Order, Structure, and the Price System : A development of the Wiener Conjecture on communication within distributed systems

How is it that prices, which are merely a vector of numbers, come to coordinate the complex plans of millions of economic actors? After all, there is a quantum difference between the information conveyed by prices and the information necessary to capture the specifics of the ways in which the plans of different actors can dovetail with each other. Put differently, the flow of information necessary for each actor to convey to others the ways in which his plans can ‘fit’ with theirs is orders of magnitude greater than that which is conveyed by prices. This paper argues that prices are able to play a role in coordinating economic activity because of certain structural properties of the network of connections between firms, which enable the plans of each firm to directly depend on only a small subset of other firms. These structural properties also engrain the concomitant use of two forms of communication. The first of which involves private signals between firms with direct connections to each other. And the second involves public signals available to all, i.e. prices. Our analysis points to an isomorphism between the economy and the brain in their concomitant use of thick-private signals and thin-public signals to coordinate the functioning of component parts. Neuroscientists and economists are therefore likely to benefit from collaborating on the problem of coordination from a ‘systems theory’ point of view