Understanding Hayek Via Our Szabonian Deconstruction of Cantillon - jalToorey/IdealMoney GitHub Wiki

On the Synthesis of Hayek and Cantillon Via the Cantillon Framework

In a previous essay we used Szabonian deconstruction in order to show that Cantillon’s work has been misrepresented by wrapping it in the Cantillon effect:

cantillonEffect{cantillon}

At one point we noted there was a useful framework in Cantillon’s work. We feel this framework, now free from its construction, can be used to extend Hayek to properly synthesize their work and others’ we will cite.

By borrowing from Cantillon's metaphors and intentions we will be able to better understand Hayek's.

On the Nature of Money Between the Countryside and the City

In his Essay On Economic Theory Cantillon sets his early framework of observing the economy, and especially with respect to the circulation of money in a state, between the countryside and the city:

Circulation always consists of the large sums the farmer receives from Further reflection on the circulation of money the sale of his products that are broken up for sale at the retail level, and then collected again to make large payments. This money may be considered as constituting the circulation between the city and the countryside, irrespective of whether some of it leaves the city or remains entirely there. All of the circulation is carried out between the state’s inhabitants, and all of them are fed and maintained in every respect through the land’s produce and the raw materials of the countryside. For example, it is true that the wool drawn from the countryside, when made into cloth in the city, is worth four times more than its previous value. But this increase in value, which is the price of the city’s workers and manufacturers, is exchanged again for the countryside’s produce, which serves to maintain these workers.

This is the useful framework we want to borrow. What Cantillon continues to explain is what he sees as the natural accumulation of money in the city (in comparison to the country) because of the nature of the centralization of trade (market) and taxes (ie the country people must pay taxes to the city/capital for the land they tend):

The city always furnishes many commodities to the countryside, and the landlords who live there must always receive about one-third of the land’s produce. Thus the countryside owes more than half of the land’s produce to the city. If all of the landlords lived in the city, this debt would always be greater than a half. But, as some of the less important landlords live in the countryside, I presume that the balance, or the debt, which continually returns from the countryside to the city, is equal to one-half of the land’s produce] and that this balance is paid for in the city by half of the countryside’s produce, which is brought there and whose sale price is used to pay this debt. But all of a state or kingdom’s countryside owes a constant balance to the capital, as much for the rent paid to the great landlords who live there as for the state or Crown’s taxes, most of which are spent in the capital. All the provincial cities also owe the capital a constant balance, either for the state’s property or consumption taxes, or for the different commodities drawn from the capital. It also happens that some individuals and landlords who live in provincial cities spend part of their time in the capital either for their pleasure, or to await the verdict of their cases in final [judicial] appeal, or because they send their children there to acquire a fashionable education. Consequently, all of these expenditures that are made in the capital are drawn from the provincial cities. It may therefore be said that all of the state’s countryside and cities regularly owe an annual balance or a debt to the capital. But, as all of this is paid in money, it is certain that the provinces must always owe considerable sums to the capital, because the commodities and merchandise that the provinces send to the capital are sold there.

The phenomenon Cantillon means to explain is in regard to the effects of this flow of money as well as the effects of the cost of transport on the prices. That money is more abundant in the city paradoxically raises the price of things Cantillon explains. The cost of transport makes goods produced in the country comparatively more expensive if brought to the city and yet 'infinitely cheaper' in the country if they can’t be brought to the city.

Notice the country/town framework bubbles up to province/capital:

