What Do Prices “Know” That You Don’t?

From YouTube:

If you want to do good for the world, Prof. Michael Munger has a piece of advice: Listen to the price system. He compares prices to a genie that knows everything in the world and tell you exactly what goods and services humanity needs most.

He tells a story of two hypothetical farmers. One ignores the price system and tries to plant what the world needs most. Overwhelmed by the quantity and complexity of the data needed to figure out what crop is most needed, he eventually fails. The other farmer is selfish and profit-driven. He doesn’t understand that the high soybean price reflects increased demand for a new soy-based product in Asia — he just wants to make money. But by listening to the price system, he produces exactly what the world needs most.

    
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rogerunited
12 years ago

Wouldn’t this suggest that what the world needs most is cocaine and crystal meth? The prices for those are very far above cost!

rogerunited
12 years ago
Reply to  DRenegade

T I think our fate has been sealed for the foreseeable future.