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If I recall the discussion between Don and I (and you and Steve), I think it was about Don's claim that "prices contain knowledge." To this day I can't see how that is true. Prices are information that allow us to use our own particular knowledge, information that is also of course formed by our abilities to exploit our own knowledge. But to say that prices contain knowledge, or that prices must be interpreted to discover the meaning of the knowledge contained therein, all of that was puzzling to me.

Am I missing something, here? Prices communicate relative scarcities. As I said in the Berger conference, it's a fairly "low to the ground" metaphor. Indeed, I'm not sure it is a metaphor at all. Here is the relevant bit of the definition of "communicate" from Merriam-Webster's online:
2 a : to convey knowledge of or information about : make known b : to reveal by clear signs
3 : to cause to pass from one to another

Prices cause knowledge of relative scarcities to pass from one to another. Take Hayek's tin example. The persons close to the events making tin more scarce act on that knowledge and cause the price of bauxite to go up. As prices adjust throughout the system, others learn to value bauxite and its substitutes more highly, while valuing the complements to bauxite less highly. Thus, the knowledge of the increased scarcity of bauxite and its substitutes is communicated to all actors in the system.

Roger and I share the exact same notion. Prices inform us of relative scarcities (That's precisely what Pete and I say in our textbook). In fact, I was thinking of the tin example but Roger beat me to it.

There is no real issue of interpreting the "meaning embodied in" the change of tin prices. They instead assist us by communicating all what we really need to know.

Now, Steve is right (and Richard, too) that a single price must be interpreted against other relevant prices. Steve says something like a word has meaning only in the context of other words. So a single price is like a word but is read or understood only against the sentences and paragraphs of other prices. But how much does hermeneutics add to what we already know about the importance of relative prices? The tin example provides a fine story without having to dig deeply into the interpretive dimension.

I think Don went too far trying to dig for the meaning of prices -- and capital, too. I harshly criticized him in my "Lachmann's Plan, and its Lesson: Comment on Lavoie" (Advances in Austrian Economics v. 4, 1997). He lost sight of Lachmann's main concern -- coordination within the structure of capital -- and instead went off on explaining "meaning" within the structure. That is, he lost sight of Lachmann's research program.

Market prices send an incentive consistent with the market's current evaluation of relative scarcities. Since market prices can be wrong entrepreneurs "second guess" these prices to their eventual profit or loss. So the metaphor of a signal wrapped up in an incentive is pretty good.

But the signal could be wrong. As for institutional context, I am not sure what is meant. If entrepreneurs decide that a certain market price is wrong they must be deciding by reference to some knowledge other than that communicated by this price. They must use their judgment considering prices in related markets and non-price information. As Emily Chamlee Wright and others have shown there is communication of knowledge outside of the price system.

Unless we accept the view of strong efficient markets, a full theory of the transmission of knowledge and its surrogates must go beyond prices. Prices are necessary but not sufficient. May I be excused for mentioning that Jerry O'Driscoll and I said as much in The Economics of Time and Ignorance?


"...Prices inform us of relative scarcities ..."

Unless you are imbuing the word 'scarcities' with a complex meaning, this has to be incomplete.

The only prices that really inform are those that are determined on actual markets, which are at least semi-free, and which involve BOTH supply AND demand. Any single given price can be the result of a potentially unlimited number of supply/demand pairs.

Regards, Don

I will agree and disagree with the above comments.

Yes, prices simply convey relative scarcities--and valuations (the price of torn up tissue paper won't go up by much, no matter how scarce it is)--but this very SIMPLE piece of information DOES in fact also convey inarticulate knowledge as well, in a sense.

Here's how:

In country A there are two identical factories but they buy a machine from two different sellers. There is some reason to prefer Good Seller over Bad Seller, but you would have to buy from them to discern it; perhaps the machine is more efficient, or the repair is better on it. This country is socialist. The central planner never learns that Good Seller is better than Bad Seller; the prices of the products and their inputs remain fixed by the planners; life continues, but is inefficient.

