You’re more or less getting it there. But that last statement is a bit misleading…those two parts aren’t mutually exclusive. Depending on what you mean by “valuation sets prices” they are both true…because it is supply and demand that sets prices…but the preferences of the individuals in the market (i.e. market valuations) are acted upon and (therefore) made known every second of every day…through the prices that are set by the supply and demand of all available resources in the economy.
You mentioned not seeing how individual preferences could be “applied on aggregate” to the whole economy…but that’s the whole point…there is no “economy”…there are only people. What is an “economy” but the various collections of resources and human actors? Individuals are what makes up the economy. It is the wants, needs, and actions of every individual in the market that make up everything about the economy. Prices are the result of every one of those individuals expressing their wants and needs in the open market (through transactions). No single person could know what every other person wants or needs. All they know is what they personally want or need, and what they are willing to give up to get it. And by transacting with others in a free market, all available resources are utilized in their most efficient, effective fashion based on what every individual who makes up the market has shown he or she wants and needs…through his open market transactions (and the prices that manifest as a result).
So what is it that makes you doubt the at least somewhat a priori assessment that the price mechanism is a communication about the subjective wants of the individuals in the market?
If I have a widget that gets bid up to a $1 million price, (based on the supply available and the relative demand shown through what people are offering to pay me for it), how is that not a communication about market preferences? The individuals offering making me the offers are showing that they value my widget more than all that money (i.e. everything else they could buy with it at that point in time)…they prefer my widget to whatever they are going to give up to get it. Every time you complete a transaction (or even refuse one) you are communicating your personal preferences. Now realize that every single actor in the market is doing that all the time. Prices are the result of all that communication.
(And again, this is why things get so messed up when government interferes and starts setting price controls or printing money out of thin air or setting up barriers that obstruct production or transaction…it sends false signals throughout the market. Think about the billions of transactions that take place every day. That’s a very intricate, delicate network of communication. When you print up a Trillion dollars and flush it out into that economy, that throws a serious wrench in the whole order of everything. This is what ABCT is all about.)
(Thomas Sowell talks about prices and central planning)
Again, the concept of what all the individuals (who make up the market) want, how badly they want it in relation to everything else they want, and what resources are available to provide it has been written on extensively, especially within the Austrian School. Mises called it the “economic calculation problem” and Hayek expanded on his work in the writings I listed for you earlier.