Chapter Ǻ: Macroeconomics and Coordination ȀȄȀinstitutional detail. Austrians practice comparative-institutional analysis,
which does not mean comparing the real world unfavorably with the Wal-
rasian vision of general equilibrium. When told that reality is unsatisfac-
tory in this or that respect, Austrians are inclined to ask, “Unsatisfactory
compared to what?” Like members of the Public Choice school, Austri-
ans know better than automatically to regard government as superior to
private enterprise in accomplishing various tasks.
Ļe aggregate-demand/aggregate-supply analysis still dominating the
textbooks almost invites itchy-fingered attempts to fine-tune the macro-
economy. Ļe Austrians’ concern with fine-grained specialization and the
task of coordination directs attention, by contrast, to the question of what
framework of institutions and of more or less steady policies, institution-
alized policies, can best allow market processes to operate.
Ļe Austrian concern with institutions shows up in the debate over
economic calculation under socialism and capitalism and in discussions
of monetary standards and monetary reforms. It shows up in the atten-
tion that Ludwig von Mises and Friedrich Hayek paid to history. Distin-
guishing between theory and history, they warned against misconceiving
of economics as numerical aspects of recent or earlier economic history.
Aware of how important and how changeable institutions are, Austrians
are skeptical that a country’s economic “structure” can be pinned down
econometrically in functions of stable form and with stable coefficients.
Nothing can fully substitute for insights from history.
ōŜŜŞōŕşōŘ ōŚŐ śŜŜśŞŠšŚŕŠŕőş
Ļe large institutional and historical element in macroeconomics bars a
specific general theory and any well-specified model of the macroeconomy.
Emphasizing that element may seem antitheoretical, uninformative, and
sloppy; but if that is the way things are, supposing otherwise sabotages
understanding. Scarcely conceivable progress in macroeconomics might
some day change that condition, but meanwhile we must acknowledge
the contrast between micro- and macroeconomics.ȅDevising a general
theory is as difficult for macroeconomics as for diseases and wounds of
the human body.
In policy, also, a realistic macroeconomics might seem deficient. Un-
like what a well-specified model might seem to do, it cannot grind out
ȅFor an appeal for due modesty in macroeconomics by an eminent mainstream econ-
omist, see SummersȀȈȈȀ.