In one way it does. Consider the price of a cup of coffee.
Notionally this can be written in a couple of digits---80 pence, say---which
would imply that on information theoretic grounds it transmits about
7 bits of information. But look more closely, and this is almost
certainly an overestimate. Not only is the price likely to be rounded
up to the nearest 5 pence, implying an information content of about 5
bits, but yesterday's price was probably the same. If the price
changes only once a year, then for 364 days the only information
that it conveys is that the price has not changed. The information
content of this,
So it is almost certainly true that most of the information in a price
series is encoded in the price changes. From the standpoint of
someone observing and reacting to prices, the changes are all
important. But this is a viewpoint internal to the dynamics of the
market system. One has to ask if the information thus conveyed has
a more general import. The price changes
experienced by a firm in a market economy can arise from
many different causes, but we have to consider which of these
represent information that is independent of the social form of
production.
We can divide the changes into those that are direct results of
events external to the price system, and those which are internal to
the system. The discovery of new oil reserves or an increase in the birth rate
would directly impinge upon the price of oil or of baby clothes. These
represent changes in the needs or production capabilities of society,
and any system of economic regulation should have means
of responding to them. On the other side, we must count a fall in
the price of acrylic feedstocks and a fall in the price of acrylic
sweaters, among the second- and third-order internally generated
changes consequent upon a fall in oil prices. In the same category
would go the rise in house prices that follows an expansion of
credit, any fluctuation in share prices, or the general fall in prices
that marks the onset of a recession. These are all changes
generated by the internal dynamics of a market system, and as such
irrelevant to the consideration of non-market economies.
Hayek is of course right that the planning problem is greatly simplified if there
are no changes, but it does not follow from this that all the changes
of a market economy are potential problems for a planned one.
We have demonstrated elsewhere that the problem of computing
the appropriate intensities of operation of all production processes,
given a fully disagregated input--output matrix and a target final output
vector, is well within the capacity of computer technology. The
compute time required is sufficiently short for a planning authority,
should it so wish, to be able to perform the operation on a daily
basis. In performing this calculation the planners arrive at the
various scales of production that the market economy would
operate at were it able to attain general equilibrium. Faced with an
exogenous change, the planners can compute the new equilibrium
position and issue directives to production units to move directly to
it. This direct move will involve the physical movement of goods,
laying of foundations, fitting out of buildings etc, and will therefore
take some considerable time.
We now have two times, the time of <#732#>calculation<#732#> and the time
of <#733#>physical adjustment<#733#>. If we assume that the calculation is
performed with an iterative algorithm, we find that in practice it will
converge acceptably within a dozen iterations. Since each of these
iterations would take a few minutes on a supercomputer the overall
time would probably be under an hour. In a market economy, even
making the most favourable assumptions about its ability to adjust
stably to equilibrium, the individual iterations will take a time
proportional to the physical adjustment time. The overall relaxation
period would be around a dozen times as long as that in the planned
system.
But of course these assumptions are unrealistically favourable to
the market system. Long before equilibrium was reached, new
external shocks would have occurred. Even the assumption that the system
seeks equilibrium is questionable. There is every reason to believe
that far from having stable dynamics, it is liable to oscillatory or
chaotic behaviours.
Hayek is to be commended on his ability to make the best of a bad
case, to make virtues out of necessities. The unavoidable
instabilities of the market are disguised as blessings. The very
crudity of prices as an information mechanism are seen as
providentially protecting people from information overload.