In country B the same situation occurs. However, the factory that buys from Good Seller does better, it produces more, and the factory that buys from Bad Seller struggles. The price signals plays a critical role in each factory determining its costs, and leads the factory purchasing from Good Seller to underbid the other factory. This low price of the final product says "I can do it cheaper!" which tells the other factory that something it is doing is overly costly.

The underbidding allows that factory to reap greater profit (profit requires accurate prices to determine--this is a major role of the price system), and finally leads the other factory to drop Bad Seller and start buying from Good Seller, because it can see clearly that it would be a better deal.

There is a lot of interpretation going on, but it is not strictly relative scarcities being conveyed. Another major part is the *demand* which includes the demand, e.g., by these factories over the various sellers--and this, arguably, is inarticulate knowledge.

Saying prices communicate relative scarcities is not saying they are sufficient statistics. There's noise in the signal. In the right market conditions, the noise may be pretty much white noise with a low variance. Interventionism increases the variance and may skew the noise. In the extreme, you have administered prices that contain no information on relative scarcities. I'm not sure how far to push the communication idea before it stops being useful. There are lots of issues to consider in market theory, some of which raise issues of judgment, hermeneutics, tacit knowledge, market psychology, and much else besides. As far as I can tell, however, none of these considerations should make us drop the idea that prices -- okay, well let's say market prices communicate relative scarcities.


I agree. I am speaking only about freely-formed prices on the market and not about manipulated prices, etc. We say that in our textbook, too.

I also agree with Mario and Emily that prices are necessary but not sufficient sources of information. We can't have coordination within a complex order without prices, that much is certain. Prices do require judgment -- Jack High enforced that belief 25 years ago to his GMU students -- and economic calculation is, essentially, the formation of judgment and expectations. I wrote something to that effect years ago in a long-lost brief piece in the old Market Process newsletter, I think. My problem then is that I was writing it in a "Gadamerian" perspective.

By my saying that prices convey information about all what we really need to know, I was being too brief, and misleading. I meant it in terms of the information relevant to economic calculation. With this information, of course, the calculator must develop "correct" expectations, much of which will be formed by inarticulate judgments of his networks, the relevant markets for inputs and outputs, and even the overall trend of the market.

My concern, as expressed above, was whether hermeneutics sheds light on our theory of market coordination and economic calculation. (Someone may ask me then what's the use of hermeneutics at all?)

Oh, now I recall Lavoie's statement: prices convey inarticulate knowledge that the entrepreneur must interpret and unearth their meaning. I disagree. I see prices as assisting each of us to use our inarticulate (and articulate) knowledge, but not conveying or communicating that knowledge.

Prices only "contain" information for people who can read them -- mostly economists. For everyone else, prices merely coordinate action -- via incentives -- to account for relative scarcities. Thus, an economy behaves *as though* it is a decentralised economist who can read price changes and take appropriate action, (e.g. consider the phrase "the market decided" or "the invisible hand").

Because economists are fluent in the language of prices, they understand the discoordination that price controls entail. For everyone else, prices are an obstalce or inconvenience; they no more understand how their actions contribute toward economic coordination than a neuron is aware of its role in the emergence of a human mind. Thus, problematic prices are often the target of price controls, because when you don't understand what prices mean, forcing the price to say something more pleasing seems like a good solution.

Unfortunately, this is like killing the messenger for bringing bad news and then pretending he never existed; it's like denying your sensory perceptions because they inform you of something that you'd rather not be true. As the government further politicises the economy, these fantasies are being entertained to an ever greater extent, and the economy is losing touch with reality.

It is precisely because prices do not communicate to enough people (because they don't know how to read them), that so many stupid economic policies are so popular.

As I said at the Berger conference and as I say in my SDAE presidential address, the best way to put this is that "prices are knowledge surrogates."

Dave is right. They do not "contain" knowledge. They do not, themselves, communicate knowledge other than relative scarcities. The information about relative scarcities that they communicate serves as a surrogate for all kinds of knowledge that led up to the decisions to buy and sell (or not) that caused the price to be what it is. But prices do not "contain" or "convey" the knowledge that they are surrogates for.

