Prices and knowledge: A market-process perspective
Prices and knowledge: A market-process perspective
Prices and knowledge: A market-process perspective
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82 <strong>Prices</strong> <strong>and</strong> <strong>knowledge</strong>maximizing agents will not achieve an (optimal) equilibrium—because they are the only ones that may fulfil this requirement. 33 Thissuggests that he may not yet have noticed some importantmodifications in the analysis of the <strong>market</strong> that his approach entails. 34What Simon would probably really want to argue is not that pricescontain all the information but, rather, that they contain only enoughto generally allow reasonable behaviour to take place successfully.This changes matters only slightly. It is true that in his vision <strong>market</strong>sachieve only <strong>market</strong>-clearing, in the sense of equating quantitiesdem<strong>and</strong>ed <strong>and</strong> supplied. But this, even if not a full equilibrium state,still requires a significant amount of co-ordination to have been,somehow, achieved between dem<strong>and</strong>ers <strong>and</strong> suppliers. Simonemphasizes only the role of prices as information ‘summaries’, <strong>and</strong>does not explain the way in which they have come to embody such<strong>knowledge</strong>. As Kirzner (1984a:415; emphasis in original) has put it,to make the assumption that <strong>market</strong>s are close to equilibrium isessentially…to beg (rather than to overcome) the Hayekianproblem of dispersed <strong>knowledge</strong>…. One does not ‘solve’ theproblem of dispersed <strong>knowledge</strong> by postulating prices that willsmoothly generate dovetailing decisions.The <strong>market</strong>-<strong>process</strong> view of the <strong>market</strong> goes beyond Simon’s. Aspointed out, in the <strong>market</strong>-<strong>process</strong> <strong>perspective</strong> the economic probleminvolves the discovery of what the facts are. Market prices arestimulators of a competitive discovery procedure, not merelysummarizers of information that economize on the limitedcomputational capacities of economic agents. The main function of<strong>market</strong> (i.e. disequilibrium) prices emphasized by <strong>market</strong>-<strong>process</strong>economists is the provision of profit opportunities to spur thediscovery of new <strong>knowledge</strong> by entrepreneurial individuals. It is notprimarily the conveyance of relatively accurate information tosatisficing price-takers.From this <strong>perspective</strong>, the main problem with central planning —both of the comprehensive type <strong>and</strong> of the type intended merely tosupplement or modify <strong>market</strong> activity—is not so much that theplanner would not be able to h<strong>and</strong>le the large number of factsrequired by the planning task (although this may also be the case). Itis rather that he will not be able to discover, <strong>and</strong> thus make use of, asmuch <strong>knowledge</strong> as the entrepreneurial competitive <strong>process</strong>:participants in a central-planning regime face no personal profit