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Summer 2022
ISSN 0890-913X
Volume 37, Number 2

The Discovery Role of Disequilibrium Prices

Vincent J. Miozzi, Texas Tech University
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TheJournalofPrivateEnterprise37(2),2022,29-38TheDiscoveryRoleofDisequilibriumPricesVincentJ.MiozziTexasTechUniversityAbstractBecausepricesareessentialtothemarketprocess,priceformationandadjustmenthavealwaysbeenconcernsforeconomists.AninsightthathasgainedwideacceptanceintheprofessionmostnotablysincetheemergenceoftheeconomicsofinformationandtheresurgenceoftheAustrianSchoolisthatpricesperformaninformationalfunctionbyconveyingrelativescarcities(Hayek1945).Butmostofthediscussionsurroundingpricesissetagainstthebackdropofequilibriumanalysis.Thediscoveryroleofpriceshasnotbeenstudiednearlyasmuch.Ifactualpricesarenotequilibriumprices,whatinformationdotheyconveytoactorsandwhatincentivesdotheypresent?Thesearethequestionsthispaperseekstoengage.IproposethatbothinformationeconomicsandAustrianeconomicsprovideinsightintothesequestions.Specifically,Austrianpricetheoryoffersthebestframeworktounderstandtheinformationalroleofdisequilibriumprices.JELCodes:B53,D40,D80I.IntroductionAninsightthathasgainedwideacceptanceamongeconomistsisthatpricesperformaninformationalfunctionbyconveyingrelativescarcities,apointfirstmadeexplicitbyHayekinTheUseofKnowledgeinSocietyin1945orarguablyevenearlierinPricesandProduction(McClureandThomas2019).Becauseofthisinformationalfunction,priceshelpeconomicactorscoordinatetheirdissimilarplans.Thomsen(1992)listedthethreewaysinwhichtheinformationalroleofmarketpricesisunderstoodwithintheeconomicsprofession:1.Pricesareknowledgesurrogates.Theycaninformtheactionsofindividualswithoutinformingthemofalldetails.Icallthisthesurrogateroleofprices.2.Pricesaresignals.Theycanbereadandusedtoinferortransmitinformation.Icallthisthesignalingroleofprices.3.Pricedisparitiesmayprovideprofitopportunitiesthatsparktheentrepreneurialdiscoveryofnewknowledge.Icallthisthediscoveryroleofprices.
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