"But the system of prices ruling the market not only transmits information in the light of which economic agents can mutually adjust their actions, it also provides them with an incentive to exercise economy in terms of money"

Michael Polanyi’s statement draws attention to the dual function of market prices within an economic system. When prices fluctuate, they are not merely arbitrary numbers attached to goods and services; they are complex signals reflecting a multitude of dispersed and often tacit bits of information. Each participant in a market, the consumers, workers, producers, possess only a fragment of the total knowledge relevant to all economic decisions made. These small pieces, which could include local resource constraints, changes in consumer preferences, technological innovations, or sudden supply shocks, are too vast and varied to be centrally coordinated. Prices, then, serve as distilled messages, efficiently conveying essential data about relative scarcity, abundance, and demand across the marketplace.

Through the process of adjustment to these price signals, individuals coordinate their activity effectively without ever needing full knowledge of the total economic situation. For example, a rise in the price of a commodity suggests increased demand or decreased supply; this encourages producers to allocate more resources to its production, while consumers might reduce their consumption of that good. In this sense, prices act as a communication system, harmonizing countless decentralized decisions into a coherent, functioning order.

At the same time, Polanyi emphasizes the motivational side of pricing. Prices attach a monetary value to resources, goods, and services, which influences the behavior of all market participants. The need to economize becomes not simply a matter of abstract accounting but a tangible incentive. The cost of acquiring anything, in terms of money value, prompts individuals and firms to make choices about how best to allocate their limited means. This pursuit of economy, guided by prices, reinforces the efficient use of resources and prevents waste. Market actors are thus simultaneously informed and incentivized by the price system to act in ways that align personal interests with broader societal efficiency. The interplay of information transmission and motivational force is what makes market coordination both dynamic and responsive.