For a long time, I found it somewhat difficult to explain the essence of that new quality that people generate through their interaction with each other and which the meager and miserable word “market” tries to describe. The fact that the market is an “information environment” or a “way to use knowledge” inspired few people. That changed when I came across the word “information.” The presence of this word makes it easy to explain what we are dealing with.
So, knowledge differs from information. Information is formed knowledge, laid out in words, and often fitted to existing ideological, political, and other concepts through which a particular person explains the surrounding world. Knowledge is information that has not been formed verbally or mentally, which a person uses, most often, without even thinking about it. Knowledge is much broader than information. There are, apparently, many situations where knowledge becomes information, but one of them is quite characteristic and, I think, very familiar to many. This refers to the situation when, reading a book, you catch yourself realizing that the author has expressed your thoughts. “I think that too!” you exclaim silently. At this moment, the knowledge you already possessed but didn’t even suspect existed becomes information in the form that the book’s author presented to you.
Now it’s clear that we all carry much knowledge, and, at the same time, predominantly this knowledge is partial. The market makes it possible to combine the dispersed knowledge of society within the framework of those situational orders that arise in thousands every second within it. Moreover, this happens naturally; people using this knowledge do not need to negotiate in advance and do not even need to know about each other’s existence.
We know much more than we understand, more than we are able to present in the form of information. The market allows us to use knowledge, bypassing the stage of information. Of course, in practice, information is indeed actively used when we make decisions in the market. Moreover, we are confident that we make them only on the basis of information.
And, finally, the market allows us to discover new knowledge. Competition, as Hayek brilliantly noted, is a procedure of discovery.