I recently finished a draft of a review essay on J. Daniel Hammond, Steve Medema and John Singleton, eds, Chicago Price Theory, 3 volumes that I entitled "Price Theory as Prophylactic Against Popular Fallacies." That title comes directly from Henry Simons and in particular Simons' Syllabus from his Econ 200 class that students for years took to prepare for Econ 300 sequence. When I was a graduate student at GMU in the early 1980s, Gordon Tullock published Simons' Syllabus through the Center for Study of Public Choice and made copies available for free at the Center. I still have my copy.
In my review essay, I distinguish between the Knight/Viner/Simons tradition of Chicago Price Theory from the Friedman/Stigler/Becker version. There really isn't anything novel in making that suggestion, though most try to emphasize a continuity through the years of the Chicago approach to price theory. However, I further argue that there is a possible path of the Knight/Viner/Simons tradition that is best embodied in the work of Alchian/Buchanan/Coase. With that in mind, consider the following quote from Simons:
Traditional price theory consists primarily in analysis of the pricing process under a free-enterprise economy -- under a system characterized by private property, free contract, and free exchange. Assuming given underlying conditions (given conditions, broadly, as to tastes, technology, resources, and ownership), it attempts to show how consumption and production are controlled through the pricing process and, above all, to describe (a) the arrangements under which the system will be in equilibrium and (b) how departure from the equilibrium arrangements will set in motion forces operating to restore equilibrium. The central conception of price theory is that of an equilibrium adjustment with respect to relative prices and relative production.
… The method implies a conception of two kinds of economic change, distinguished for purposes of separate study: (1) change in the form of adjustment to present conditions; and (2) change in the underlying conditions which are treated in price theory as fixed.
-- Henry Simons, Simons’ Syllabus, p. 6.
What is the intellectual agenda that follows from the position that "The central conception of price theory is that of an equilibrium adjustment with respect to relative prices and relative production" ? (emphasis added)
So here is my quiz to economists in the Austrian tradition --- explain how your understanding of price theory would differ from Simons. In doing so, consider these two quotes from Mises.
What distinguishes the Austrian School and will lend it immortal fame is precisely the fact that it created a theory of economic action and not of economic equilibrium or non-action. … The Austrian School endeavors to explain prices that are really paid in the market, and not just prices that would be paid under certain, never realizable conditions.
-- Mises, Notes and Recollections, p. 36.
And from Human Action, p. 232 a discussion of the essential relationship that students of the market economy must explore.
Ever since people have been eager for a systemic study of economics or political economy, all have agreed that it is the task of this branch of knowledge to investigate the market phenomena, that is, the determination of the mutual exchange ratios of the goods and services negotiated on markets, their origin in human action and their effects upon later action.
Kirzner has asked the question slightly different and focused our analytical attention on the relationship between the underlying variables of the market (tastes, technology and resource availability) and the induced variables of the market (prices and profit/loss statements). But nowhere does Kirzner ever deny the equi-marginal conditions that must hold when the induced variables dovetail with the underlying variables and we realize the perfect coordination of plans.
What is the relevance of this subtle differences in price theory for the status of the theory as a prophylactic against popular fallacies?