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However, students should realize that the supply of money can be intentionally increased by those controlling the monetary system. At this point in the narrative, we remind students about Mises’ (1996) regression theorem and Menger’s (1994) theory of money to reinforce understanding that money cannot be arbitrarily defined by some authority. Money is an evolved institution, as maintained also by Hayek (2011). As the previous example and common experience show, prices do not all rise simultaneously or proportionally.

Thus, we can say that a producer (entrepreneur) makes prospective calculations based on personal knowledge, or “insight”, and then retrospective calculations based on information (prices) passed to him from consumers. In retrospect, the price data passing from consumers to producers (or, to entrepreneurs) can either confirm or contradict that foresight (anticipation). Profit or loss, if calculated properly based on reliable information, can guide future activity to better outcomes. Gilder and Hayek could agree that the “noise” or distortions caused by government interventions in terms of regulations, changing rules, monetary manipulations, or taxes, which Gilder calls excessive noise in the carrier and Hayek calls price distortion, are causes of confusion to the market economy.

What is actually happening is that consumers willing to pay higher prices allow producers to incur higher costs. 3 Information Transfer 19 can refer to Rothbard (2004) for a more detailed explanation of the production and information exchange processes. Now, since voluntary exchanges among the many participating individuals are the determinants of “prices,” we need to consider what “elements of exchange” operate to determine which exchanges will actually occur. We remember that we are talking about indirect exchanges occurring in an economy using money as the medium of exchange.