Part I, the price system:

Part II, profit and loss:

See also, Kirzner, How Markets Work: Disequilibrium, Entrepreneurship and Discovery (PDF), which is a wonderful rebellion against the over-simplification of neo-classical economics. For example:

Austrian theory, as presented here, places great weight on ‘entrepreneurial discovery’ which enables decentralised decision-makers to recognise when present decisions can be improved upon, and to anticipate future changes in the decisions being made by others. Movements in prices, production methods, choices of outputs, and resource owner incomes generated by entrepreneurial discovery tend to reveal where current allocation patterns are faulty, and to stimulate changes in the corrective direction.

In other words, don’t tinker with the complex, dynamic, creative process that is life in society: it’s not helpful. And if contemporary mainstream theorists had understood the application of this idea to interest rates, we might not be in this mess.

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