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

ROGER KOPPL AND GARY MONGIOVImade graduate students feel like equal participants in an ongoingand urgent discussion. He encouraged them to apply their ownminds to the issues of economic theory. Lachmann taught hisstudents what the leading problems of economics theory are. Hepursued them with undeviating attention. Even when his denturesonce fell out during class lecture, he was unperturbed. Wrapping thedentures in a handkerchief and stuffing them in his pocket, hecontinued to lecture as if nothing had happened. But the grin hecould not suppress betrayed his amusement. Perhaps his aplomb onthis occasion was a lesson. Let s get on with the business at hand andnot be disturbed by such trifles as loose dentures.Lachmann’s openness of mind and spirit was frequently passedon, as if by osmosis, to the students who came under his influence.Lachmann charmed his students and held them, fascinated, in hisgrip. We believe the ultimate source of Lachmann’s magic was asimple characteristic that has become increasingly rare in academeand out: intellectual honesty.His undeviating pursuit of truth as he saw it led him to amethodological position whose central element is ‘subjectivism’.Lachmann’s subjectivism embraced three interrelated themes thatrun through his work: the explanatory primacy of subjectiveevaluations; the importance of expectations; and the inadequacy ofequilibrium models of the market.Lachmann viewed historical events as the outcome ofpurposeful human action that originates in the formation of plans;Since it is purposeful action that economists seek to understand,their principal task, according to Lachmann, is to elucidate themental processes by which plans are formed. Subjectivism is themethodological doctrine that economic explanation must trace allcausality to such mental acts, which differ from person to person.This subjectivist view of things is what Lachmann meant bymethodological individualism.Lachmann distinguished three ‘levels’ of subjectivism (1990).First, the subjectivism of wants recognises that different people havedifferent tastes and pursue different ends. Second, the subjectivismof ends and means recognises that people may pursue similar ends indissimilar ways. People have diverse, sometimes erroneous, ideasabout the best ways to achieve any goal. Finally, the subjectivism ofactive minds recognises that in all aspects of action the active mindmay produce interpretations and possibilities the observingeconomist cannot imagine in advance. ‘The mental activity ofordering and formulating ends, allocating means to them, making4