The imaginary construction of a pure or unhampered market economy assumes that there is division of labor and private ownership (control) of the means of production and that consequently there is market exchange of goods and services. It assumes that the operation of the market is not obstructed by institutional factors. It assumes that the government, the social apparatus of compulsion and coercion, is intent upon preserving the operation of the market system, abstains from hindering its functioning, and protects it against encroachments [p. 238] on the part of other people.

No other imaginary construction has caused more offense than that of an isolated economic actor entirely dependent on himself. However, economics cannot do without it. In order to study interpersonal exchange it must compare it with conditions under which it is absent. It constructs two varieties of the image of an autistic economy in which there is only autistic exchange: the economy of an isolated individual and the economy of a socialist society.

The only method of dealing with the problem of action is to conceive that action ultimately aims at bringing about a state of affairs in which there is no longer any action, whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question. Action thus tends toward a state of rest, absence of action.

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.