Catallactics

Catallactics is a theory of the way the free market system reaches exchange ratios and prices.^[1][2][3][4] It aims to analyse all actions based on monetary calculation and trace the formation of prices back to the point where an agent makes his or her choices.^[5] It explains prices as they are, rather than as they "should" be. The laws of catallactics are not value judgments, but aim to be exact, empirical, and of universal validity. It was used extensively by the Austrian School economist Ludwig von Mises.^[6]

By refraining from value judgements about what prices “ought to be” from the perspective of any generalized equilibrium model or individual agents ideals, catallactics seeks to describe economic phenomena as they emerge from individual choices, rather than prescribe ideal outcomes. In this way, it diverges from many mainstream economic models that treat the economy as an optimization problem to be solved or engineered toward efficiency. Instead of offering static, mathematical solutions, catallactics analyzes how individuals coordinate their plans and preferences through market prices, which act as dynamic signals rather than fixed targets. This descriptive approach leaves open the possibility that human values, technological innovations, or cultural shifts may alter economic priorities, leading society away from any previously theorized “optimal” state. By focusing on the ongoing process of exchange and adaptation, catallactics aims to reflect the fluid and decentralized nature of real-world economies.

Etymology

The term catallactics comes from the Greek verb καταλλάσσω which means to exchange, to reconcile.^[7][8]

Definition

Catallactics is a praxeological theory. The term catallaxy was used by Friedrich Hayek to describe "the order brought about by the mutual adjustment of many individual economies in a market."^[9] Hayek was dissatisfied with the usage of the word "economy" because its Greek root, which translates as "household management", implies that economic agents in a market economy possess shared goals. He derived the word "Catallaxy" (Hayek's suggested Greek construction would be rendered καταλλαξία) from the Greek verb katallasso (καταλλάσσω) which meant not only "to exchange" but also "to admit in the community" and "to change from enemy into friend."^[10]

According to Mises^[11] and Hayek^[12] it was Richard Whately who coined the term "catallactics". Whately's Introductory Lectures on Political Economy (1831) reads:^[13][14]

It is with a view to put you on your guard against prejudices thus created, (and you will meet probably with many instances of persons influenced by them,) that I have stated my objections to the name of Political-Economy. It is now, I conceive, too late to think of changing it. A. Smith, indeed, has designated his work a treatise on the "Wealth of Nations;" but this supplies a name only for the subject-matter, not for the science itself. The name I should have preferred as the most descriptive, and on the whole least objectionable, is that of CATALLACTICS, or the "Science of Exchanges."

See also

• Price signal
• Catallaxy
• Henry Dunning Macleod