Just how important are prices anyways? Can resources be efficiently allocated without them? What percentage of activities have actual price tags?
Wake up or sleep in? Price tag? No.
Put on clothes? Price tag? No.
Brush your teeth? Price tag? No.
Shave? Price tag? No.
Use the toilet? Price tag? No.
Go for a jog? Price tag? No.
Take a shower? Price tag? No.
Eat breakfast? Price tag? No.
Brush your teeth? Price tag? No.
Put on deodorant? Price tag? No
Go to Starbucks? Price tag? No.
Buy a cup of coffee? Price tag? Yes.
Clearly the vast majority of our allocation decisions do not have literal price tags. But they do all have an opportunity cost. Each use of a resource requires that you sacrifice all the alternative uses. Every course of action requires the sacrifice of all the alternative courses of action. This means that resources are put to their most valuable uses when individuals have the freedom to choose which uses they value most. Therefore, it really does not seem that prices are necessary in order for resources to be efficiently allocated.
I might be wrong though. But because I'm a pragmatarian...it's not necessary for me to be 100% certain one way or the other. This is because if prices are truly necessary...if they facilitate the creation of more value...then if congress lowered the tax rate, taxpayers would give them more of their taxes. A lower tax rate would mean a larger private sector (prices) and a smaller public sector (no prices).
Even though it's purely academic in nature, it's quite enjoyable to discuss the feasibility of pragma-socialism. Pragma-socialism is a pragmatarian system with a 100% tax rate. Maybe it's pretty much the same thing as a market economy without any prices. Every organization would be a non-profit...but you could choose which non-profits you donate to.
Over on Peter Boettke's blog entry... ABCT Providing the Missing Gap...I've been discussing the topic with Nicholas (also his comment on the pragmatarianism FAQ). As a result of our discussion, I think it would be informative if he could try and quantify exactly how necessary prices are to ensure the efficient allocation of resources. So I created the following graphic...
Here's my answer... A-0, B-7.5, C-8. From my perspective, there's a huge disparity in the allocative efficiency between planned economies and market economies...and little, if any, of that has to do with prices. It simply has to do with the fact that in a planned economy people's preferences are either assumed, or disregarded. As a result, how society's limited resources are used (the supply) does not reflect the actual demand for goods/services. When individuals do not have the freedom to decide which uses of their limited resources they value most...it's a given that resources will not be put to their most valuable uses.
However, from Nicolas' perspective (and the perspective of most/all free-market economists), the disparity in allocative efficiency between planned economies and market economies is in no small part due to the presence of prices in market economies. Therefore, my guess is that he'll place B on anywhere from 3 to 5 on the allocative efficiency scale.
Anybody is welcome to share the graphic that I created and repost it elsewhere. Also, for more discussion on the topic just google "A World Without Prices or Profit" and "A Survey on the Importance of Prices".