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No 133:
Unfolding the Allegory behind Market Communication and Social Error and Correction

Daniel Klein ()

Abstract: One aspect of the present paper is to draw out the Adam Smith in Friedrich Hayek. I suggest that common economic talk of market communication, market error and correction, and policy error and correction invokes a spectatorial being and appeals to our sympathy with such being. Behind such common economic talk, I suggest, are implicit allegories wherein an allegorical figure runs a system of superior knowledge, communication, and voluntary cooperation. Theoretical discussions of social error invoke the notion of agent error applied to the allegorical being. Similarly, theoretical talk of social correction invokes the notion of agent correction applied to the allegorical being. The allegory behind such talk is vital and necessary because without it the talk of social or market communication, error, and correction cannot be sustained. Unfolding the allegory clarifies the meaning, limitations, and value of such talk. Making what had been implicit explicit helps economists to avoid overstating their generalizations or making those generalizations sound more precise and accurate than they are. Meanwhile, scholars have pointed out that spectating impartially involves something of a paradox distant-closeness, or cool-warmth. Concurring, I explore the connections between the features of the allegorical being and the doings of the economic agents. I suggest that the cogency of such theorizing depends on such correspondences, and that they are matters of culture, of both the context within which the theorizing is done and of the context theorized about.

Keywords: Market communication; price system; error; correction; coordination; Adam Smith; Friedrich Hayek; impartial spectator; invisible hand; (follow links to similar papers)

JEL-Codes: A10; B10; B40; (follow links to similar papers)

34 pages, March 26, 2009, Revised February 17, 2010

Forthcoming in The Adam Smith Review

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