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

LACHMANN’S POLICY ACTIVISMcapital combinations could receive signals as to the opportunities exante and the performance ex post of their plans, and co-ordinate thetime profiles of their productive activities:In a market economy…prices are not merely exchangeratios between commodities and services but links in amarket-wide system of economic communications.Through price changes knowledge is transmitted from anycorner of the market to the rest of the system. On eachmarket buyers and sellers, by varying their bids and offers,signal to each other the need for action. Buyers learn abouttheir opportunities growing or shrinking, sellers receivenotice of the need for adjustment. In this way everyeconomic change has market-wide repercussions…. Wemay thus conclude that via knowledge transmitted throughthe price system economic change tends, in general, to giverise to expectations consistent with itself.(Lachmann 1956:62)In Lachmann’s work the above paragraph represents the zenith ofmarket performance as a co-ordinator of plans. The institutionalcontext of the real world, however, plays havoc with the idealisedworld of responsive, flexible prices. Rigid wages and administeredprices degrade the signals in the system:But in reality the price system is not such an ideal system ofeconomic communications as the picture just drawn mightsuggest. Our apparatus, we must remember, works by‘translating’ demand and supply changes into price changes.Hence, whenever the translation does not take place, forinstance, where prices are inflexible, our apparatus ceases tooperate. Moreover, as we learnt before, transmission is oftendelayed and sometimes faulty. Where this is known to be thecase the meaning of the messages received will lend itself todifferent, and perhaps contrasting, interpretations, both as tocontent and time of despatch. This all the more so wherenumerous, perhaps contradictory, messages follow each otherwithin a short time over the same ‘wire’.(Lachmann 1956:62)What are the ramifications of error in the model? In demonstratingthem, Lachmann makes use of the concept of the ‘ceiling’, the171