[OPE-L:2159] Re: Markets and Information

["Duncan K. Foley" <foleyd@xxxxxxxxxxxxxxxxxx>]

I'm retitling this thread in replying to Paul's discussion of information
theory and the feasibility of socialism.

>From my reading of Hayek, I think Paul's points, though they are an
accurate summary of certain results in information theory, don't come to
grips with Hayek's idea of what markets do.

In Hayek's view a society producing with a complex division of labor faces
the problem that the information necessary to operate production is
dispersed among many different people. He views the market as a device that
does two things:

1. It induces people to reveal at least some of this information, which he
thinks they otherwise would be reluctant or unwilling to do. The market
willy-nilly forces people to take positions (or risks) that reveal some of
their information. (Hayek doesn't seem to view this as particularly benign
or voluntary from the point of view of individuals, by the way.)

2. The market roughly integrates these disparate pieces of information and
thus makes social production possible. (Hayek, incidentally, is quite
critical of neoclassical economics for exaggerating the degree to which
markets can achieve an "optimal" allocation of resources.)

Now, it's obvious from a Marxist perspective that even if these are some of
the functions of markets, they aren't the whole story: markets also
reproduce social relations like class, and inequality, possibly as a
necessary side-effect of these informational functions. But the point is
not, as Paul's version of information theory has it, just the difficulty of
collecting and processing "messages", but the social necessity of getting
people to generate them.

This raises the question of how socialism will either make this issue
irrelevant or provide alternative institutions to resolve it.

Duncan


Duncan K. Foley
Department of Economics
Graduate Faculty
New School University
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