And, as knowledge surrogates, they also provide incentives to behave in coordination-enhancing ways.

Price is the variance/mean when measuring inventory size for a specific good.

Let's to back to Wittgestein.

The words "knowledge", "signals", "information", etc. have different uses.

Any use of a word _must_ get its leverage from a shared public application of that use -- we then use those publicly shared uses to talk about stuff that is private or subjective to ourselves.

This isn't an easy trick -- if you are bringing a public use of a word to do work to indicate something that is subjective, you are necessarily only bringing that word to do a portion of the work which it does in the public application. You are doing something like what we do when we use a metaphor.

But a fresh metaphor doesn't read itself, and it can have all sorts of different degrees of of significance, in various different dimensions of meaning.

Normally, when we use the words "information", "signal", "knowledge", etc. we are using these words to indicated a commonly shared public thing -- a STOP sign is a signal to all of us in a publicly shared way.

One of Kirzner's big points is that price signals are NOT like this. The significance of the changing constellation of prices is different for each individual within the context of their private or subjective understanding of their unique understanding of local conditions and their place within the larger structure of price relations and quantity relations and production possibilities.

Austrians tend to get this distinction (I'm not sure that Tyler does) -- and mainstream math econ _excludes_ this sort of understanding by assumption, and assumption which begins to control the imagination of budding economists as they approach getting their Ph.D. Most of those who do have Ph.D. has simply lost the ability to imagine this distinction, as far as I can tell.

Why can't math capture the public signal vs Kirznerian subjective "signal" distinction? -- Because math IS paradigmatically a public domain, that's what public mathematical proof is all about.

Dear all,
People who can read in spanish could be interested in the following article: "Las Sutiles Dimensiones del Sistema de Precios" in page 17 of the Fundacion Hayek newsletter:


Not to stir a pot, but there are those who explicitly deny the communicative role of prices (Hulsmann and Kinsella). And there are those who insist that these points have not been addressed.

This second claim seems unwarranted given that the literature Pete reviews in this post predates the arguments of the communico-deniers, but is not necessarily addressed by them. Regardless of why these perspectives are not engaged, I would merely point out to the motivated readers who insist upon understanding these perspectives in relation to one another to start here.

There are two levels of "analysis" and two points of view for looking at this.

1) the global causal / explanatory perspective


2) the level of individual decision making

Note well that Hayek is concerned with creating insight and understanding for those who have something yet to understand at the level of #1 the global causal / explanatory perspective.

Where looking at things from "on top", looking at the whole system functioning, the way we might look at a signaling system using flags or smoke signals from one post to another to another.

We are not looking at the system from inside the private world of the individual decider.

It looks to me like Dave is going "under the hood" of the individual decider, and trying to use the talk of price signals and communication at that individual level, where Hayek used it a completely different context, as part of explicating the functioning of a complex global system to someone without understanding.

Hayek's language of "communication" allow access to a previously unimagined domain of understanding for those who don't understand how the price system created undesigned order.

Dave wants to do something else, which is fine. But lets recognize it as not what Hayek is doing.

Dave writes:

"Oh, now I recall Lavoie's statement: prices convey inarticulate knowledge that the entrepreneur must interpret and unearth their meaning. I disagree. I see prices as assisting each of us to use our inarticulate (and articulate) knowledge, but not conveying or communicating that knowledge."

Economists shouldn't be too hard on themselves when it comes to making sense of what goes on in the head or the brain with "signaling" systems -- no one in academia or science has come up with a good and universally accepted account of this sort of thing even for everyday symbols and everyday language.

Read the literature -- it's all over the map, internally incoherent, full of puzzles and scientistic pathologies, and there are dozens of rival approaches.

A real mess -- and many of the pathological approaches offer large professional opportunities for those who buy all-in on the pathology, and which to work on the little puzzles created by the pathologies.

Dan - Could you point me in the right direction re communico-deniers? I didn't know Kinsella had written anything on this topic (thought he just covered IP, rights etc.)


