Prices and knowledge: A market-process perspective

Equilibrium prices and information 59entrepreneurs come to know the equilibrium value of prices and tradeat disequilibrium until this value is reached. As Mises says:The activities of the entrepreneurs or of any other actors on theeconomic scene are not guided by consideration of any such thingsas equilibrium prices…The entrepreneurs take into accountanticipated future prices not…equilibrium prices. They discoverdiscrepancies between the height of the prices of thecomplementary factors of production and the anticipated futureprices, and they are intent upon taking advantage of suchdiscrepancies.(Mises 1949:329)Neither the theorists, nor the capitalists and entrepreneurs, nor theconsumers, are in a position to form, on the ground of theirfamiliarity with present conditions, an opinion about the height ofsuch an equilibrium price. There is no need for such an opinion.What impels a man toward change and innovation is not the visionof equilibrium prices, but the anticipation of the height of the pricesof a limited number of articles as they will prevail on the date atwhich he plans to sell.(ibid.: 711)In other words, whatever degree of co-ordination is achieved in theeconomy will be an unintended consequence of the profit-seekingactivity of entrepreneurs. As Streit (1983:8) has very aptly put it,the favourable ‘performance’ of the market would be theunintended outcome of numerous decisions of the manyparticipants who traded precisely because they considered variousprices to be inappropriate and unjustified, not least in the light ofthe information available to them, and who intended to profit fromthe mistakes. The rationale for active market participation differscompletely from the observable market result. 42To illustrate the extent to which the standard interpretation of the roleof prices is compatible with the disequilibrium view of markets,Hayek’s tin example can be explained from a market-process angle.This story would start with some entrepreneur noticing (rightly orwrongly) a new opportunity for the use of tin, or the loss of one of itssources of supply. In either case he bids up the current price of tin to