Error, Equilibrium and Equilibration in Austrian Price Theory

Theorists of the Austrian school have long maintained that every realized price is market-clearing, in sharp contrast to the adherents of the neoclassical mainstream, who view realized prices as constituting a state of disequilibrium with a mismatch between demand and supply. The heart of these theoretical differences lies in the equilibrium constructs used by the members of the two schools of thought in their analysis of price formation. This paper seeks to clarify and develop the conceptual foundations underlying the Austrian position, especially the concept of the plain state of rest, which represents a state of market equilibrium with error. It also provides a brief sketch of the role that realized prices play in the process of error correction and entrepreneurial selection that forms a key part of the market process as described by Ludwig von Mises