Chapter Ǻ: Macroeconomics and Coordination ȀȂȂthe parties. Ļese activities have “transactions costs” in an inclusive sense
of the term. Many of them impede not only actual transactions but even
messages of willingness to buy or sell.
Recoordination to recover from recession requires more, then, than
just adjusting prices and wages. Business contacts must be restored or
revised. Information, including information about market conditions,
must be brought up to date and transmitted.
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Costs and complexities of reality help explain the value of habits, rou-
tines, and long-term business relations, as between supplier and customer,
employer and worker, and borrower and bank. Not every business rela-
tion is continuously open to price revision, as abstract equilibrium theory
might seem to recommend. Ļe very concept of different degrees of liq-
uidity of various financial and real assets reflects recognition that price
is not the only determinant of whether potential transactions get con-
summated. If all goods were perfectly liquid, as tacitly assumed in the
Walrasian model, then impediments to communication would have been
removed. Howitt (ȀȈȈǿ), writing partly under the inspiration of Clower
and Leijonhufvud, surveys some of foregoing themes, as does Okun (ȀȈȇȀ).
Howitt, as well as Hall (ȀȈȈȀ), comments on difficulties of finding trading
partners in “thin” as opposed to “thick” markets. By analogy, my installing
a telephone benefits people who might want to reach me but imposes
a congestion cost on people who might want to reach people talking
with me.
Whether a particular transaction can go forward depends on much
more than the terms subject to negotiation between the two potential
trading partners. Whether a manufacturer and a potential employee could
both benefit from their relation depends on more than the wage rate. It
depends on prices charged by competitors and by suppliers of materials,
on terms on which energy, transportation, and credit are available, on mar-
ket conditions facing potential customers, on inventories of various kinds,
and on much else besides.
Changes affecting such conditions are continually going on, challeng-
ing entrepreneurs to cope with them, as by developing new business oppor-
tunities to replace fading ones. In ordinary times, entrepreneurs continu-
ally accomplish myriads of interdependent microeconomic adjustments
without palpable macroeconomic disorder.