Institutions as Abstraction Boundaries: Negotiated Categories and the Self-Reorganization of the Market Order

A central claim of the modern Austrian school is that a competitive market order can solve the knowledge problem while a centrally planned economy cannot. While Austrians such as Hayek have focused on the essential role of abstract rules and the coordinating role of prices, they have largely neglected the familiar, day-to-day institutions of store fronts, standardized contracts, and specific markets towards which people orient their actions. These secondary institutions, as Lachmann calls them, are examples of what software developers call abstraction boundaries. Abstraction boundaries both categorize knowledge into productive divisions and coordinate plans through time. We apply the software concepts of abstraction and modularity to better understand how these institutions promote both coherence and change. We argue that the drawing and redrawing of abstraction boundaries is a neglected aspect of the market process. * The authors would like to thank Darius Bacon, Howard Baetjer, Jack High, Ken Kahn, Thomas McQuade, Nick Szabo, and Lauren Williams for helpful comments.