Hayek and economic ignorance: Reply to Friedman

Markets can be said to overcome ignorance in two senses. First, in art imaginary world of economic equilibrium, market prices can signal to consumers how they may alter their behavior so as to conform to supply and demand conditions of which they are ignorant. This is a point that was underscored by FA. Hayek and, now, by Jeffrey Friedman. But the more important manner in which markets overcome ignorance was identified by Hayek's mentor, Ludwig von Mises, and is not mentioned by Friedman: when market prices are not perfectly aligned to supply and demand conditions (and they never are), they present profit opportunities to entrepreneurs who are alert to make such discoveries. Their profit-motivated actions then reallocate resources in a pattern more efficiently reflecting the true supply and demand conditions. It is this way of overcoming ignorance that most clearly separates the market arena from the political arena, because no corresponding corrective discovery process exists in politics.