Some have claimed on this blog that Hulsmann's critique of knowledge has not been responded to:

Not sure if Kinsella has published on this other than blogs.

Here's a relevant blog post by Kinsella that includes links to a number of similar criticisms:

I'm not Dan, but, here is Kinsella's view from the Mises blog...

I don't think he really disagrees I think he just doesn't understand the argument very well.

As Greg points out the argument works from the viewpoint of the grand central planner. I think this is the difficulty some have.

Let's say I own a business making foozles. I decide to separate it into three, I appoint a manager to each and have them each produce a profit-and-loss account separately. Sections A and B are the sole source of several subsitutable parts needed by section C. Now, to me the prices section A and B charge section C are related to relative scarcity.

Now, the problem is the "manager"/"entrepreneur" issue. Hayek doesn't use the word "entrepreneur" in "The Uses of Knowledge in Society" he uses "manager".

To the manager in section C who knows he must make 1000 foozles starting tomorrow the prices from A, B and from the market help him in planning the lowest cost product.

However, they do not help me the owner in the same way. I must still decide if it's worthwhile making foozles, if they will be profitable when sold. Or if the assets of section A, B or C should be sold or used for something else.

Suppose that section A and section B make specialist bolts that are used by section C. The making of the bolts involves a great integration of labour and capital bought from elsewhere. In that case my scheme to separate my company into three may work reasonably. Section C can pick for each product it needs the best of either A or B or the market. In this case prices will act as surrogates for the market appraisal of scarcity.

Suppose alernatively that sections A and B both control mines that produce foozilium. These are the only foozilium mines in the world. Both have similar production costs, the foozilium deposits though are scarce. In this case the prices that the managers of A and B give cannot really represent a market valuation. Spliting the company up will not work, some other plan of valuing the foozilium deposits on the basis of expected demand for foozles, time-preference of me the owner and so on.

If, as Dave says in another blog, it is all about spontaneous orders, aren't prices rules? If Price A then B; If price A1 then B1....

"If, as Dave says in another blog, it is all about spontaneous orders, aren't prices rules? If Price A then B; If price A1 then B1...."

I don't think so, I don't think it's that sort of spontaneous order.

I second Roger here. A lot of the hub-bub objecting to the notion that prices communicate information arises from confusing "communicates" with "are meant to communicate." When my face turns bright red it communicates that I am angry (in certain circumstances), even though I don't intend it to communicate that -- indeed, I didn't intend it to turn red at all. This is an ancient use of 'sign' -- in fact, semiotics first developed around the study of medical symptoms as "communicating" to the physician what was wrong with the patient. It should be obvious that prices communicate in this sense.

I'll take Steve and the rest of the GMU mafiya seriously on this issue when they address Huelsmanns 1996 paper on this issue. (BTW, Kinsella has an article on this in a 2000 issue of the QJAE, I can't remember which but it's on the Mises Institute website.). I'll further note with amusement the utter inability of the various commenters here to answer Petes simple question. (Gene Calahans comment is noteworthy for it's utter irrelevance.)

Prices convey nothing because they hold nothing. What free prices arising in a free economy do is to give one cause to think. Is it a supply thing or a demand thing? Will it last? Can I find a suitably priced substitute?

Price changes provide both threat and opportunity and provoke those agents commercially positioned to find out an incentive to do so. Agents who, but for being embedded in a market process with a history of successful co-ordination, would not be suited or sited to making an informed guess which future input and output prices will test and, if correct, reward.

On the Mises website they have just posted David Gordon's review of George Reisman's "Capitalism":

I think it's very relevant to this debate.

Why do we insist on being "deep" about things that are simple? Please go back to Hayek's tin example. When, say, a tin mine collapses only a few know about it. But the knowledge that we need to be more sparing in our use of tin is conveyed throughout the system by prices. In one sense, of course, Hayek's insight is "deep." It took a real smart guy to think it up. In another sense, however, it is simple to the point of banality. Once Hayek laid it out for us, you could hardly miss the point: Prices convey relative scarcities from one to another. It's not even a metaphor or analogy. It's literally true! Now all sorts of other things might be said about the process, and we mustn't forget there's noise in the signal, and the future will bring new things, and so on. Yes, yes, a thousand times yes. But prices -- market prices that is -- still convey knowledge of relative scarcities, literally.

