Prices and knowledge: A market-process perspective

58 Prices and knowledgecorrespond to costs of production, and that it was this observationwhich led to the construction of a hypothetical state in which this‘tendency’ was fully realized. 39Some may interpret the observed regularities as the result of purecoincidence (an approach leaving little or no room for—or,rather, need of—a science of economics), or in terms ofequilibrium states (as many economists, at least implicitly, do).The Mises-Hayek view, on the other hand, sees them as theoutcome of a ‘co-ordinating’, entrepreneurial market process.Underlying such an interpretation is what Garrison (1982) hastermed a ‘middle-ground’ view of the world. In this view theentrepreneurial ability of agents—i.e. their ability to discoveropportunities—and the pace of change of the ‘facts’, bothexogenous and endogenous, is such that some co-ordinatingaction is possible, although not the attainment of fullequilibrium. 40 It is from such a ‘middle-ground’ view, whichimplies that prices, although not in equilibrium, are not radically‘wrong’, that the standard interpretation of the informational roleof prices is partly acceptable.In this way many of Sowell’s arguments that rely on this roleneed not be rejected, although a market-process approach willemphasize that it is not the only informational role of prices:prices are not only conveyors of information in the standardsense— imperfect conveyors, 41 in fact, given that they aredisequilibrium prices—they also contain the incentives to thecorrection of their imperfection. That is, by providing profitopportunities, they provide information about their incorrectnessand rewards for its removal. While an equilibrium economist maywant to argue that, even if prices are informationally inefficient(in the standard sense), they are still the best alternative in a worldthat is not Nirvana, to use Demsetz’s words, from a marketprocessperspective prices are not only an imperfect but ‘leastbad’ information transmission system: they are also sophisticatedinformational devices, with a feedback mechanism (profits) thatinduces their correction by entrepreneurial agents. This correctionis never fully achieved in reality, but the degree of order observedin markets is, in the market-process view, to a large extent due tothe degree of success of entrepreneurs in responding to thisfeedback.The argument above does not say that, in one way or another,