Dick Bryan and Akseli Virtanen
"Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan (emphasis added). So for Hayek, price is the reduction of complexly-layered knowledge (a set of protocols) to a single index. With everyone speaking the language of price and the pursuit of profit as a singular index for decision-making, market interactions are said to generate spontaneous order — but what they actually do is to structure the space of possible." (https://medium.com/econaut/crypto-political-economy-dd91c6fcff7)
Why Market Prices Don't Work
"Both neo-classical and Austrian economists make a fetish (in several senses) of markets and market prices. That this is crazy is reflected in the fact that even under capitalism, immense areas of the economy are not coordinated through the market...This is not just because the market revolution has not been pushed far enough. ("One effort more, shareholders, if you would be libertarians!") The conditions under which equilibrium prices really are set? are all a decision-maker needs to know, and really are sufficient for coordination, are so extreme as to be absurd. (Stiglitz is good on some of the failure modes.) Even if they hold, the market only lets people "serve notice of their needs and of their relative strength" up to a limit set by how much money they have. This is why careful economists talk about balancing supply and "effective" demand, demand backed by money.
This is just as much an implicit choice of values as handing the planners an objective function and letting them fire up their optimization algorithm. Those values are not pretty. They are that the whims of the rich matter more than the needs of the poor; that it is more important to keep bond traders in strippers and cocaine than feed hungry children. At the extreme, the market literally starves people to death, because feeding them is a less "efficient" use of food than helping rich people eat more." ()
How Markets Could Be Priced Differently: The ECSA Approach
Dick Bryan and Akseli Virtanen:
"This index could be based in different knowledge, producing a different logic, a different space of possible. ECSA is seeking to build indices for markets that are not driven by profit maximizing and self interest, but still rely on index movements to measure surpluses and to trigger trading strategies for agents that lead to wider economic decisions about what is produced and how. We depict these as the performance indices of the new economic space.
We should note the way in which Hayek depicts price as a simplified index that obviates the need for agents to hold full knowledge. Via cultural enmeshment, agents come to believe that price is all they need to know: price can be trusted to incorporate knowledge.
The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they never know more than is reflected in the price movement.
Hayek says price embodies complex information — it creates knowledge of society — and its great functionality is that it is a simple representation of that complexity. But notice, in Hayek’s framing, that price may be the condensation of a complex set of knowledges, but knowledge is not intended to be reverse engineered from price.
This 1940’s advocacy of ‘the market’ and trust in ‘prices’ may stand strong as an alternative to 1940’s central planning, but 75 years on the argument must be different. The ‘imperative’ to have market protocols design a single measure called ‘price’ must be seen as a design choice. (Or if it is inappropriate to depict past history as a ‘choice’, we can certainly depict the future as involving choice.)
Instead of knowledge being condensed into ‘price’ in a capitalist discourse, current technology can enable knowledge to be compiled and stored for a potential range of uses, not just market price formation.
Price is, after all, no more than an index: it measures relative exchange values (between commodities; over time). But in the hands of Hayek and the neo-classicals, with their version of ‘the market’ naturalised as a platform, price can be treated socially as an absolute social measure. Indeed this is the analytical objective: to create the impression that price formation is the social expression of the natural order of markets. Prices slide from being technically relative values to be presented socially as absolute values. This is central to the idea of trust in a (fiat) money system. But the absolute measure is a social and political construct — social and political expression — and it can be changed. The appearance of cryptocurrencies, offering potential for so many different benchmarks for valuation, makes that potential social construction stark.
Why then is ‘price’ as we currently understand it the privileged index of valuation? Why do we not use (for example) sociality (social impact) as the privileged index of valuation? Or environmental impact?
The answer is that price defined in a discourse of profit and denominated in fiat (state) money is a measure that expresses the social and cultural values — the politics — of a capitalist society. In using this notion of price as the privileged measure we assume that: (a) output is conceived as ‘scarce’ and price is a means to ration allocation; (b) production for the market is valued over production for direct use (for the latter generates no price) and © profit is embedded within price (people take things to market so as to make a profit). In a capitalist society, those priorities seem appropriate: they capture the values of that society.
We believe that these social and cultural norms — and the ways of behavior and subjectivity embedded in them — follow to a critical degree from the nature of ownership and collateralization of assets and control over the issuance of and access to the dominant form of money and credit, i.e. certain protocols.
The challenge mounted by ECSA is to make stark that ‘price’, as it is conventionally understood, can be re-framed as just one set of protocols and one set of participants on those protocols but not, as Hayek would have us believe, the only set of protocols. In the context of risking together, distributed ownership and distributed issuance of money, these social and cultural norms will be profoundly challenged." (https://medium.com/econaut/crypto-political-economy-dd91c6fcff7)