"If you were to summarize in three points what the fundamental roles of the market are; what would you say? Austrians have a comparative advantage in this exercise, as they are the only ones with a truly realistic and fully coherent market theory. There is actually too much to say and it is hard to summarize it all in three points – which is also why it is interesting to try.Notice that there is no mention of "allocate" or "ration" resources. The view of the market presented by these 3 fundamental roles is a view of the market as a dynamic process. Thinking of markets as allocating resources relies on a very static view of the market. These days I thinking it is much more important to think of the market as a dynamic proces.
In my view, the market’s three main roles are:
* A knowledge discovery process via entrepreneurial competition;
* A feedback process via the profit and loss system; and
* The result of the first two leads to an accountability role providing governance."
Wednesday, December 28, 2005