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

PETER J.BOETTKE AND STEVEN T.SULLIVANUnderstanding the capital-using economyThe concepts Lachmann employed to understand the industrialstructure of a contemporary economically developed society,namely functional heterogeneity, complementarity as joint use,multiple specificity, the individuals production plan and itsphysical manifestation in the capital combination, are rooted inthe Austrian tradition. At the core of Lachmann’s system is theproduction planthis is the means-ends framework of the individualin the capitalusing economy. In other words, Lachmann sunderstanding of the ‘macroeconomic’ world was thoroughlychoice-theoretic. The plan is a logical structure where objects andthe causal relationships among objects are subjectively perceived;this focuses theoretical attention on how the planning individualorganises the means of production at his disposal in order togenerate output. The plan is shaped by the individual’s subjectiveassessment of the economic environment, and its success or failureis judged by signals provided by the market process and filteredthrough that agent’s perceptions. The individual’s plan determinesthe relationship between already existing capital goods andprospective new capital goods-Lachmann viewedcomplementarity as joint use of items within the context of anexisting plan, and substitution as a fundamental element of planrevision contingent on that plan’s failure as perceived by itscreator.Capital heterogeneity in Lachmann’s system, then, provides adifferent view of the investment relationship from that found in theaggregate macroeconomics or growth theory literature. Theassumption of homogeneity, in light of the Lachmannianalternative, can thus be seen to generate some analytical costs interms of lost categories of capital relationships. It misleads theeconomist into presuming that new capital is a substitute for oldcapital, as Lachmann notes:As long as we cling to the view that all capital is homogeneous,we shall only see, as Keynes did, the unfavourable effects ofinvestment on the earning capacity and value of existingcapital goods, since all the elements of a homogeneousaggregate are necessarily perfect substitutes for each other.The new capital competes with the old and reduces theprofitability of the latter. Once we allow for heterogeneity wemust also allow for complementarity between old and new166