Chapter Ǻ: Macroeconomics and Coordination ȀȂȆand expectations that work to this effect. In short, thoroughgoing wage
and price flexibility would keep money from serving its normal purposes;
it could not survive. A degree of price stickiness—or dependability—is no
mystery.ȃ
A leading theme of Mises’s theory is that money is far from neutral in
its effects on quantities, incomes, and relative prices (ȀȈȃȈ/ȀȈȅȂ, pp.ȃǿȇff.).
Prices do not automatically set themselves in proportion to the total quan-
tity of money, as a naive interpretation of the quantity-theory equation
might suggest. Some changes occur relatively rapidly, others after long
delays. People’s responses to ongoing monetary and price inflation change
as experience accumulates and expectations change accordingly. Mises’s
discussion ofdifferentialprice changes constitutes emphatic recognition
of the stickiness of many prices. Ļis recognition is not a distinctively
Keynesian notion, despite remarks by textbook authors neglectful of the
history of economic thought.
Mises accepts the concept of general equilibrium—the evenly rotating
economy, as he calls it—as a tool of analysis. Using it in no way entails
supposing that the
final prices corresponding to this imaginary conception are ... identical
with the market prices. Ļe activities of the entrepreneurs or of any other
actors on the economic scene are not guided by consideration of any such
things as equilibrium prices and the evenly rotating economy. (ȀȈȃȈ/ȀȈȅȂ,
p.ȂȁȈ)Austrians are concerned with process—not merely with functional
relations in the mathematical sense but with who does what, why, when,
and how. Attention to process bars exclusive infatuation with the equi-
librium state. (Austrian scorn for the neo-Walrasian brand of general-
equilibrium theory is well known. It might well be better focused, how-
ever, than it habitually is.) Austrian economics recognizes the scope for
entrepreneurship in disequilibrium. Recognizing disequilibrium is one
aspect of Austrianrealism. Austrians are willing to see the world as it
actually is. Ļey are not sidetracked into supposedly “rigorous” theoriz-
ing about imaginary worlds that diverge from reality in crucial respects.
Austrians recognize that pure and perfect competition, like equilibrium,
are abstractions and not reality. Ļese imaginary extreme conditions do
ȃRoger Garrison objects to the term “sticky prices” on the grounds that stickiness
implies some sort of defect, as of a valve. Perhaps, then, the term “dependable prices”
would serve better.