Module 5 Essay: An Op-Ed on Chapter 3: “What Prices Communicate” by P.L. Bylund in The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives, and on The Use of Knowledge in Society by F.A. Hayek.
Alexis Del Angel
School of Business, Oklahoma State University – Stillwater
EEE 2083: Entrepreneurship & Society
Professor Steve Trost
3.22.2023
Module 5 Essay: An Op-Ed on Chapter 3: “What Prices Communicate” by P.L. Bylund in The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives, and on The Use of Knowledge in Society by F.A. Hayek.
The following are my summaries of the two readings assigned to us. Approaching the readings from an opinion-based point of view, Bylund’s chapter is the primary, while Hayek’s is the supplementary reading. I will summarize them in title order and close out this essay with some opinions on the readings.
On: Chapter 3: “What Prices Communicate” by P.L. Bylund in The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives
In this chapter, Bylund explains the invisible forces at play when it comes to market pricing, how we arrive at said pricing, what the theory says about production behind the scenes, how the market is "an open-ended, undirected process rather than a system or "machine"" (Bylund, 2016, p. 66–67), and that "what matters is that it serves people by satisfying their wants" (Bylund, 2016 p. 67).
Bylund begins by stating that producers and consumers are beholden to a subjective evaluation. One of ranking goods (and subsequently their subjective value in market pricing). The consumers are beholden by having a walk-away value, whether conscious of it or not, while the producers are by having their own walk-away value.
"All of our friends in this economy produce in order to consume, and they all produce something that they know (or, more accurately, anticipate) will be demanded by others and therefore sold for money. The point of producing is not because labor itself is fun (though it can be) or because what is produced will be immediately consumed (though it might be)—but to sell for money, which can be used to buy what each of these people really want." (Bylund, 2016, p. 44)
Here Bylund is stating the benefit of having a currency, as it promotes production so that people can then use their produce to trade that for what they really want (i.e., money) with more ease and flexibility. This creates another relationship between producers and consumers because, according to Bylund (2016), "all consumers are also producers and therefore entrepreneurs" (p. 44).
With the inherent market uncertainty, what the market likes will be what thrives. This makes entrepreneurs out of consumers. If a producer produces something people like, they will have more investment from the consumers. Of course, not everything will be liked, and so not everything will thrive, but Bylund believes this only increases the value of production. As production requires "invested labor" (Bylund, 2016, p. 47), under the speculation that this will be a successful undertaking, "labor must be valued accordingly" (Bylund, 2016, p. 47). In other words, the effort undertaken by a producer has value.
As stated earlier, both consumers and producers have a walk-away price. Bylund explains how to get there in the following quote:
"The "final price" ends up where it is not expensive for enough consumers, and where it is sufficiently high for enough producers—considering the alternative uses for the productive resources."
Bylund gets at something else here too. He is explaining that a producer must consider their options in terms of resource production means. Again, Bylund mentions the benefits of having a currency, as that gives the producer both an easier time and a clearer view of when the price is sufficiently high. By allowing ease of estimation in production, producers can then better decide if an undertaking is "worth it."
There are also some production pipeline influences, as producers of something you may need in your own production pipeline could affect your pricing. Bylund mentions this because it helps paint the bigger picture—that the market price is a collective estimate. Competitor pricing becomes a reliable barometer because it lets us observe what other entrepreneurs are investing in. Having a market with prices aids in this production. Bylund posits that prices carry "aggregate information about the state of the world and its expected future" (Bylund, 2016, p. 60) because of all these influences.
Bylund closes out the chapter by explaining one specific influence on prices that is more subtle: the invisible hand in production. Whether underproducing, overproducing, inefficient pipelines, rapid changes in prices, and/or changes in demand, there are many ways a production can be influenced invisibly. This invisible influence creates a shift in resources from one production line to another, which establishes production direction. It is referred to as invisible because "there are no orders issued, no directives made, and no one who makes the final call" (Bylund, 2016, p. 65). He follows with, "Instead, the mechanism is the aggregate phenomenon arising from decentralized, individual decision-making" (Bylund, 2016, p. 65).
