Prices and knowledge: A market-process perspective

60 Prices and knowledgetake it away from present buyers, 43 in the first case perhaps to sell it ata profit to new users (or to use it profitably himself), in the secondperhaps to resell it profitably in the (near or distant) future when thenew scarcity of tin becomes noticeable. Of course, for this (or these)entrepreneur(s) it does matter which of these two causes has made tinmore scarce. But previous buyers of tin will very probably not need toknow so many details about these causes once they face the higherprice (although, as suggested earlier, they would probably like toknow some things, such as the expected duration of the price increase,to decide what adjustments to make). Faced with the higher price, theprevious buyers may adjust in somewhat ‘Robbinsian’ fashion byadopting some previously known (but less profitable) alternative, orentrepreneurially, by discovering a previously unknown alternativethat has become profitable with the new price of tin.The economy of knowledge with which the system works is duenot so much to the fact that information is summarized in pricesbut, rather, to a division of entrepreneurial labour caused by the factthat each individual ‘disagrees’ only with a few prices while‘accepting’ all others. This happens because each individual’salertness allows him to discover only some of the many pricediscrepancies existing in a disequilibrium market, inevitablyleaving some for other entrepreneurs and, of course, someunexploited. Each entrepreneur will concentrate on exploiting theprice differences he has noticed, while accepting other pricesunquestioningly. This entrepreneurial activity may bring theexistence of a profit opportunity to the attention of some less alertentrepreneurs, whose competition will tend to whittle the profitsaway. In this way the process of adjustment takes place without any‘need for the great majority of [the users of tin] even to know wherethe more urgent need has arisen, or in favour of what other needsthey ought to husband the supply’. The essence of Hayek’sargument is preserved without having to rely on price-taking agentsreacting to mysteriously modified prices.SUMMARYThis chapter has examined some interpretations of the informationalrole of prices fairly representative of the work currently being done inthe economics of information. The main results of this examinationhave been: