Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

ENDOGENOUS CHANGEconsequences. If, on the other hand, one wants to explain change, itmust be deprived of its novelty. The treatment of change ineconomic theory reflects this inadequacy, for change is portrayedeither as entirely exogenous, or as entirely generated within themodel. When it is entirely exogenous, no explanation can be givenwithin the realm of economic theory; when it is entirely generatedwithin the model, it becomes indistinguishable from an equilibriumrelation, as all changes have been pre-reconciled. One cannot fail tosee that a pre-reconciled change is not a kind of change that displaysany novelty. Novelty and explanation appear therefore as mutuallyexclusive categories.This difficulty in the treatment of change might be thought to beeasily overcome by taking one of the following routes. When changeis portrayed as entirely exogenous, one could have recourse to adifferent field of study other than economics and supply anexplanation in terms of the factors relevant to that field. But thiswould just shift the problem onto a different area, as change willthen be portrayed as entirely explicable within that model. Noveltywould be preserved only as far as economic theory goes.In the case of model-generated change, there is no novelty tospeak of. All change is governed by pre-determined relations. Infact, some degree of novelty could be introduced by assuminguncertainty. However, as long as uncertainty is associated withprobabilistic knowledge, instead of having deterministic prereconciliation,we would have pre-reconciliation of the probabilistictype. Novelty would here appear under the guise of chance, and thushardly be explicable. Consider, for example, the growth of thecapital stock. In a model of growth the change in the capital stock isgenerated within the model. The model outcome ensures that allchanges are reconciled. Growth of the capital stock could beassumed to depend on the growth of demand. When this is the case,the model outcome ensures that capacity and demand grow at thesame rate. With uncertainty, the growth of the capital stock willdepend on the expected growth of demand. A growing capital stockwill thus be consistent with a growing demand only on average.Deviations from this average will just be chance deviations.It appears impossible therefore, as one tries slowly to moveaway from one treatment of change in order to include someaspects of the other, to remain halfway and have novelty andexplanation at the same time. As one tries to make novelty lessnovel and introduce some explanation, novelty is totally lost.Similarly, as one tries to reduce the degree of pre-reconciliation by107