Prices and knowledge: A market-process perspective

‘Bounded rationality’ and the price system 89an army, it would refer to the mutual compatibility of the individualactions for the achievement of the superior’s ends. Were thisorganization to grow in the number of its members or in thediversity of its tasks, the planner might reach a point in which hewas overwhelmed by the complexity of achieving such coordination.Consequently, some individuals could receivecontradictory orders, others would perhaps realize that they couldnot comply with their orders because the prerequisite tasks had notbeen carried out, 42 some individuals would get in each other’s way,and so on. But as long as this is not the case, a large measure ofsuccessful co-ordination, one of the characteristics of an efficientarmy, will be possible.The notion of co-ordination of knowledge is somewhat subtler. Anexample provided by Kirzner may serve to illustrate it. Say that amutually beneficial exchange opportunity between individuals A andB exists, but is not exploited because they are not aware of it. In thisexample,by A’s not buying B’s apples, and by B’s not selling them to A, eachparty is, because of ignorance of the other’s ‘existence,’ acting as ifthe other did not in fact exist. A knows his own taste and assets; Bknows his. But because the bits of knowledge are not coordinated,the actions taken by A and B are uncoordinated.(Kirzner 1973:216; emphasis added)In this case, lack of co-ordination of knowledge is the cause of discoordinationof actions. How can this be solved? According to Kirzner,the rule is simple and obvious: coordination of information ensurescoordination of action. As soon as a single mind becomes aware ofthe situations and attitudes of two separate individuals betweenwhom exist the conditions for mutually beneficial exchange, so thathe perceives the opportunity so presented—as soon, that is, as thepreviously isolated pieces of information have become coordinatedin the mind of a single human being—we are assured of action tocoordinate the decisions, plans, and actions of the individualsconcerned.(ibid.: 219)In the example above, as soon as either A or B becomes aware of theother’s tastes, or as soon as a third individual becomes aware of A’s