The Right Direction

Markets are miraculous coordination machines. When tin becomes scarce somewhere in the world, prices rise. Shippers adjust their routes. Manufacturers find substitutes. Consumers reduce consumption. All of this happens without anyone needing to know why tin became scarce. The price signal carries the information that matters: tin is now more valuable elsewhere, so redirect your behavior accordingly.

This is a genuine achievement. Friedrich Hayek called it a "marvel" and meant it. Billions of people with different goals, different knowledge, and different values manage to coordinate their activities through price signals alone. No central planner could aggregate the dispersed knowledge that markets process every second. The shipper doesn't need to know about the mine collapse in Malaysia or the new battery technology in Korea. She only needs to know that tin prices rose.

But notice the phrase Hayek used when describing this system: it tells participants "the right action" and "the right direction." What determines the right direction? At the level of any individual transaction, the answer seems obvious: prices do. Move resources toward higher-value uses. But zoom out, and a question appears that price signals cannot answer: What makes one direction "right" in the first place?

Markets operate within frameworks they cannot generate. Property rights determine who can participate in exchange and what can be exchanged. Contract enforcement determines which agreements will be honored. Legal definitions determine which entities count as actors capable of making binding commitments. These frameworks don't emerge from trading. They make trading possible.

Consider what markets presuppose rather than produce. Most societies prohibit certain exchanges: you cannot buy votes, sell children, or purchase organs (in most jurisdictions). These boundaries around legitimate exchange are not discovered through price signals. They are settled through political and social processes that stand outside the market mechanism entirely. The market can coordinate activity within the boundaries of legitimate exchange. It cannot determine where those boundaries should be.

This reveals something important about the relationship between coordination and objectives. Before you can coordinate, you need to agree on what you're coordinating toward. The question "how do we win?" assumes someone already answered "what game are we playing?"

Take carbon pricing. We can now measure greenhouse gas emissions with remarkable precision. The measurement problem is largely solved. You might think this means we can design a market mechanism to allocate emissions efficiently and let prices do the work.

But carbon pricing requires answering questions that no measurement can adjudicate: Should emissions rights be allocated on a per-capita basis, giving equal atmospheric rights to each person on earth? Should historical emissions count, acknowledging that industrialized nations filled most of the atmosphere's carbon capacity during their development? Should developing nations receive greater present-day allowances as compensation for foreclosed growth paths? These are not questions about what the facts are. They are questions about what matters, about how competing values should be balanced when they conflict.

The price mechanism depends on prior settlement of these questions. Measurement exposes the need for that settlement; it cannot provide it.

Here is the structural problem: as our ability to measure things improves, it does not resolve these value questions. It multiplies them.

When measurement was expensive, organizations bundled together two different kinds of problems. "Follow protocol" compressed "we cannot verify outcomes" with "we haven't settled which outcomes matter." The first is an information problem. The second is a values problem. They look similar in practice because both produce the same organizational response: defer to procedure rather than assess results directly.

As measurement improves, this bundle fractures. The information problem becomes tractable. We can now measure hospital outcomes, educational achievement, environmental impact, and organizational performance with unprecedented precision. But this precision does not settle which measurements matter. We can measure patient mortality rates, infection rates, satisfaction scores, cost efficiency, and staff wellbeing. Measuring them all with perfect precision does not tell us how to weight them when they conflict.

Epistemic progress—learning more about the facts—does not produce evaluative progress. In many cases, it does the opposite: each resolved factual question branches into multiple value questions. Confirming that climate change is real (a factual convergence) opens questions about historical responsibility, generational equity, development rights, and species preservation (a value divergence). The problem space expands precisely where the fact space contracts.

There is a deeper issue. Coordination mechanisms don't just aggregate preferences. They shape them.

When university rankings become visible, institutions optimize for the dimensions those rankings make salient: faculty-student ratios, citation counts, graduation rates. They do this not because these dimensions capture educational quality but because visibility in rankings confers legitimacy. The metrics become targets. As institutions orient toward ranked dimensions, the rankings increasingly reflect optimization behavior rather than underlying educational value.

This is not market discovery of what quality means. It is market constitution of what quality means. The same logic applies wherever actors optimize toward signals rather than underlying values: financial markets where asset prices become reference points that actors trade toward, social media where engagement metrics become targets that shape content.

The feedback loop works like this: What becomes measurable becomes salient. What becomes salient becomes legitimate. What becomes legitimate becomes binding. What becomes binding shapes what actors optimize toward. And optimization reinforces salience, completing the loop.

This is not coordination failing. This is coordination operating constitutively. The mechanisms meant to aggregate preferences end up shaping the preferences they aggregate through the attention they focus and the legitimacy they confer.

The implication follows: allowing coordination mechanisms to operate without explicit governance of objectives does not avoid the question of which objectives matter. It answers that question by default—through the constitutive power of whatever becomes visible and measurable.

If you don't settle what you're optimizing for, the optimization process will settle it for you. It will settle it based on what's easy to see, what's easy to count, what produces signals that can be aggregated. This is not a neutral outcome. It systematically favors dimensions that can be compressed into metrics over dimensions that resist compression. Short-term over long-term. Individual over collective. Measurable over meaningful.

This explains why the question of objectives is not a preliminary matter to be handled before the "real" work of coordination begins. It is the central strategic question. Performance presupposes objectives: "How well?" requires prior answer to "Toward what?" There is no algorithm for determining what the algorithm should maximize.

The practical upshot is that two kinds of organizational work require different approaches.

For epistemic problems—questions about facts—more information helps. Better measurement, better models, better data integration. These problems converge toward solutions as knowledge accumulates. Scientific consensus emerges through the aggregation of evidence.

For evaluative problems—questions about what matters—more information does not help directly. These problems require settlement: political processes, negotiation, authority, or convention that produces commitment even where disagreement persists. Settlement is not discovery. The answer is not waiting to be found in the world. It must be created through commitment.

Treating evaluative problems as if they were epistemic—seeking to measure our way to answers about what matters—creates systematic distortions. It fills the vacuum with whatever the coordination mechanism makes visible.

Markets are great at solving problems. They cannot decide which problems are worth solving. Price signals tell you how to win the game currently being played. They cannot tell you whether it's the right game.

This is not an argument against markets. It is an argument for understanding what they presuppose. The institutional frameworks that make markets possible—property rights, contract enforcement, commodification boundaries—embody prior evaluative settlements. When those settlements are implicit, when we forget that the framework was chosen rather than discovered, we risk letting coordination mechanisms drift toward objectives that no one explicitly chose.

The question is not only "how do we win?" but "what game should we be playing?" Coordination mechanisms, operating constitutively, will answer that question by default if we don't answer it deliberately. They will answer it based on what's visible, what's measurable, what produces signals that can be aggregated and acted upon.

The right direction is not given by the mechanism. It is what the mechanism presupposes.