… is from page 130 of Texas Tech economist (and GMU Econ alum) Ben Powell’s important 2014 book, Out of Poverty: Sweatshops in the Global Economy:
Prices are conveyors of information about relative scarcity. Prices of consumer goods indicate how much value people place on different items. Entrepreneurs then bid on inputs, including capital goods, to make those consumer goods. The ability to buy all the necessary inputs and still sell the consumer goods for a profit is a signal that entrepreneurs have created value for society by transforming valuable inputs into a more valuable output. Losses are a signal that entrepreneurs are destroying value by taking scarce resources that could have been used to produce something else and turning those resources into less-valuable final consumer goods. The market’s profit and loss system provides the feedback on which businesses and industries should expand and which contract.
