Austrian Economics and Models of Rest

In his master treatise, Human Action, renowned Austrian school economistLudwig von Mises presents three economic models for states of rest, critical to analyzing the behavior of real-world markets.

The first of these, the plain state of rest, occurs frequently in actual markets. In a plain state of rest, buyers and sellers have exchanged goods to an extent that satisfies them. For the moment, they see no value in conducting further trades, as the marginal utility of the unit of the good in their possession has come to exceed the marginal utility of the unit of a resource they can trade that good for. The plain state of rest is not permanent, and trading may resume when economic actors become aware of new information. On the basis of this new understanding, their valuations of particular goods might change so as to render trading once again preferable to them.

In contrast to the plain state of rest, the final state of rest is only an imaginary construct. Used to trace the effects of a single initial alteration or disturbance in a market, the model of the final state of rest holds all other factors constant. It assumes that no further alteration in data will occur after the first change. The stable state reached by a market operating under these assumptions will be affected by the initial disturbance alone, and the full effects of this disturbance can thereby be analyzed in separation from all extraneous factors. Although the real market is far too complex for only one change to act on it during a given period of time, the model of the final state of rest can be used to determine which real-world effects are due to which particular causes. In fact, the need for the final state of rest model increases with the number of forces acting on a real-world market; only by isolating the effects of each change can one even begin to fathom the complex causality of an actual economy.