The provinces and in the capital relative to both the quantity of money and the rapidity of its circulation. The balance will first be sent to the capital in cash, and this will reduce the quantity of money in the provinces while increasing it in the capital. Consequently, the commodities and merchandise will be more expensive in the capital than in the provinces, due to the greater quantity of money in the capital. The difference in prices between the capital and the provinces must pay for the costs and risks of transport. Otherwise cash will continue to be transported to the capital for the payment of the balance. This state of affairs will last until the difference in prices between the capital and the provinces is equal to the costs and risks of transport. Then the towns’ merchants or entrepreneurs will buy the villages’ commodities at a low price and will have them transported to the capital to be sold there at a higher price. This difference in prices will necessarily pay for the upkeep of the horses and servants and the profit of the entrepreneur. Otherwise he would close down his businesses. It follows from this that the prices of commodities of equal quality will always be higher in the countryside that is closer to the capital than that which is further distant, in proportion to the costs and risks of transport. Likewise, the countryside adjacent to seas and rivers that are linked with the capital will draw a proportionately better price for the commodities than those that are distant (all other things being equal), because the costs of water transport are considerably lower than those of land transport. On the other hand, the commodities and small items that are not consumed in the capital, either because they are unsuitable, or because their volume makes them unfit for transport, or because they could perish en route, will be at infinitely cheaper prices in the countryside and distant provinces than in the capital, because the quantity of money in circulation is considerably smaller in the distant provinces. It is therefore in this way that fresh eggs, game, fresh butter, wood for fuel, and the like will normally sell at a cheaper price in the province of Poitou than in Paris, while wheat, cattle, and horses will be dearer in Paris only to the extent of the difference in costs and risks of sending them and paying tolls for entering the city.

We are going to borrow that property of bubbling or rather we will use this framework to help explain the phenomenon of prices via Hayek using the framework of having a market in a capital that exists in a state with a countryside of good producers etc.

The Problem to Solve According To Hayek

In The Use of Knowledge in Society Hayek Asks:

What is the problem we wish to solve when we try to construct a rational economic order?

According to him the problem of economics is one of the optimal distribution of scarce resources which deconstructs down to problem of utilizing knowledge:

It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

He explains the complexity of the problem (in a sense comparable to wave particle/duality) is that the knowledge we are concerned about, is knowledge held by each individual in their own space at a certain time:

There is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place.

Hayek On the Division and Specialization of Labor

It is notable that Hayek notes our specialization of labor adds to the value and thus importance of individual knowledge in this regard:

It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, of local conditions, and of special circumstances.

Hayek On the Difficulty of the Statistical Information Involved In Directing the Optimal Use of Scarce Resources

Hayek makes an assertion which we want to explore, which is that a centralized authority can’t possibly use statistics to address this problem. We will use Cantillon’s framework to explore this claim:

I should briefly mention the fact that the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form. The statistics which such a central authority would have to use would have to be arrived at precisely by abstracting from minor differences between the things, by lumping together, as resources of one kind, items which differ as regards location, quality, and other particulars, in a way which may be very significant for the specific decision. It follows from this that central planning based on statistical information by its nature cannot take direct account of these circumstances of time and place and that the central planner will have to find some way or other in which the decisions depending on them can be left to the “man on the spot.

On the Role of Price On the Collection And Dispersal of Knowledge

Hayek explains that it is prices that allows us to aggregate and utilize the otherwise dispersed and uncollectable knowledge:

Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan. It is worth contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes

On the Whole of the Market as Replacement For the Infallibility of a Central Statistical Authority

In this Hayek replaces the intention of a central statistical authority with price signals a market gives us:

The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

The price system, functions like a telecommunications systems (an analogue we will bring with us going forward) allows us to optimally coordinate at a distance with a type of instantaneity:

It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.

Of course, these adjustments are probably never “perfect” in the sense in which the economist conceives of them in his equilibrium analysis. But I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism and led us to apply rather misleading standards in judging its efficiency. The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction.

On a Market System With No Centralized Market or Telecommunications

Why is it true that a central authority cannot solve this problem with statistical aggregation? How are prices like a tele-commnications system (which Hayek hardly had to compare to of his time)? How do prices optimally distribute commodities?

The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc

How is it there is one price but determined locally based on cost to transport?

It’s difficult to understand the effects and usefulness of prices-because we have never lived without them. This is where our Cantillon framework comes in handy.

On the Comparability of Nodes With Farms and Networks with Countrysides

In Transportation, Divergence, and the Dndustrial Revolution Nick Szabo makes a metaphorical comparison combining computer science network theory (and via Metcalfe’s law to which we will turn to later in this essay):

Metcalfe's Law states that a value of a network is proportional to the square of the number of its nodes. In an area where good soils, mines, and forests are randomly distributed, the number of nodes valuable to an industrial economy is proportional to the area encompassed. The number of such nodes that can be economically accessed is an inverse square of the cost per mile of transportation.