This consumer phenomenon pushes the market to align itself with the individual’s interests, which in turn serve society’s interests. This makes the market best understood as an open-ended, undirected process. The idea is that the interest of the market, if it does not align, at the very least serves the people and "should tend to do so increasingly" (Bylund, 2016, p. 67).
On: The Use of Knowledge in Society by F.A. Hayek
In The Use of Knowledge in Society, Hayek explains the economic problems plaguing us. He starts by explaining that "it is a problem of the utilization of knowledge which is not given to anyone in its totality" (Hayek, 1945, p. 520). He is saying that the use of knowledge is no longer a means of production wholly owned by someone with a full understanding of its importance within this economic model.
His next critique is of the general debate around economic planning. Whether it should be divided amongst individuals or done centrally, he touches on this contradiction:
"This is not a dispute about whether planning is to be done or not" (Hayek, 1945, p. 520)
, and
"Competition, on the other hand, means decentralized planning by many separate persons. The half-way house between the two, about which many people talk but which few like when they see it, is the delegation of planning to organized industries, or, in other words, monopoly" (Hayek, 1945, p. 521).
Here he is explaining that both ends fight each other, while the middle is ideally the fairest but realistically the most uncomfortable. Which of those is appropriate depends on where we place our knowledge in society.
People are in different fields and thus require different knowledge. The kind of knowledge outside of science that is only gained by practicing knowledge that is outside the realm of theoretical or technical. Hayek mentions the prejudice that is faced by someone "who gains an advantage over somebody better equipped with theoretical or technical knowledge" (Hayek, 1945, p. 522). Often thought to "have acted almost disreputably" (Hayek, 1945, p. 522).
Hayek’s follows with the claim that economists are missing the smaller picture in the name of statistics. This is problematic because the comparative nature of statistics is not stable. When the market is a constant process, how could it be? This goes into his next point: the economy needs to adapt rapidly to particular circumstances of time and place, which creates a need for the proper use of knowledge. Prices allow us to coordinate that knowledge. They create a method of communication among producers to be able to adjust pricing. This helps temper our problem of needing to "extend the span of our utilization of resources" (Hayek, 1945, p. 527).
Hayek’s final issue with the economic approach is that it disregards “the unavoidable imperfection of man's knowledge" (Hayek, 1945, p. 530) by sticking so heavily to statistics. This is an issue because the standard rationality by which we can judge opportunities based on the market is not, well, real in a human sense.
Conclusion
Bylund said a lot this time around. I agree with him a lot. The idea that consumers are entrepreneurs and so are producers is what appeals to me. I believe in the power of speaking with your wallet. While I find that it does not always work, generally speaking, if enough people decide they want to speak with their wallets, they are heard. I think consumers are unknowingly investing in those moments. I think in the modern world there is also such a thing as time investment. Data collection makes your literal attention valuable now, so what you invest in attention-wise also matters. I find myself going a bit extra with things I enjoy because I know, due to analytics, even my time interacting with said things is measured and valued. A simple example is that for shows I like, I will watch them a bit more repeatedly than others to help ensure ratings with what little I can do.
I believe there is definitely value in the risk taken by a producer. Sometimes the risk is in ways people could not see coming or in simple effort given before profit. It is important to be aware that they are simply trying their best to price reasonably but competitively when all interested parties’ interests align. I agree with Bylund that, ideally, this satisfaction should only increase. If we are to believe that when all interests align and both parties leave with something, we are, in a way, increasing the value of that something, and that increase in value increases satisfaction on a societal level.
Hayek mentioned some insightful things about the economic approach. I had not thought much about the problems with the economic approach. When he mentioned that people often looked down on people with craft, experience, or trade knowledge, it resonated with me. I believe a lot of careers, including the one I am going into myself, are full of people who skid by with barely any knowledge at all. I bring this up because, no matter the field, experience builds a type of knowledge that cannot be replicated.
While I do see value in theoretical and technical knowledge, I believe we should never look down on those who gained it by simply doing through experience.
References
Bylund, P. L. (2016). Chapter 3: What Prices Communicate. In The Seen, the Unseen, and the Unrealized: How Regulations affect our everyday lives (pp. 27–45). essay, Lexington Books.
Hayek, F.A. (1945). The Use of Knowledge in Society. In The American Economic Review, 35(4), (pp. 519-530).