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

HIERARCHICAL METAPHORSpioneering efforts of former generations from which we arestill drawing benefit.(Lachmann 1971:68)Lachmann and others in the Austrian tradition point to CarlMenger’s (1892) theory of money as the exemplary story ofinstitutional emergence and evolution. 9An Austrian conception of social order sees it as aninterconnected set of institutions, most spontaneous, some designedand all evolving and serving as communicative processes thatenhance the ability of individuals or collectivities (such as firms) toformulate and execute their plans. The next, and perhaps moreimportant, question deals with the relationships among all of theseinstitutions. In Lachmann’s (1971:69) words: ‘how can we knowthat these undesigned products of individual pursuit will all becompatible with one another?’ Just how do the various institutionalarrangements of a modern society interact to form what mightlegitimately be called an ‘institutional order’?Both Lachmann and Langlois offer us a way of conceptualisingthis order that enables us to say something about the relationshipsamong institutions. For Lachmann, the crucial distinction isbetween ‘internal’ and ‘external’ institutions:the undesigned institutions which evolve gradually as theunintended and unforseeable result of the pursuit of individualinterests accumulate in the interstices of the legal order. Theinterstices have been planned, though the sedimentsaccumulating in them have not and could not have been. In asociety of this type we might then distinguish between theexternal institutions which constitute, as it were, the outerframework of society, the legal order, and the internalinstitutions which gradually evolve as a result of marketprocesses and other forms of spontaneous individual action.(Lachmann 1971:81, emphasis in original)Although Lachmann, on the following page, admits someshortcomings to this scheme, he also claims it is one in which a‘praxeological theory of institutions…most readily finds its place’(ibid.: 81). As seen in the lengthy quote above, Lachmann’s primeexample of an ‘external’ institution is the legal order in so far asmarket institutions emerge and evolve by taking the law as a givenframework within which to develop. For example, given the147