Markets and Prices Allow Us To Use Knowledge We Don't Have
Another semester is upon us, and in my principles of macroeconomics class at Samford we spent the first week reading Frederic Bastiat’s What is Seen and What is Not Seen and Leonard Read’s I, Pencil. In class yesterday we considered a fundamentally Hayekian upon reading “I, Pencil:” markets and prices allow us to use knowledge we don’t have.
Specialization, division of labor, and division of knowledge allow us to harness and deploy others’ knowledge for our own purposes. I don’t know how to build a diesel engine, but as I’m writing this I’m harnessing others’ knowledge in order to prepare a cup of coffee. I don’t know how petroleum becomes the specific kind of plastic that makes up the K-Cup I’m brewing, but I’m able to harness others’ knowledge of chemical engineering in order to accomplish my own goals.
Every good we buy and every price we pay embodies knowledge and expectations that are not our own but that nonetheless appear to us in intelligible form: goods and services have physical, temporal, and spatial characteristics, and prices are pretty straightforward (“you can have this iProduct and all it entails for just a few hundred dollars”). If you want to get spiritual or cosmic about it, this means that we are linked across time and space not only by our common humanity, but also by our every action. Far from being an alienating and atomizing force, I think the market actually draws us together in ways that are hard to appreciate but that become really beautiful once you come to understand them.