They allow for serendipity and thus for surprise. Surprise drives progress because innovation depends on the sort of knowledge no one can gather in a central place. The Austrian-born economist Friedrich A. Hayek, who won the Nobel Prize in 1974, applied this insight to market prices. Prices relay scattered information about what people want, what producers have to offer, and how relative scarcities are changing. But prices aren't the only way markets transmit information.
Markets also allow people with new ideas to test their hypotheses.
While other discount retailers concentrated on urban markets, Sam Walton, the founder of Wal-Mart, built stores in small towns, clustering them around central warehouses. He guessed correctly that he had a good model for improving retailing. But only by trying it out, in competition with other retailers, could he be sure. This divining function of the market has been overlooked by futurist visions, some of which imagined new products arising from obvious, articulated consumer demands, not entrepreneurial inventions. If the administration doubts the reality of the demand, a popular petition guaranteeing a certain basis of consumption compels it to produce the desired article.