Handbook on Contemporary Austrian Economics

18 <strong>Handbook</strong> on contemporary Austrian economics
a catallaxy and the science that studies the market order falls under the
domain of catallactics. Catallactics is part of the wider discipline of praxeology
with a specific focus on "all market phenomena with their roots,
ramifications, and consequences" (Mises [1949] 1996, p. 233). Catallaxy is
grounded in purposeful human action and focuses on how market activity
results in the emergence of exchange ratios and prices (ibid., p. 234).
Following Mises, Hayek (1976) also placed a central emphasis on the
concept of catallaxy. Hayek was dissatisfied with the use of the term
"economy" because "An economy, in the strict sense of the word in which
a household, a farm, or an enterprise can be called economies, consists of
a complex of activities by which a given set of means is allocated in accordance
with a unitary plan among the competing ends according to their
relative importance" (ibid., p. 107). For Hayek, the central issue is that the
term "economy" is often used to refer not to a single enterprise, but rather
to the array of networks and interactions between a wide variety of individual
economies. However, the numerous networks and interactions of
individual actors are not governed by a single hierarchy of ends like those
of an individual economy. Instead, the array of economies consists of many
individual actors each with a different hierarchy of interests and ends.
Given this, Hayek preferred the term "catallaxy" to "economy" because
the former refers to the order resulting from "the mutual adjustment of
many individual economies in the market" (ibid., p. 109).
The use of "catallaxy" as an alternative to the use of "economy" is more
than mere semantics. Words have meaning and those meanings are important
in framing the analytical focus of economists. Catallactics focuses our
analytical attention on exchange relationships, including the emergence
and evolution of those relationships and the institutions within which
exchange activity takes place.
2.4 Two types of coordination
A central tenet of Austrian economics is that the study of economics is
fundamentally about exchange behavior. Exchange requires the coordination
of the different plans and ends of individuals. Given this, a clear
understanding of the concept of "coordination" is of central importance.
As Klein (1997) notes, two notions of coordination have emerged in the
economics literature. These two meanings have important implications for
the way we frame and study economic issues.
The first use of the term coordination is best illustrated by the work of
Nobel Laureate Thomas Schelling. In Schelling's use of the term, coordination
entails "something we hope to achieve in our interaction with
others" (Klein, 1997, p. 324). This type of coordination can be illustrated
by a simple "coordination game" whereby individuals try to coordinate