Yesterday Joe Salerno gave an interesting talk on “The Debate on the Socialist Calculation Debate” (audio or video). I completely agree with Salerno et al. that there is an important difference between the Hayekian knowledge problem and the Misesian calculation problem, but in the journal battles over this, something never quite sat right with me. During Joe’s talk yesterday, I finally put my finger on it…Specifically, I don’t understand why Salerno (and Kinsella and perhaps others too on their side of this) think it so crucial to hammer home the point that market prices don’t convey knowledge. (E.g. Salerno criticized Hayek’s popular example of a tin mine collapsing and the spike in tin prices telling others to cut back on their consumption even though they don’t know the particular reasons this is necessary.) Their argument runs something like this: Actual market prices are at best a record of what happened in the past, and as such provide no true guide to entrepreneurs, who must use their judgment to forecast future consumer demand.
Okay, fair enough. RESPONSE #1: But by the same token (and this is what I was trying to say in the Q&A, though I probably rushed it) I could “prove” that the written word conveys no true knowledge. For example, someone might claim that a cookbook contains knowledge of how to bake a cake, but that’s not true at all! At best all it does is show what formulas worked in the past; if I try to cook on the moon, or if my oven is unplugged, or if the charge on an electron should suddenly change, then the recipe in the book is useless. It is simply not true that acquisition of a cookbook is all one needs to bake a cake; one also needs individual judgment and has to forecast the future, to know that a countertop will in fact be available for the finished cake, to know that the dinner guests won’t be allergic, etc.
RESPONSE #2: Especially since Hayek’s problem is named the knowledge problem, in contrast to Mises’ calculation problem, then I really don’t see why it matters whether or not prices convey “knowledge” (versus “information” or whatever). Why don’t Salerno et al. just say the following?
“You’re right Friedrich, the price system does indeed facilitate the transmission of information or knowledge. In that respect it saves humans from having to use supercomputers etc. to do the same thing, and thus frees up scarce resources. But guess what? Mises concedes that the planners could have all of the ‘dispersed knowledge’ concentrated into their heads. So you’re just going off on an interesting tangent when you talk about the role prices play in transmitting knowledge to actors. You’re still completley overlooking the more fundamental calculation problem.”