ȀȂȁ Partʺ: Economicsto a degree that shows up as recession or depression? Because the funda-
mental insight of Say’s Law is correct—supplies of particular goods and
services constitute demands for others, sooner or later—thefundamen-
talmacroeconomic problem cannot be a deficiency of aggregate demand.
However, anything that impairs the processes of market exchange also
impairs production. People work and produce in the expectation of being
able to exchange their outputs away, and they will not persist indefinitely
(especially not in buying inputs for unsalable outputs) if their attempted
exchanges keep on being frustrated. Goods and services exchange for each
other not directly but through the intermediaries of money and of credit
denominated in and ultimately to be settled in money. Monetary disorder
can snarl up the process of exchange and so impede production. Austrians,
like monetarists, are prepared to take this snarl seriously.
Ļese considerations help argue, incidentally, for putting the micro
semester of a Principles of Economics course before the macro semester.
Students can hardly understand disruptions of coordination until they
know that a coordination problem exists in the first place and understand
how the market process solves it when it is working well.
Coordination requires more than correct prices. In Walrasian models
of general equilibrium, the “auctioneer” not only achieves the whole array
of market-clearing prices but also puts trading partners in contact with
one another, obviating the costly mutual searches otherwise necessary.
In effect he makes all assets equally liquid—equally readily marketable
or usable as means of payment—at their general-equilibrium prices. It
is questionable whether models featuring such a mythical personage can
contribute much to illuminating macroeconomic issues.ȁ
In the real world, however, a worker may be unemployed not nec-
essarily because he insists on too high a wage rate but because he and
a suitable employer have not yet made contact. Various startup costs of
a new employer-employee relation also enter into the story. In the real
world, prices are not the only bearers of signals and incentives about poten-
tial transactions. Quantities also perform these functions—quantities of
goods, services, and factors in accomplished transactions, frustrated trans-
actions, and inventory buildups and rundowns. Inventory management,
quality verification, advertising, and informational and other such activi-
ties bear on whether transactions can go forward to the mutual benefit of
ȁLéon Walras did not postulate the auctioneer explicitly; that secretary of the mar-
ket, possessing prodigious informational and calculating abilities, is an invention of inter-
preters. See chapterȀ, noteȂ.