Handbook on Contemporary Austrian Economics

Economics as the study of coordination and exchange 17
words, economics provides the means to make general predictions regarding
the pattern of relative prices and the economic process under differing
conditions. However, economics does not provide the tools to predict
specific outcomes or to discuss a unique static equilibrium.
A final characteristic of the exchange paradigm is the emphasis on
imperfect information and dispersed knowledge. In reality, individuals are
rarely aware of all of the relevant market participants and opportunities
for exchange. Further, many interactions and exchanges are characterized
by information asymmetries. Adherents of the exchange paradigm focus
on understanding the mechanisms that allow individuals to overcome
these imperfections and asymmetries. In other words, a central question
asked by adherents of the exchange paradigm is: under what institutional
arrangements can individuals best learn about exchange opportunities
and overcome issues associated with asymmetric information and dispersed
knowledge As Section 2.5 will discuss in more detail, the role of
institutions, as well as institutional change and evolution, is central to
the exchange paradigm because institutions frame all interactions and
exchanges.
2.3 CataUactics - the science of exchange
In considering why the allocation paradigm emerged as the dominant
framework of orthodox economics, James Buchanan identified the use of
the word "economics" as part of the problem (1964, pp. 215- 16). According
to Buchanan, focusing on economizing behavior leads economists to think
in terms of maximization and allocation instead of in terms of coordination
and exchange. In place of the word "economics," Buchanan suggested
the use of "catallaxy" or "symbiotics" to draw attention to interaction,
association, and exchange. The term catallaxy derives from the Greek verb
katallattein (or katallassein) which means "to exchange," and "to admit
into the community," as well as "to change from enemy into friend" (see
Hayek, 1976, pp. 108- 9).
In drawing attention to the role of rhetoric in framing the way economists
approach their subject, Buchanan is one in a long line of thinkers
to emphasize the relevance of the notion of catallaxy. Reverend Richard
Whatley first suggested "catallactics" as a replacement for "economics" in
1831. Whatley's call for a shift in terminology was driven by his criticism
of the narrow focus of the study of economics as the science of wealth
(Rothbard, 1987). Whatley called for economists to move behind the
study of wealth and to broaden their focus to the study of exchange.
Ludwig von Mises was the first economist to extensively integrate the
notion of catallaxy into the study of economics. According to Mises,
the price system and broader market economy are best understood as