Prices and knowledge: A market-process perspective

56 Prices and knowledgereached in reality.) How could market-process economists thenaccept also this informational role of prices? 37 To answer thisquestion, another one has to be answered first, namely: given that thestandard informational role of prices is based on price-taking agents,to what extent can a market-process view accept this notion it hasgenerally considered inadequate for analysing markets? An analogypresented by Lavoie is useful for answering this question. Accordingto Lavoie (1985b:83–4; emphasis added),market participants are not and could not be price takers any morethan scientists could be theory takers. In both cases a background ofunquestioned prices or theories is relied upon subsidiarily by theentrepreneur or scientist, but the focus of the activity is ondisagreeing with certain market prices or scientific theories.Entrepreneurs (or scientists) actively disagree with existing prices(or theories) and commit themselves to their own projects (or ideas)by bidding prices up or down (or by criticizing or elaboratingexisting theories).Say that an entrepreneur were to notice that a sum of resource costs issuch as to allow him a profit, given his expected price for the finalgood and that getting ready for its production requires some time. Toundertake such a project he would have to believe that those prices arerelatively correct—they would have to be, in Lavoie’s terminology, his‘unquestioned’ prices.If, on the contrary, the entrepreneur knew, for example, that one ofthe resources was mistakenly underpriced in the particular market hewas examining, and that at the price for that resource prevailingelsewhere (or in the future) his project would not be profitable, thefollowing could happen. (1) The entrepreneur would not start hislengthy project (which would be likely to turn out to be unprofitableby the time he was ready to start, because other entrepreneurs wouldperhaps engage in arbitrage activities that would increase the price ofhis resource). (2) He would engage in arbitrage activities with thatresource. 38 By implication, then, if he does start with his project it isbecause he believes the observed prices are quite reliable. If asked,he would most likely not claim that the prices are equilibrium pricesbut, rather, only that he can ‘see nothing wrong with them’, that heknows of no more convenient prices.As Lavoie’s analogy indicates, a scientist will rely on innumerabletheories in his research. If asked, the scientist would surely not feel