Its amusing that Roger Koppl has twice appealed to Hayeks famous tin example here; both Huelsmann and Kinsella note how truly backward that example is, a reversal of cause and effect.

Apparently, the following is the gist of Hulsman's argument on prices conveying information or knowledge:

"[T]in does not become scarcer and then this fact can come to be known to someone and lead to adaptations. Rather it is the other way around. The very fact that demand increases means that someone already knows of a more value-productive employment of tin"

I got that here:

Of course. "Convey" and "communicate" mean you've got something that is then delivered from one person or place to another. The phone lines convey our voices from one place to another. No one thinks saying so is saying the lines themselves generate the words! Yes, "someone" must "already" know tin has grown more scarce. Hayek is perfectly clear about that in his example. I said prices convey knowledge of relative scarcities from one to another. Hulsman's "someone" is the one whose knowledge prices convey. His critique in attacks a straw man.

Roger, Purple thing...

Those who criticise Hayek here do have something of a point. Read my previous post. It's like all good controversy, there is a little truth with both sides.

I don't know if Hulsmann understands the argument. I don't think that Kinsella does either.

But, both have a point. Think about the Tin mine owners. They own assets that are useless for consumption. The value of the deposits they own the mine owners attempt to impute. However, what concerns them isn't present scarcity, but rather expectations of the future. They must estimate how the prices will unfold over time.

Now, if there is a disruption like a cave-in then prices transmit the deletrious effect of that. But they don't purely represent scarcity. Rather they move up and down in a way that's related to it in the short run (I think Hayek actually says something like that).

I'm not entirely sure that "scarcity" is a thing. I think that really it's a sort of process, or an element of a process.


"Now, if there is a disruption like a cave-in then prices transmit the deletrious effect of that." That's all we're saying. What do prices "transmit" in this case? Why, knowledge of the increased scarcity of tin. That's all we're saying. It's simple.

As I said earlier, we're not saying prices are sufficient statistics. We know there's noise in the signal. And so on. I mentioned that we're pointed to the future. But if prices conveyed no knowledge of relative scarcities, they would not help business decision makers. Instead, market prices do convey enough knowledge of relative scarcities to be used by business planners and for market systems to outperform central planning. IMHO, Hayek's neoclassical admirers and his Mises-Institute critics both give Hayek's humble insight a meaning inconsistent with what Hayek plainly said.

I'm surprised the ueber-subjectivists here haven't called out Roger Koppl for associating economic scarcity with physical scarcity. If the price of tin rises, it's because the owners of that tin will only part with it at higher prices than previously; it's irrelevant whether some physical calamity beset the tin mines. The only relevant scarcity is in terms of the preferences of tin owners against other goods, and that's what prices convey; has everyone here forgotten that prices are exchange ratios?

"it's irrelevant whether some physical calamity beset the tin mines. "
Such a calamity won't influence subjective valuations, Purple thing? You really want to go there? It's a way to go, I suppose . . .

Of course I am not equating economic with "physical scarcity" (whatever that is) and nothing I've said on this thread suggests otherwise. But subjective values do depend on things like whether a tin mine has collapsed. Are you challenging that notion, Purple thing?

Roger Koppl is missing the point. There doesn't have to be any kind of physical calamity to effect a price change, or any other kind of event whose occurrence needs to be conveyed through prices.

On this last point the purple one is entirely right.

I'm an engineer, suppose that I tell tin mine owners that "I may have found a new use for tin that will vastly increase the demand". If that happens I may cause the mine owners to produce less in consequence of the possibility of future demand (or I may not). That doesn't involve any current "scarcity" of the normal sort, it is speculation.

So, although prices may respond to current scarcity they are not built up from it.