Thus we can consider the idea of producers of commodities at some distance of cost, or time, or travel, etc from each other.

On The Comparability of The Centralization of Countryside Nodes To a Market

We can start to see the issue. If the economy was a distribution of individual producers of commodities from their respective node locations, how would the producers, as merchants of their own goods, expect to bargain between other producers, if for example it were a day's ride on a horse just to pass a message?

Thus if the merchants, representing goods from their respective countryside nodes, coalesced at one node, they could each save the cost of travel to bargain with each and every node they mean to travel to bargain with.

Moreover, if trades with previous nodes effect decisions with subsequent nodes then the efficiency effect is even more so (since this information will all be available without extra travel at the central meeting place where the trades take place then).

This savings is part of the dramatic result Szabo formalizes here:

Combine this with Metcalfe's Law and we reach a dramatic but solid mathematical conclusion: the potential value of a land transportation network is the inverse fourth power of the cost of that transportation. A reduction in transportation costs in a trade network by a factor of two increases the potential value of that network by a factor of sixteen. While a power of exactly 4.0 will usually be too high, due to redundancies, this does show how the cost of transportation can have a radical nonlinear impact on the value of the trade networks it enables.

On the Considerations of Markets Before General Prices and Money and The Comparability to Our Network Theory Metaphor

Consider our market now, consisting of the merchants from each countryside, but not with an established market system or money such that they must barter still.

Each merchant sets up a shop and then walks to each other merchants shop to bargain for the trades they find favorable. They have to walk around and return to different merchants as well as attend to their own goods and shop. Notice we thus have rendered the framework comparable to the decentralized countryside framework.

Nonetheless the centralized trade center reduces the cost to travel dramatically. Instead of having to travel to multiple farms multiple times to aggregate trade information and bargain, all nodes can travel one path to the centre market place.

On Redundancies With Respect to the Potential Value Prescribed By Metcalfe’s Law and the Deconstruction of Metcalfe’s law

Metcalfe’s law is a function of the mathematical observation of the connectivity of nodes in a network. Consider the wikipedia example:

a single fax machine is useless, but the value of every fax machine increases with the total number of fax machines in the network, because the total number of people with whom each user may send and receive documents increases.[4] Likewise, in social networks, the greater the number of users with the service, the more valuable the service becomes to the community.

However, consider as fax machines grew into popular use are we to expect that the value of the network grew so enormously on the addition of every new person connecting to the network?

Szabo notes in his formalization redundancies perhaps the aforementioned are what he refers to here:

A reduction in transportation costs in a trade network by a factor of two increases the potential value of that network by a factor of sixteen. While a power of exactly 4.0 will usually be too high, due to redundancies, this does show how the cost of transportation can have a radical nonlinear impact on the value of the trade networks it enables.

In our example of a distribution of farms throughout a countryside, at a time of no market, however, we can see that a general reduction in transportation costs, such as an upgrade from horses to engined vehicles, would generally benefit ALL of the farms.

In such a scenario considerations of Metcalfe’s law applies in full force.

On the Comparability of the Cost Savings, as Described by Szabo’s Formalization of Smith Via Metcalfe’s Law, Between a Countryside Framework and a Central City Market Framework Where No Money or General Prices Have Been Established

We can then consider a marketplace where merchants can bring their own supply of a single type of good in order to barter with others that do the same. They again set up shop and walk around to barter between different shops and their own.

But now imagine instead, all merchants coalesce in the center of that market and begin to bargain about trades amongst themselves without needing to walk anywhere.

On the Unscalability of Bargaining Without General Prices

By saving on the costs of having to walk around the marketplace and back to one’s market stand the farmers, or the merchants representing their respective farms, save another round, from another perspective, of Szabo’s formalization.

