George A. Selgin's monograph intervenes in a dispute inside the Austrian school over whether market economies tend toward equilibrium. His July 1990 preface traces the dispute to the New York University colloquium, where Israel Kirzner affirmed the tendency and Ludwig Lachmann doubted it, and identifies the text as a reprint of his 1987 Review of Austrian Economics essay, based on a 1982 graduate paper. Selgin wanted to keep the logical necessity Mises claimed for economic theory while granting that entrepreneurs act on uncertain expectations. He reconciles the two by redefining equilibration as a property of action judged within the actor's own plan and assigning the question of whether plans fit together to a separate concept of coordination. The preface records that neither Kirzner nor Lachmann accepted the proposal. Read as the partisan argument it is, the book teaches a reader to specify what a market-tendency claim asserts before deciding whether it holds.
The groundwork separates pure theory from understanding. In Selgin's reading of Mises, the logic of choice concerns the acting person as such and abstracts from the content of anyone's preferences. Historical understanding, developed here from Weber's and Schutz's ideal types, imputes particular motives to particular people. Praxeology's conjectural histories can reason conditionally about tariffs or central banking with ideal types of institutions and policies alone, and their conclusions hold wherever the real counterparts are present. Applied economics, which examines an actual tariff or monetary regime, adds ideal types of the acting people and their motives. A logical claim falls when a critic locates a fault in the reasoning, while evidence decides whether the auxiliary assumptions fit the case at hand. Selgin concedes in a footnote that some allegedly praxeological propositions may conceal empirical assumptions, which turns the method into a working discipline: name which premise is offered as necessary and which depends on knowledge of the case.
The central proposal concerns profit. Selgin locates entrepreneurial profit in the imagination of the acting entrepreneur, at the margin of a plan. A surplus of money receipts over outlays can be rent on a service or compensation for opportunity costs, and the economist classifies it as entrepreneurial profit when some action implies that a person imagined and pursued it. Acting then exploits the specific opportunity imagined or exposes it as illusory, so every free action is equilibrating in this defined sense. New information prompts fresh imagination and a new opportunity, and the prices that result can make other prices and plans obsolete, so equilibration continues without reaching a final state of rest. The concept differs from convergence on a fixed Walrasian configuration and promises no measurable improvement. It lets a reader separate a revised plan from the accounting return it yields, and both from an outside analyst's guess about opportunities nobody pursued. Selgin criticizes Kirzner and Lachmann alike for judging equilibration against an objective, Walrasian standard of given means and ends. Within that shared framework Kirzner treats innovation as the discovery of opportunities already there, Lachmann treats it as mainly disequilibrating, and Selgin's subjective definition departs from both.
Selgin gives the definition economic content through the institutions in which action occurs. Market prices arise from private ownership and exchange of the means of production, and they let an owner estimate the implicit opportunity cost of each input and learn from past returns where consumer wants have moved. He treats such prices as a necessary prerequisite of economic calculation and rests his critique of socialism and intervention on that result, while stating twice that prices are insufficient for entrepreneurial success. Coordination means that plans prove compatible, and it depends on correct expectations and on the common-sense understanding historians use. A plan can be equilibrating in Selgin's sense and still end in disappointment when consumers choose differently. Selgin argues that interference with market prices may corrupt entrepreneurial understanding and lessen the potential for successful adjustment in the affected markets, because a price fixed by fiat presents entrepreneurs with a facade of preferences that has no basis in the valuations of market participants. Distorted prices in particular markets can mislead judgment there, while socialism removes the market prices that calculation requires. Whether a given forecast succeeds, and what effects a particular intervention had, remain questions for historical inquiry.
The final section answers the kaleidic view Selgin attributes to Shackle and Lachmann. He grants that if the future bore no connection to the past, coordination would be impossible and praxeology would shrink to tautologies of academic interest. His reply distinguishes fatalist determinism, in which people undergo events, from an activist causal regularity in which action aims to influence circumstances. Argument presupposes an exploitable link between one's words and another person's later beliefs, and economic discussion of banks or inflation relies on categories that persist through time. A consistent denier of social causation would have to abstain from judging market arrangements and explain his own participation in markets and debates. Selgin marks the limits himself. Praxeology takes causal regularity and the possibility of purposeful success as given, and it starts from the persistence of habits and institutions without explaining that persistence, so historicism and the extreme nihilist remain unrefuted. The result is a consistency challenge that separates uncertainty about particular futures from the complete absence of continuity, a distinction a reader can apply to any argument about expectations.
The book suits readers who want to know what a claim about market tendencies asserts and which assumptions carry it. It asks for patience with methodological philosophy and rival definitions, and its portraits of Mises, Weber, Schutz, Hayek, Shackle and Lachmann are Selgin's interpretations, offered in support of his own position. Its sharpest use is to clarify when "the market tends toward equilibrium" works as a deduction about action and when it works as a historical wager about expectations. The Mises Institute publishes the complete 1990 text as a free PDF. For the broader system Selgin applies, Mises's Human Action is discussed in our recommendation of that treatise.