Quoting ‘Thoma, Meet Hayek’ by Jonathan Finegold

Now, how important are the preconditions for perfect competition? When judging the true merits of the market, the answer is “not very.” Take the notion of perfect information, for example. The advantage of the market is not that it efficiently allocates resources if there is perfect information. The advantage of the market is in its distribution of information; that is, it’s the search and discovery features of markets that makes one facet of their superiority over rival forms of rationing. Take, for example, Ludwig von Mises’ critique of socialism.2 While Mises was looking to disprove the viability of common ownership of the means of production, he was also looking to make a positive contribution in theorizing on the process of price formation and information dissemination. The problem he faced was that there was no good theory of price imputation (i.e. derived demand and input prices).3 His answer was that there must be a competitive bidding process, based on the institution of private property, for the prices of the means of production to emerge. Only by these means can the information necessary for the relatively efficient allocation of inputs be known.

— Jonathan Finegold, “Thoma, Meet Hayek

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3 thoughts on “Quoting ‘Thoma, Meet Hayek’ by Jonathan Finegold”

  1. Dismissing the role of information equity as a prerequisite for competition has the effect of bolstering the “information does not want to be free” canard, and the successful selling of such ideas works to the advantage of proprietary data, DRM, etc. If the information really is present in the prices then there is no rational motive for cynical business practices such as data whorehousing, “big data,” etc. My own skill set is not suited to the game of poker, so my self interest (through processes you would no doubt dismiss as “public choice”) favors a “cards face up on the table” way of life.

    1. Dismissing the role of information equity as a prerequisite for competition ….

      That point is well worth considering, but it seems to have the roles of information symmetry and competition reversed. Sellers of quality goods and services have an interest in creating the necessary conditions for providing confidence to potential buyers, like by providing warranties and independent certifications, that make information about products more widespread.

      If the information really is present in the prices then there is no rational motive for cynical business practices such as data whorehousing, “big data,” etc.

      That seems like two different issues though. The fact that organized, detailed information may be valuable I don’t think has a bearing on whether or to what extent prices reflect (though not necessarily contain) abstract information like the fact that steel may or may not be in greater demand. The fact that there is asymmetric information leads firms to try to expose where entrepreneurial errors or misjudgements were made and to forecast alternatives.

  2. @n8chz, I’m more skeptical of total #transparency (i.e. not-so-good #privacy) than I am of what I might call digital equity management (an equitable version of #DRM) in the sense that #Jaron_Lanier proposes. In other words “information equity” can be at the same time a prerequisite for competition AND also be consistent with “information does not [always] want to be free,” IMO not a canard especially when said information is pursuant to your physical and intellectual #identity. I’m sure that could be worded more better but you may know what I’m saying.

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