In Shelling Out Nick Szabo explains how Metcalfe’s law effectively shows the scaling problem of bargaining:

A related problem is that, as engineers would say, barter "doesn't scale". Barter works well at small volumes but becomes increasingly costly at large volumes, until it becomes too costly to be worth the effort. If there are n goods and services to be traded, a barter market requires n^2 prices. Five products would require twenty-five prices, which is not too bad, but 500 products would require 250,000 prices, which is far beyond what is practical for one person to keep track of.

Consider a time where there was no writing. A centralized barter forum, in the middle of a marketplace, in the middle of a countryside would have removed another round of costs of a factor of Metcalfe potential, the costs of walking around to barter and the time to barter shop to shop (and sometimes perhaps to walk back to tend to one’s own shop etc), however, there would be the problem of bringing the complexity of information back to one’s own shop in instances of iterative bargaining processes.

How does one track and transport all of the complex market data observed and store it over time etc.?

On the Effects of Bargaining with Different Language Sets With Respect to Their Metcalfe Potential Cost

If the merchants that attend the centralized barter forum, in the middle of a marketplace, in the middle of a countryside, for example, don’t speak the same language you will have lowered the cost by a factor of Metcalfe’s potential but again face a comparable situation in the cost of translating the bargaining process.

We can think about language efficiencies of a sort also thus having a factor effect on the Metcalfe potential.

On the Recursive and General Theory of Metcalfe’s Potential Cost Factor

Although in Szabo’s essay there is no comparison of uniform cost reduction with shipping, we can think of Cantillon’s framework and extend Szabo’s formalization even more generally. Here Cantillon calls attention to the significance of a sizable shipping fleet and its importance in beneficial trade-this helps paint our picture:

We have seen that the quantity of money in a state can be expanded through the output of its mines, [240] subsidies from foreign powers, the immigration of foreign families, and the residence of ambassadors and travelers, but, above all, through an annual and regular balance of trade by the export of articles to foreigners so as to draw from them at least a part of the price in gold and silver coins. By this last means a state grows most substantially, particularly when the trade is accompanied and supported by a sizable shipping fleet and a significant domestic production capable of providing the necessary materials for the articles and manufactures that are exported.

On the Concept of Prices Before the Existence of a Generally Accepted Good or Money By the Physical Capacitance of a Centralized Credit Exchange

How could there be prices before money? What does it mean to have a unit of account?

Recall what Hayek says of prices, they coordinate the knowledge of facts dispersed among the market participants:

Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan.

In our consideration of a middle of a marketplace, in the middle of a countryside we can think of a centralized institution where all of the merchants bring an amount of goods they wish to barter with.

The centralized credit service that stores their goods and records what they have stored. The merchant can now barter free of the cost of transport on an interactive basis. In this scenario there is a centralized language for accounting however still no general unit of account.

We sell units of our own goods, and the centralized credit institution records our sales and purchases but the accounting tallies each good etc.

In this scenario there is the recording of the transactions among the barterers (scribes of granaries etc.) and yet we can see then that still a further change from accounting the goods each by their own account versus a single common good would reduce the costs by another order of Metcalfe’s potential (as if going from pictures and symbols of everything to tally sticks although paradoxically this is not what we have said).

(Our mental work here is minimal since we aren’t trying to prove or predict an archaeologically valid timeline of markets, money, and prices etc. rather to understand the efficiency upgrades are potentially factors for the network)

On Prices as an Otherwise Central Planner For the Economy

Our Cantillon approach to understanding Hayek allows us to think of prices as the ultimate recursion of centralization of the information of market participants.

Hayek questions whether or not the planning should be done by a central authority or the individuals who themselves hold the pertinent information to the system:

The answer to this question is closely connected with that other question which arises here, that of who is to do the planning. It is about this question that all the dispute about “economic planning” centers. This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.

But we shouldn’t confuse the folly of central authority with the usefulness of the centralization of information into a general (centralized) pricing system.

On a Trustworthy Accounting System as Replacement for a Centralized Credit Authority

Consider then that the central credit authority, as an agreed upon accounting system by the merchants, is instead now some form of a primitive blockchain (we can use this metaphor whereas past philosophers wouldn't have access to it) with a commonly understood language for it, such that the merchants have no worry of the workings of the accounting.

