The imaginary construction of a stationary economy has sometimes been confused with that of an evenly rotating economy. But in [p. 251] fact these two constructions differ.

When men in dealing with the problems of their own actions, and when economic history, descriptive economics, and economic statistics in reporting other people’s actions, employ the terms entrepreneur, capitalist, landowner, worker, and consumer, they speak of ideal types. When economics employs the same terms it speaks of catallactic categories. The entrepreneurs, capitalists, landowners, workers, and consumers of economic theory are not living men as one meets them in the reality of life and history. They are the embodiment of distinct functions in the market operations.

Abbott, Lawrence. Quality and Competition. New York: Columbia University Press, 1955.

About, Edmond. Handbook of Social Economy. London: Strahan & Co., 1872.

Abramson, A.G. “Permanent Optimistic Bias—A New Problem for Forecasters.” Commercial and Financial Chronicle (February 20, 1958).

Alchian, Armen. “Costs and Outputs.” In Moses Abramovitz, ed., The Allocation of Economic Resources. Stanford, Calif.: Stanford University Press, 1959. Reprinted in Alchian Economic Forces at Work. Liberty Press, 1977.

Monetary calculation is the guiding star of action under the social system of division of labor. It is the compass of the man embarking upon production. He calculates in order to distinguish the remunerative lines of production from the unprofitable ones, those of which the sovereign consumers are likely to approve form those of which they are likely to disapprove. Every single step of entrepreneurial activities is subject to scrutiny by monetary calculation. The premeditation of planned action becomes commercial precalculation of expected costs and expected proceeds.

The evolution of capitalist economic calculation was the necessary condition for the establishment of a systematic and logically coherent science of human action. Praxeology and economics have a definite place in the evolution of human history and in the process of scientific research. They could only emerge when acting man had succeeded in creating methods of thinking that made it possible to calculate his actions. The science of human action was at the beginning merely a discipline dealing with those actions which can be tested by monetary calculation.

Economic calculation can comprehend everything that is exchanged against money.

Economic calculation cannot comprehend things which are not sold and bought against money. [p. 215]

Exchange ratios are subject to perpetual change because the conditions which produce them are perpetually changing. The value that an individual attaches both to money and to various goods and services is the outcome of a moment’s choice. Every later instant may generate something new and bring about other considerations and valuations. Not that prices are fluctuating, but that they do not alter more quickly could fairly be deemed a problem requiring explanation. [p. 218]