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

PETER J.BOETTKE AND STEVEN T.SULLIVANmaximum available quantity of a given resource or set of resourcesin a given time frame. Let us examine for a moment how rigid factorprices may lead the economy into widespread plan failure: Let usimagine a factor of production which is a complement in productionplans economy wide. As the use of this product brings us closer toexhaustion, or in our case to the ceiling, the price will normally beadjusted through bidding until agents either discontinue their plansutilising the factor at a lower expected return or otherwiseeconomise on its use. Rigid prices, however, prevent agents fromseeing the approach of the ceiling—suddenly it is reached, and thefactor without which their plans cannot proceed becomesunavailable. Keeping in mind Lachmann’s view of complementarity,we can see that shortages of complementary factors constrain finalfactor output; many of the factors whose output levels areconstrained by the original factor shortage are complements inother production processes. The shortage spreads—if an agent hadplanned to bring to market a certain quantity of other (secondround)capital goods based upon the expectation of complementaryresources, which expectation was disappointed because the ceilingwas hit for those complementary resources, that agent might choosenot to bring the second-round capital goods to market. Capitalcombinations to which those second-round resources notforthcoming are complementary may now be in peril. The scarcityneed not even last for very long for widespread plan discoordinationto occur—only an unexpected delay in the factor’savailability is necessary:It might be said that raw material prices being more flexiblethan fixed capital goods prices, relative price figures tell uslittle about relative scarcity. It is true that a fixed capital goodsceiling will manifest itself, at least at first, in delayed deliveryrather than in higher prices, so that absence of higher pricesdoes not necessarily mean absence of excess demand. But thedelay in delivery can only post-pone, and not prevent, theemergence of excess capacity, unless of course the rawmaterial shortage is merely temporary, not a ‘ceiling’ but a‘bottleneck’. The mere fact that after both sub-ceilings havebeen reached the output of both, raw materials and fixedcapital goods, will slow down, is irrelevant. It is relativescarcity of complementary factors which here causes excesscapacity and upsets plans. For no factor can be used inisolation, complementarity is of the essence of all plans, and172