Meaning: The quote, "So everybody has some information. The function of the markets is to aggregate that information, evaluate it, and get it incorporated into prices," by Merton Miller, an economist, encapsulates the fundamental role of markets in the economy. It highlights the concept of information in markets and how it is processed to determine prices. Merton Miller was a Nobel Prize-winning economist known for his work in finance theory, particularly the Modigliani-Miller theorem, which addresses the relationship between a company's capital structure and its cost of capital.

In this quote, Miller emphasizes the idea that everyone possesses some form of information. This information could be based on personal experiences, research, or analyses of the market. However, the sheer volume of individual information makes it difficult for any single entity to process and evaluate it effectively. This is where the function of the markets becomes crucial. Markets act as a mechanism for aggregating the diverse information held by individuals and organizations, consolidating it into a collective pool of knowledge.

The process of aggregating information in markets involves the interaction of countless participants, including buyers, sellers, investors, and analysts. Each of these actors brings their own perspectives, insights, and data to the market. Through the dynamics of supply and demand, as well as the actions of market participants, this information is continually assessed, re-evaluated, and incorporated into the pricing of assets, goods, and services. The collective wisdom of the market participants is reflected in the prices that emerge, serving as a synthesis of the available information.

The notion of evaluating information in markets is closely tied to the concept of market efficiency. Market efficiency refers to the degree to which stock prices and other asset prices reflect all available information. According to the efficient market hypothesis, developed by Eugene Fama and others, asset prices incorporate all publicly available information and react swiftly to new information. This efficient assimilation of information into prices is essential for the proper functioning of markets and the allocation of resources.

Furthermore, the quote underscores the role of prices as the mechanism through which information is reflected and disseminated in the market. Prices serve as signals that convey information about the relative value and scarcity of goods and services. When new information emerges, such as changes in supply and demand, technological advancements, or shifts in consumer preferences, the market responds by adjusting prices to reflect these developments. As a result, prices not only represent the culmination of available information but also serve as a guide for decision-making by market participants.

From an economic perspective, the efficient aggregation and evaluation of information in markets have significant implications for resource allocation and economic welfare. When information is accurately incorporated into prices, market participants can make informed decisions about production, consumption, and investment. This, in turn, facilitates the efficient allocation of resources, leading to optimal outcomes for the economy as a whole.

In conclusion, Merton Miller's quote succinctly captures the essence of how markets function as information-processing systems. It emphasizes the collective nature of information in markets, the continuous evaluation and incorporation of information into prices, and the pivotal role of prices as a reflection of market knowledge. Understanding the role of information in markets is essential for comprehending the dynamics of economic activity, investment decisions, and the allocation of resources.