In this scenario the merchants interact with the accounting system and they can freely discuss their trades in the forum with no language barriers between themselves nor the system. They only have to bring their goods to the marketplace now, rather than a centralized credit bureau, the block-chain accounting is automatic and perfectly secure (perhaps our scribes are benevolent and highly trained ninja martial artists with eyes everywhere), and thus the new accounting system reduces the cost to barter again by another Metcalfe potential factor.

On the Effects of Efficiency in the Accounting Language Of Script the Scribes Use for Accounting System

Improvement in language for the system thus affects the transactions of all the merchants and reduces their cost accordingly. We can then further see the effects of efficiency on the accounting system used.

We could consider the same observation with respect to the humans and the languages the use to interact with the system and the scribes etc.

On the Benefit of Centralized Accounting Solution That Isn’t an Authority

Consider Hayek's complaint about the problem of using aggregated statistics to solve the problem of analyzing the knowledge of each individuals particular circumstances of time and place.

This is, perhaps, also the point where I should briefly mention the fact that the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form. The statistics which such a central authority would have to use would have to be arrived at precisely by abstracting from minor differences between the things, by lumping together, as resources of one kind, items which differ as regards location, quality, and other particulars, in a way which may be very significant for the specific decision.

In our framework, in thought experiment at least, we have brought all of the knowledge of the merchant’s into one place and reduced their mental-transactions as far as we have.

The centralization of knowledge in this sense is Hayek’s goal.

However, in our inquiry we have only craftily avoided the difficulty that precludes the centralized authority solution that Hayek explains wouldn’t otherwise be able to collect this data:

The problem is thus in no way solved if we can show that all the facts, if they were known to a single mind (as we hypothetically assume them to be given to the observing economist), would uniquely determine the solution; instead we must show how a solution is produced by the interactions of people each of whom possesses only partial knowledge. To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregard everything that is important and significant in the real world.

In reality the census needed for such information would not only be unfathomably large but there would be the continual iterative need to update it as frequently perhaps as a trade is made:

Of course, if detailed economic plans could be laid down for fairly long periods in advance and then closely adhered to, so that no further economic decisions of importance would be required, the task of drawing up a comprehensive plan governing all economic activity would be much less formidable.

It is, perhaps, worth stressing that economic problems arise always and only in consequence of change. So long as things continue as before, or at least as they were expected to, there arise no new problems requiring a decision, no need to form a new plan. In our framework we can imagine the merchants needing to send back supply and demand information to their farms and the continual cost and time involved.

We can see then, it's not the morality of the central authority Hayek is concerned about here, but rather the inability to actually bring the complexity of information together continuously and in real time.

We feel this is a critical Szabonian deconstruction of Hayek. That the problem of central-planning here is the inability of an institution to aggregate this data rather than its tendency to corrupt it (which could be a different argument elsewhere). Those that reference Hayek’s concern for a central-planner with regard to the moral nature, fallibility, and corruptibility, of the authority of the central-planner etc. not only wrap his work with degradation but miss the important point he means to make entirely.

On the Metcalfe Potential Factor Effeciency Gain From The Standardization of General Units of Account In Regard to the Accounting Efficiency

If the merchants can somehow agree on some common unit of account for which all goods can be priced in, the scribes benefit by another factor of Metcalfe potential from the simplification in their pricing and calculations since as Szabo notes, ‘With money, there are only n prices.”:

If there are n goods and services to be traded, a barter market requires n^2 prices. Five products would require twenty-five prices, which is not too bad, but 500 products would require 250,000 prices, which is far beyond what is practical for one person to keep track of. With money, there are only n prices – 500 products, 500 prices. Money for this purpose can work either as a medium of exchange or simply as a standard of value – as long as the number of money prices themselves do not grow too large to memorize or change too often.

Consider what Hayek might say about the ‘centralization’ of the knowledge into such a system:

It is worth contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes

The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

On the Metcalfe Potential of The Standardization of General Units of Account With Regard to the Creation of Money

With the scribes in our framework benevolently guarding the nature and implementation of the generally agreed upon unit of account the merchants can then bring the simplified price information home with them to their farms.

