Power and organizations

Abstract

The previous chapter opened with two quotes from Frederick Hayek on the problems of consolidating information from a multitude of sources. No system of coordinating human behavior into a coherent whole can proceed without mechanisms for gathering information on what is and dispersing information to others about what to do. Hayek and many others have concluded that the mechanism best able to do this is the market. Relative prices are summary statistics carrying an astonishing amount of information about market demands, costs, and technology. Indeed, the logic expressed in formal microtheory models leads to the unavoidable conclusion that markets are the most efficient means of structuring human effort. Decentralized decisions in response to these prices is proven to lead “as if by an invisible hand” to a socially optimal outcome.