The Austrian theory of price : an example

This paper introduces a simple example for teaching the Austrian theory of price to undergraduate students. It is argued that market prices serve a social function, because plan discoordinations manifest themselves as discrepancies in prices. When plans can be freely expressed in terms of the same commodity (money), the quantities of this commodity (prices) can be compared with each other, and discrepancies between the plans (price differentials) can be perceived with relative ease by entrepreneurs. Traditionally, many economists have failed to understand that the function of market prices is more than merely summarizing market information.