Economics as the study of coordination and exchange - notas de clase

The central question posed by James Buchanan in 1963 was, "What Should Economists Do?".
The prevailing orthodoxy views the economic problem as one of allocating scarce resources among competing ends (allocation paradigm).
The allocation paradigm assumes that an optimal way to assign resources is possible and discoverable.
The allure of scientism often pulls economists toward the allocation paradigm, favoring mathematical models to achieve scientific precision.
The Austrian approach argues that economics should focus on exchange relationships and the institutions (rules of the game) within which exchange takes place (exchange paradigm).
The goal of the exchange paradigm is to understand purposeful human action and the endogenous process through which individuals coordinate their often differing plans and goals.

Both paradigms recognize that individuals act purposefully and acknowledge the central importance of gains from exchange.

The allocation paradigm assumes that the outcome of exchange is a static equilibrium where all gains from exchange are exhausted.
It assumes an environment characterized by price taking, homogeneous goods, and perfect information.
It operates under the assumption of prereconciliation of plans, meaning there is no uncertainty, human error, or need for discovery or learning.
Solutions emerge through a set of exogenous variables, rather than an endogenous process.
The allocation paradigm ultimately drains the study of economics of purposeful individual action.

The market process is defined by the recognition that static equilibrium is never achieved in the real world.
The market is characterized by varying market structures, heterogeneous goods, and imperfect information.
The entrepreneur is the central mechanism for coordination, constantly alert to unrecognized opportunities.
Prices are not exogenously given but emerge endogenously through the process of interaction and competition.
This approach yields pattern predictions (general trends), but not specific point predictions.
A key focus is understanding mechanisms that allow individuals to overcome issues associated with asymmetric information and dispersed knowledge.

Buchanan suggested replacing "economics" with "catallaxy" or "symbiotics".
The term catallaxy (or katallattein) means "to exchange," "to admit into the community," and "to change from enemy into friend".
Catallactics is the science that studies the market order.
Ludwig von Mises viewed the price system and the broader market economy as a catallaxy grounded in purposeful human action.
Hayek preferred "catallaxy" because the term "economy" implies a single hierarchy of ends or a unitary plan, whereas the market order results from the mutual adjustment of many individual economies.
Catallactics focuses analytical attention on exchange relationships, bargaining, and the institutions within which exchange occurs.

This type involves "something we hope to achieve in our interaction with others".
It is illustrated by simple coordination games (e.g., choosing a meeting spot).
The outcomes are agreeable to the actors directly involved in the interaction.
This type is evident from the actor's point of view.

This type is grounded in the notion of spontaneous order: an order that emerges from purposeful human action, but not from human design (e.g., money, language).
It focuses on the meta-order and general overarching order.
The actor is responding to price signals and local opportunities (context-specific knowledge of "time and place"), and typically does not perceive themselves as directly interacting with myriad distant people.
This coordination is abstract from the actor's point of view and goes beyond examining recurring conventions in specific situations.

Institutions are the formal and informal rules governing human behavior.
- Formal rules include codified laws and regulations.
- Informal rules include unwritten traditions, norms, and customs.
Institutions create the "rules of the game" and incentives that influence exchange.
The meta-institutions of a society influence Type 2 coordination by creating general rules that facilitate or prevent social order.
The Austrian theory of institutions focuses on the causal-genetic process through which institutions emerge and evolve, tracing the chain of events leading to their current form.
The institutional process involves actors with limited knowledge engaged in continual discovery through trial and error.
Austrians emphasize that informal institutions (like culture and belief systems) serve as the foundation for formal institutions.
If formal and informal institutions clash, the formal institutions will tend to be dysfunctional (as seen in Hernando de Soto's work on Peru).
The spontaneous order concept explains that civilization's extended order resulted not from human design or intention but spontaneously from conforming to traditional practices.
Austrians criticize the reliance on aggregate measures of institutional quality in quantitative studies because they mask the underlying causal process, overlook the discovery process, and abstract from purposeful action (catallaxy).

Austrian economics contrasts the exchange paradigm with the orthodox allocation paradigm.
While the allocation paradigm views economics as a problem of maximizing outcomes in a static equilibrium with perfect information, the exchange paradigm views the market as a dynamic process defined by imperfect information and dispersed knowledge.
The study of this order is catallactics, which focuses on exchange relationships and the institutions that emerge to facilitate them.
Austrians distinguish between Type 1 coordination (intentional interaction, like a game) and Type 2 coordination (the spontaneous order of the meta-rules, like the price system), emphasizing the latter.
The Austrian theory of institutions focuses on the causal-genetic process of institutional evolution, noting that informal institutions (culture and beliefs) are the necessary foundation for formal rules, and that aggregate measures fail to capture the underlying process of purposeful action and discovery.