of discovery and adaptation, the basicallystatic verdict of Pareto non-optimality carries little weight if any. 34From this perspective, the hope expressed by Rothschild (1973: 1304)that the economic profession will start ‘to develop standards ofefficiency and equity and to begin to ask what sorts of institutional