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market participants. A single number, the price of a product, allows all the relevant actors on the marketplace to adjust their decisions in such a manner as to benefit them. Even if, on a free market, they had fully known the original cause of the price alteration, they could not have made a better decision than one guided solely by responding to the price shift.

Prices are, furthermore, accurate indicators of the actual supply of and demand for a product because competition makes them so. "Competition" cannot be a model incorporating prior perfect knowledge of economic data, because competition is itself a discovery procedure of that data. The "logical" end result of competition cannot be known until the competition has taken place. Hayek's theory thus rules out the possibility of a monopoly government accurately charging a "competitive" price for a service it provides. Take the example of a "public" utility which charges its consumers on the basis of a "cost-plus" approach. The government determines the price it charges by adding the "cost" of the service itself and the normal rate of return on the capital goods used in furnishing the service. But, because the government is a coercive monopoly, it is immune to competition, having barred all prospective competitors from the utility market via the threat of force. The government cannot know what the true cost of its service is, since it did not allow the competitive process to discover it. Rather, whatever value the government designates to be the "cost" will be a mere arbitrary number. In a competitive market, private businessmen, driven by the profit motive, would have continually discovered better ways to provide utility services. They would have figured out hitherto unknown ways to cut costs, increase productivity, and eliminate waste. The government, by restricting competition, prevents these discoveries from taking place and relegates all the consumers of public utilities to having to pay far more than they otherwise might have.

As Friedrich Hayek's insights illustrate, the free market performs a vital function in coordinating economic actors' dispersed knowledge, plans, and expectations by means of competition and the price system. Hayek provides an eloquent argument for allowing the market to carry out this coordination; any government intervention with the structure of prices and competition will inevitably distort both and impede the discovery process a free market provides.

Learn more about this author, G. Stolyarov II.
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