Prices generate as well as transmit information through the market.

Evidence

On the one hand, the signaling function of prices was reliable for economic decisions and forecasts insofar as markets were competitive. Information, as relayed by prices, was not only carried but generated through the market—a crucial insight. On the other hand, this limited the kind of problems that economic science could solve. Widely shared among neoliberals, Hayek’s critique pivoted around one single axis: the (seemingly infinite) cognitive function of markets worked hand in hand with the epistemic limitations of other disciplines and institutions aiming to correct its workings. Knowledge remained irrevocably local, dispersed, and impossible to centralize; the marketplace produced a continuous stream of new data within the confines of a radical skepticism towards intervention. — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 68

Categorization

• DEFINE: The core Hayekian mechanism: price signals do not merely carry information, they create it.
• XREF: Connects to the calculation debate and knowledge-dispersal themes in Mises and Hayek literature, and to the epistemology chapters elsewhere in this volume. — connects to: Market conversations do not merely transmit information but perform the economic action itself — Karin Knorr Cetina & Urs Bruegger, Global Microstructures: The Virtual…, 29; Market efficiency means prices fully reflect available information. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 291; Efficient-market theory generates the trades that consume its own counterevidence. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 451