Prices and knowledge: A market-process perspective

‘Bounded rationality’ and the price system 81entrepreneurial perspective. Furthermore, the conception of themarket of market-process economists certainly includes thepossibility of adopting these, and many other, alternativearrangements.But a bounded-rationality approach might not see any theoreticalreason for, say, Hayek’s refusal to rely on government to improve onthe result of the operation of the market, as long as the task assignedto the planner does not become overwhelming for his computationalcapacities. An emphasis on bounded rationality does not suggest thatgovernment planning is unlikely to be as effective as the marketprocess: it only reminds the system designer that he should not placeon a ‘planning mechanism a burden of calculation that such amechanism, however well buttressed by the largest computers, couldnot sustain’ (Simon 1981:41). It has also been taken to imply that astechnological progress continues expanding man’s computationalcapacities the possibility of successful central planning becomesgreater (although, as indicated before, it is not clear that thisconclusion follows). This point has been made by Loasby (1985:12):what prevents [Simon] from the advocacy of any kind of system ofcentral planning is his continuing conviction that all our technicaladvances still leave far too much beyond the bounds of ourrationality for that to be a sensible way of organizing our affairs.Therefore, there would not necessarily be an inconsistency weresomeone to emphasize bounded rationality, and to adoptsimultaneously a quite standard argument for governmentintervention as a remedy for externalities and certain types ofuncertainty. The central planner, from Simon’s perspective, is ignorantonly in the sense that, because of the complexity of the problem hefaces, he cannot take some facts into account at all. But given a simplertask, such as smaller interventions in a market economy, most of hisknowledge problem would presumably vanish, enabling the plannerto make a beneficial contribution. 32 (Of course, it can still be arguedthat any intervention in the market, because of its secondary effects onthe economy, is too complex for a planner to carry out optimally. Thebounded-rationality theorist could reply to this that the planner wouldalso have to be a satisficer.)It is also of interest that, for Simon to be correct in saying thatprices convey all the necessary information, he must still be thinkingof equilibrium prices—in spite of his recognition that non-