However as Hayek previously explained the information necessary to analyze is continuous and ever changing, to keep current with the markets the merchants have to continually bring information back to the farm and the countryside and then back to the city-they long for a continual feed of information however in Cantillon’s time there was no such telecommunications.

On The Cantillon Framework With Respect to the Effects of Money Between the Central City and the Surrounding Farms it's Central Market Serves.

Here is where our Cantillon framework is useful.

Recall earlier in this essay the equilibrium Cantillon referred to initially and the relationship of prices between the countryside and the city, the prices are sometimes generally higher in the city Cantillon explains, but because of the nature of the flow of the money:

Circulation always consists of the large sums the farmer receives from Further reflection on the circulation of money the sale of his products that are broken up for sale at the retail level, and then collected again to make large payments. This money may be considered as constituting the circulation between the city and the countryside, irrespective of whether some of it leaves the city or remains entirely there. All of the circulation is carried out between the state’s inhabitants, and all of them are fed and maintained in every respect through the land’s produce and the raw materials of the countryside. For example, it is true that the wool drawn from the countryside, when made into cloth in the city, is worth four times more than its previous value. But this increase in value, which is the price of the city’s workers and manufacturers, is exchanged again for the countryside’s produce, which serves to maintain these workers.

Money that flows in this framework equilibrates the prices, which means that it ports the price system to the countryside. THEREFORE the introduction of money has a Metcalfe potential efficiency factor in that it spreads the price system across the area it serves (if you don't believe me ask an economist!).

That Cantillon's observations allowed us to extend the prices throughout the countryside vie the money...the reader should pause here to understand how Cantillon helped us do this. It is the crux of the insight in this essay!

On the Metcalfe Potential Effects of Lightspeed Information Networks on the Problem of Gathering Supply Demand Statistics Into a Central Body

If the merchants didn’t have a pricing system to bring back to their farms with them, we can consider the simultaneity of information needed to be exchanged in order to ‘manually’ establish the benefits of it.

Simultaneity of information is necessary remember, because everyone’s decision depends very much on others' decisions (and more so the more complex and interconnected the market is)-in lieu of prices this would be the equivalent.

Thus the countryside recurses down to the market, which recurses down to the scribes, which recurses to the accounting and the prices, and then to MONEY, and then the analogue can spread to the macro again, BECAUSE of our Cantillion observation on how money extends the price system to the countryside, via the money that establish prices across the land.

If we didn’t have those prices, if the merchants needed to communicate their market information in a decentralized fashion, we can understand that as the cost factors and speed of the dispersal and exchange of that information lower to zero the Metcalfe potential factor would be AS IF there was the establishment of general prices across the land.

(A note to return to in another essay: costless instant transfer of information perhaps defies thermodynamics however we can make the comparison nonetheless.)

Understanding the Price System and Hayek's Thesis In the Use of Knowledge in Society

Hayek says of the price system it facilitates the division of labor:

The price system is just one of those formations which man has learned to use (though he is still very far from having learned to make the best use of it) after he had stumbled upon it without understanding it. Through it not only a division of labor but also a coördinated utilization of resources based on an equally divided knowledge has become possible.

And this because it has embedded in it all the simultaneous information we couldn't otherwise hope to store in a single central agency:

that the values of the factors of production do not depend solely on the valuation of the consumers’ goods but also on the conditions of supply of the various factors of production. Only to a mind to which all these facts were simultaneously known would the answer necessarily follow from the facts given to it

Prices as a Centralization Solution to the Problem of The Need for Simultaneous Information In a Non-Broadcast Network

Because of our Cantillon framework, we can understand Hayek's thesis that prices can create a simultaneous signal in an countryside extended from the capital which established them like as if the consensus from '...standard communication model of synchronous networks in which each pair of processors is connected by a private communication line'

The Szabonian Deconstruction of Hayek

This deconstruction relieves Hayek of the notion that the problem of the organization of knowledge in society is one of protecting the economy from the moral corruption or intellectual folly of a central authority but rather the problem of lack of simultaneous communication over continuous iterations or the problem of instantaneous knowledge over a field.