What the mine owners look at is their subjective picture of what future prices will be like.

Really this problem is caused by the ambiguity of the word "scarcity". When we use it in everyday like we normally use it in a context to mean "scarcity for our current purpose". But that sort of thing is problematic over anything but the short run.

What Hayek was doing here was point to the nub of the walrasian view that is true. We should forget the rest that isn't.

To say prices provide information about relative scarcities is to say that prices tell us that humans have changed their appraisals of the current situation and projected future. Their appraisals can change for many reasons, one of them being a change in the quantity of a good available (e.g., the mine collapse). Another can be they simply have a different perception of the future (Mises's thymology stuff). Whatever the reason, it is the human mind's revaluation/reappraisement that triggers the actions that in turn change prices.

Hence, prices serve as knowledge surrogates for whatever the reasons are that the subjective evaluation has changed. This is where Mises and Hayek dovetail. What Hayek was saying in 1945 was completely consistent with what Mises was writing during the 1940s as well.

So, Lord B, you are not subjective enough either. You say there's no "event" that needs to be conveyed through prices. You are assuming that "event" does not include "a change in some actor's evaluation of the future." Such a change is surely an "event" and price changes indeed serve as surrogates for knowledge of that event.

I suppose Steve shows one way to treat the situation. Though I think equating scarcity with appraisals of future trends is difficult.

I must say I disagree with the idea that Mises and Hayeks views differ taken from "The Uses of Knowledge in Society". He says different things in other places.

"Roger Koppl is missing the point. There doesn't have to be any kind of physical calamity to effect a price change,"

Um, perhaps we should review. The issue is whether prices "convey" or "communicate" knowledge. I used the collapse of a tine mine as an example and said the resulting increase in scarcity would be communicated from those with direct knowledge of the event to others through the action of the price system. Again, this is an example to illustrate the general claim. Now, Purple thing chides me for thinking that "a physical calamity" is necessary to "effect a price change." She chides me for thinking the example is the general rule. I think it's fair to say she in reading in. Or, as the great Al Franken might once have said, "Oy, oy, oy!"


I think you are onto some real issues that are worthy of discussion in the general context of price theory. I just don't think the issues you're raising matter for the humble proposition that prices communicate relative scarcities. If we think prices must be general equilibrium prices or otherwise "correct" in order to communicate relative scarcities, then we'd have to give up the proposition. The price system is imperfect. But we don't say that noise in the system implies telegraph signals do not communicate messages. There are reasons prices might deviate from their "correct" values no matter however you define "correct." But they do a good enough job that we rely on them. That's all we need for the claim to hold up, I think.

There seems to be a related issue in your mind, current, that I believe is also a side issue not touching on the question of whether prices communicate relative scarcities. You question whether we should equate scarcity with appraisals of the future. By "scarcity" we usually refer to those appraisals, which are implicit present values in most cases. You could just stop there and say it's all "subjective." It is reasonable to ask, however, whether such appraisals tend to disappoint us or not and whether they are reliable enough to produce a rough and ready coordination of actions in a market system of specialization and exchange. I imagine that we agree that they do, by and large, in an "unhampered" market system.

Roger, I mostly agree with what you have said.

But, I still think there are some problems that folks are not perhaps taking seriously enough. What's at the back of my mind here is Mises' argument against Socialism.

Let's go back to the tin example. Tin ore is worthless as a consumer good. It's use is in production of tin, which is also mostly useless as a consumer good. That tin in then used in consumer goods.

In the long run it is the relative prices that consumers give to consumer goods that determines the demand for tin. This then passes on to the demand for the ore. The mine producers attempt to estimate the future path of ore prices and costs, they issue their supply on the basis of that. This long run process is in the opposite direction as Hayek's argument from consumers to mine owners, not vice versa.

This doesn't make Hayek's argument wrong. But it does show that it's a short term sort of argument. It's about the short term adjustments managers can make to control their costs. In doing so they are utilizing dispersed knowledge that has already been spread in other ways.

