“No doubt markets transmit information in the way that Hayek claimed. But what reason is there to believe that – unlike any other social institution – they have a built-in capacity to correct their mistakes? History hardly supports the supposition. Moods of irrational exuberance and panic can, and often do, swamp the price-discovery functions of markets.”

—  John Gray

The Friedrich Hayek I knew, and what he got right - and wrong (2015)

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John Gray164
British philosopher 1948

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“It is because prices are stable, and are perceived by agents to be in equilibrium, that the task facing market institutions is less daunting in this respect. However, market institutions may still have many other functions, such as providing information regarding quality and the location of potential buyers and sellers, and regulating both the product and the entrants to the market. In fact, a crucial function may be more subtle; by ordering trade under the aegis of some institution, the price and quality of the product may be legitimized at its given level. There is a kind of stamp of institutional approval which may contribute in a powerful manner to the emergence of price norms…..”

Geoffrey Hodgson (1946) British economist

Source: Economics and Institutions, 1988, p. 185-6

“Let's consider first Hayek's claim that prices in free market capitalism do not give people what they morally deserve. Hayek's deepest economic insight was that the basic function of free market prices is informational. Free market prices send signals to producers as to where their products are most in demand (and to consumers as to the opportunity costs of their options). They reflect the sum total of the inherently dispersed information about the supply and demand of millions of distinct individuals for each product. Free market prices give us our only access to this information, and then only in aggregate form. This is why centralized economic planning is doomed to failure: there is no way to collect individualized supply and demand information in a single mind or planning agency, to use as a basis for setting prices. Free markets alone can effectively respond to this information.
It's a short step from this core insight about prices to their failure to track any coherent notion of moral desert. Claims of desert are essentially backward-looking. They aim to reward people for virtuous conduct that they undertook in the past. Free market prices are essentially forward-looking. Current prices send signals to producers as to where the demand is now, not where the demand was when individual producers decided on their production plans. Capitalism is an inherently dynamic economic system. It responds rapidly to changes in tastes, to new sources of supply, to new substitutes for old products. This is one of capitalism's great virtues. But this responsiveness leads to volatile prices. Consequently, capitalism is constantly pulling the rug out from underneath even the most thoughtful, foresightful, and prudent production plans of individual agents. However virtuous they were, by whatever standard of virtue one can name, individuals cannot count on their virtue being rewarded in the free market. For the function of the market isn't to reward people for past good behavior. It's to direct them toward producing for current demand, regardless of what they did in the past.
This isn't to say that virtue makes no difference to what returns one may expect for one's productive contributions. The exercise of prudence and foresight in laying out one's production and investment plans, and diligence in carrying them out, generally improves one's odds. But sheer dumb luck is also, ineradicably, a prominent factor determining free market returns. And nobody deserves what comes to them by sheer luck.”

Elizabeth S. Anderson (1959) professor of philosophy and womens' studies

How Not to Complain About Taxes (III): "I deserve my pretax income" http://left2right.typepad.com/main/2005/01/how_not_to_comp_1.html (January 26, 2005)

John Gray photo

“Like other human freedoms, the freedoms embodied in market institutions are justified inasmuch as they meet human needs. Insofar as they fail to do this they can reasonably be altered. This is true not only of the rights that are involved in market institutions. It is true of all human rights.”

John Gray (1948) British philosopher

'Modus Vivendi' (p.36)
Gray's Anatomy: Selected Writings (2009)

Friedrich Hayek photo

“What the planning authority would have to know would not be the mere totals but the distinct, peculiar conditions prevailing in each enterprise which affect the information about values transmitted through market prices but would be completely lost in any statistical information about quantities that might reach the authority from time to time.”

Friedrich Hayek (1899–1992) Austrian and British economist and Nobel Prize for Economics laureate

1980s and later, "Two Pages of Fiction" (1982)

Andrey Illarionov photo

“There is no such thing as a gas market prices, because there is no such thing as gas market. What they are doing to Ukraine is obvious price discrimination.”

Andrey Illarionov (1961) Russian politician

In response to the question: The Kremlin says it just charges market prices.
"Q&A: Putin's Critical Adviser," 2005

Geoffrey Hodgson photo

“We shall here define the market as a set of social institutions in which a large number of commodity exchanges of a specific type regularly take place, and to some extent are facilitated and structured by those institutions. Exchange as defined above, involves contractual agreement and the exchange of property rights, and the market consists in part of mechanisms to structure, organize and legitimate these activities. Markets, in short, are organized and institutionalized exchange. Stress is placed on those market institutions, which help to both regulate and establish a consensus over prices and, more generally, to communicate information regarding products, prices, quantities, potential buyers and potential sellers.”

Geoffrey Hodgson (1946) British economist

Source: Economics and Institutions, 1988, p. 174

“The claim "I deserve my income," as applied to an individual's pretax income in free market economies, has considerable intuitive force. If true, it suggests a powerful moral claim against taxation for redistributive purposes, on the intuitively plausible supposition that a just economic order ought to ensure that people get what they morally deserve.
But, however intuitive these claims may be, they are unjustified. In two of his important works of political economy, The Constitution of Liberty (see esp. ch. 6), and Law, Legislation, and Liberty (vol. 2), Hayek explained why free market prices cannot, and should not, track claims of individual moral desert.”

Elizabeth S. Anderson (1959) professor of philosophy and womens' studies

How Not to Complain About Taxes (III): "I deserve my pretax income" http://left2right.typepad.com/main/2005/01/how_not_to_comp_1.html (January 26, 2005)

“The dilemma of a socialized system is that the information flow overwhelms a centralized system if it is open to new ideas and data, that closing the system and forcing the plan to work forecloses alternatives and risks unhedged mistakes, and that decentralizing without real markets poses the problems discussed by Hayek. These information problems permeate virtually all economic processes.”

Sidney G. Winter book An Evolutionary Theory of Economic Change

Richard Nelson and Sidney Winter, An Evolutionary Theory of Economic Change (1982), p. 365

Barney Frank photo

“In the debate between those who believe in essentially unregulated markets and others who hold that reasonable regulation diminishes market excesses without inhibiting their basic function, the subprime situation unfortunately provides ammunition for the latter view.”

Barney Frank (1940) American politician, former member of the House of Representatives for Massachusetts

Frank in an op-ed piece "A (sub)prime argument for more regulation" http://www.ft.com/cms/s/0/a6eeecbe-4eb5-11dc-85e7-0000779fd2ac.html in W:Financial Times (August 2007)

Douglass C. North photo

“Information costs are reduced by the existence of large numbers of buyers and sellers. Under these conditions, prices embody the same information that would require large search costs by individual buyers and sellers in the absence of an organized market. (footnote 4: The original contributions were those of Hayek”

Douglass C. North (1920–2015) American Economist

1937 and 1945)
Douglass North, in "Structure and Change in Economic History" (1981), p. 36

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