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

HIERARCHICAL METAPHORSlegal order. Again, where particular institutions are in thehierarchical structure will vary depending on the perspective one istaking on the issue at hand.To avoid any premature charges of nihilism, I am not arguingthat we throw out all of the valuable insights provided byhierarchical metaphors. Instead I would suggest that we reconsiderour metaphors to make them more consistent with a radicallysubjective understanding of both knowledge and the social order.After offering an alternative way of conceiving the institutionalorder, I will briefly discuss an application.Parallels between Austrian theories of institutionsand capitalAn alternative way to conceptualise the institutional order mightdraw from Austrian analyses of another, equally complex,interconnected economic structure: capital. 10 In fact, Lachmannused the same phrase ‘nodal points’ to describe both institutions (seethe quote above on p. 145) and capital goods: ‘Capital goods aremerely the nodal points of the flows of input…which they absorb,and of output…which they emanate’ (Lachmann 1978:58, emphasisin original). Austrian approaches to capital are the logical extensionof subjectivist value theory. Once it is recognised that value is theproduct of consumer perceptions, then capital goods have to beunderstood in their roles as possible contributors to the productionof valued goods. Since production does not occur automatically, butrather reflects the choices of producers/entrepreneurs, the waycapital gets used will reflect the purposes and plans and expectationsof its users. Whether a given good is capital depends on the role itplays in producers’ attempts to anticipate the valuations ofconsumers. Production is inherently speculative as owners of capital‘bet’ on it producing what consumers desire.The implication of this theory of capital is that, as with value, thecapital status of a good is not amenable to some objective definition.It is not the physical properties of a good that make it capital, ratherit is the good’s role in the plans of producers that give it the qualityof being capital. The same slice of bread I use to make my hamsandwich at home would be considered capital if used for arestaurant sandwich and then sold to diners. 11 In a more completediscussion, stemming from Menger (1981 [1871]), we can recognisethat capital goods can be ‘ordered’. If consumer goods are ‘firstorder’goods, then the immediate inputs that comprise them are151