Market Mechanism: An Appraisal of Neoclassical, Institutional and Austrian Schools of Thought

The Purpose of this paper is a comparison among the Neoclassical, Institutional, and Austrian Schools of Thought on market mechanism. Searching through the major published works of distinguished representatives of these schools, we find that there are increasingly converging tendencies between Institutional and Austrian economics on market process. However, their positions in this regards are increasingly diverging from their neoclassical counterparts. Their differences with neoclassical are not only in terms of concepts and methods but also in their basic principles. The three schools of thought share ideas such as rejection of stationary equilibrium and emphasizing on the process of change. The passive and purposeless agent of neoclassical theory is replaced by acting, purposeful, and future-oriented social man following formal and informal institutions. Creating profitable opportunities and avoiding losses are concepts that have no meaning in neo classical economics of perfect competition, in which every market participants possess perfect or sufficient knowledge of all relevant circumstances. However, Institutional and Austrian scholars are of the view that these characteristics of the free market give rise to the importance of entrepreneur as a critical agent of change. In short, our study shows that institutional and Austrian schools of thoughts provide a much better and more realistic picture of market.