Prices and knowledge: A market-process perspective

‘Bounded rationality’ and the price system 83opportunities to encourage their discovery of new, previouslyunknown alternatives as alert entrepreneurs spurred by market profitsdo. 35The market-process position does not claim that full co-ordinationof individual plans actually ever occurs. Austrian economists arguethat market activity is better understood as a (disequilibrium) processof discovery and constant change rather than as a state of perfectadjustment. On the other hand, Simon sometimes seems to hold arather static view in which markets achieve a loose (satisficing?)equilibrium in which they generally clear without reachingoptimality. This difference appears to stem from the dissimilar viewsheld of ignorance and discovery, and from the difference betweeninterpreting prices as only ‘information-saving’ devices andinterpreting them as also part of an entrepreneurial discoveryprocedure. It also stems from the fact that market-process economistshave used their views to develop a fuller theory of markets thanSimon yet has.MARKET-PROCESS ECONOMISTS AND COMPLEXITYFor Simon the main barrier preventing individuals from achievingomniscience is the excessively large number of facts they have tohandle with their limited information-processing capacities. From themarket-process point of view, complexity only increases thelikelihood that useful knowledge will go unperceived, thus makingentrepreneurial abilities even more necessary than under hypotheticalsimple situations. This entrepreneurial perspective provides a subtlerelaboration of the problems posed by complexity. But this elaborationwas not perfectly clear to Austrian economists from the verybeginning.From Mises’s first writings, through the socialist calculationdebate, and till the present day, Austrians have been experiencing animproved understanding of their own views of the market process. Intheir initial writings they were not wholly aware of the exact natureof the knowledge problem faced by a central planner, aside fromnoticing that improving on the results of a market economy seemedtoo complex for any human being. It was mostly in response to theircritics that they became more aware of the cognitive role of prices, ofcompetition as a discovery procedure, and of the crucial role ofentrepreneurship in a market economy, thus producing the theoretical