Economic Calculation and the Organization of Markets

Originally published in The Review of Austrian Economics

Austrian economists have had mostly mixed feelings about transaction costs-based theories of the organization of economic activities. We argue that the two approaches, the Austrian and the Transaction costs, would gain from integrating their most important insights. In particular, we argue that both transaction costs and economic calculation are necessary analytical tools for a complete theory of the organization of markets. In a world without transaction cost, there would be no calculation problem because there would be no problem of the organization of markets. Only when transaction costs are positive will the scope of economic calculation be limited. At the same time, the optimal response to given transaction costs is itself the result of what we refer to as “secondary calculation.”