Whereas economic theory, especially the Austrian variety, discusses and ‘problematizes’ the coordination of plans, interests, and production in the market, these theories tend to emphasize generalized phenomena and, consequently, aggregates. For instance, Hayek’s interesting and highly relevant Pure Theory of Capital provides well over 400 pages discussing the intricacies of capital, production, and entrepreneurship. Yet Hayek never gets to the bottom of things. He only talks about production structures, processes, investments, and interest rates. When the interest rate (which he, in stark contrast to Moses, defines as the return on capital) changes, how does this affect the production structure?

The question is important, but Hayek (as many economists, including Austrians) discusses adjustments in the market as though they are automatic – without specific or at least important problems. But this is not the same world as individual actors face. The latter never deal with aggregates, and therefore the problems that do not emerge on the aggregate level (for instance, when “adjusting a production process”) can in fact be prohibitively costly or difficult to overcome.

One such potential problem is the lack of density through the division of labor, which effectively makes implementations of innovations activities that take place outside the market and therefore without guidance of any prices or other market information. I call this problem the specialization deadlock –  a theoretical problem that is be very real for any entrepreneur in the real market. It is an important part of my forthcoming book The Problem of Production, and I have just posted a draft of chapter 3 The Specialization Deadlock on my web site here.

Suggestions, criticism, and other feedback is greatly appreciated.