The problem with "scarcity" and "appraisal" is that both words are used in common language to denote local situations. But we end up using them sometimes to describe an extended-order.

One of the most impressive things about the market is that the owner of a mine is able to sensibly appraise his property. He can do this even though the real scarcity he is responding to is in products being used far away. The subjective appraisal the owner makes is on the price of a product which is only scarce to the wider economy. Yet the wider economy can transmit this down to him.

Some day I might write a paper on this to make it more clear what I mean.

I think you're misconstruing Hayek, current. I think you've fallen into the same trap that snared Purple thing: You're taking the example to be the universal case. Prices convey knowledge (of preferred and not preferred) from consumers to producers. They also convey supply-side knowledge from producers to consumers. Your point that it's real important how there is the flow upstream is completely right, but not in contradiction to the letter or spirit of Hayek's writings.

Roger, I know what you mean. Certainly prices convey knowledge in both directions.

But, a person who is calculating the net-present value of an asset isn't really doing the same thing that Hayek describes in his paper. Hayek describes people varying the inputs into processes in order to find the lowest cost. I don't think this is the same process in the opposite direction, I think the two processes are significantly different.

"Certainly prices convey knowledge in both directions."

Looks like we're pretty much on the same page.

"But, a person who is calculating the net-present value of an asset isn't really doing the same thing that Hayek describes in his paper."

Now were getting beyond the fundamentals I've been trying to emphasize. When I said "implicit present values" I was packing more into the word "implicit" than you might have suspected. That probably matters here, although it's hard to say.

Have you written somewhere what you mean by "implicit present value"?

Thanks for that inquiry, Current. I don't think I have, at least not anything much. The point is just that prices tend to move to present values. That's clear in the case of financial assets. It's more or less true of houses, too. The price of a house should move to equality with the NPV of the rental stream it could generate. I pick my example advisedly. You see right off that there are complications. Speculation, uncertainty about rents, taxes. An owner-occupant can capture to the value of certain improvements that might be hard for either renter or landlord to capture if they are separate persons. And so on. Still there is something like an implicit PV calculation embedded in the price of a house, without which Case & Shiller and others could not have called the bubble. It's pretty much the same with other goods such as couches, due account being taken of the costs of, say, renting furniture and so on. It's not until you get to, like, an ice cream cone that the present value aspect just fades out of the picture completely. That's really all I was getting at.

Ok, I know what you mean. And the present value calculations that people use are not necessarily rigourous, they are evolved heuristics.

So it seems to me, Current. Love that phrase, "evolved heuristics."

C'mon Steve, are you going to let Roger Koppl get away with this rubbish about prices approaching (present) values?

Purple light emitter...

What are you objecting to?

Current, the idea that cardinal prices "move" towards ordinal values is in pretty serious conflict with Mises' (and Rothbards) value theory. Although, as Steve has helpfully reminded us during the ME debate, Mises could be very inconsistent at times.

Well, yes, but I don't see what this has to do with the current discussion (or with the monetary equilibrium discussion for that matter).

Professor Boettke,

Thank for posting those three "P's" and three "I's". I got my bachelor's degree in econ in a very Austrian department, California State University at Northridge, and while my whole world view was fundamentally altered as I was taught the notion that price are signals, I could not communicate it very well to those who were not students or professors of economics.

Whether debating or explaining to someone with no back ground in econ, it is difficult to make a brief but also persuasive argument for free markets, from any theoretical point of view (empirical arguments can only go so far because all societies have some mix and of socialist and capitalist features, not to mention the fact that a hostile audience will try to conflate market capitalism with things like state capitalism, militarism and racism).

In my senior year I read about your three "S's" The battle between Smithian trade and Schumpeterian destruction versus the forces of Government Stupidity. Now the triple "P" and triple "I" I can really make powerful but very concise arguments to those who no exposure to even first principals.

Thank you for being very helpful in my on going efforts to become someone who can communicate economic ideas to all types of people.

Here is my attempt to understand how prices allow markets to use information that no one actor in the market has at his or her disposal:


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