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

LACHMANN’S POLICY ACTIVISMKnowledge, to Lachmann, while essential to economicunderstanding is nevertheless elusive—a concept that simply cannotbe accounted for in the neoclassical model (or any determinatemodel of economic affairs) because the very passage of time implieschange in the state of knowledge in society.Lachmann’s work stressed the extension of subjectivism frompreferences to expectations. In pursuing this radical subjectivist lineof research he offered important and deep insights into the dynamicnature of market processes, the role of institutions as guideposts toactions, the difficulty of signal interpretations, the role of time inhuman perception, and the link in economic life between thedispersion of knowledge, the dispersion of expectations and thedispersion of interpretations. These insights shook the foundation ofany deterministic rendering of the market process, including theAustrian theory of entrepreneurial discovery. If Lachmann’s insightsare valid, then the economic world is truly kaleidic.The kaleidoscope, despite its indeterminacy, possesses a certainpattern or order internal to its own operation. The market, from aLachmannian perspective, could be said to possess the same type ofpatterned order—neither clockwork nor completely random. Theorder of the market process has a logic of its own (see O’Driscolland Rizzo 1985:71–91). Attempts to get outside of the system andcontrol it do not so much direct its operation as distort the patternedorder that characterises a market economy within a well-establishedsystem of property rules.In dealing with Lachmann’s particular arguments for activismwe have suggested that he failed to consistently take his ownsubjectivist lessons to heart. If the world is truly kaleidic, then thepolicy maker must face the same confusing array of signals as thatof market participants (with the same diversity of interpretation ofthe signals). If private market actors do not face the incentives andlack the ability to acquire the information to co-ordinate theirbehaviour with others in the market due to the constantlychanging conditions and diversity of interpretations of the signalsthese changes produce, then why should we expect policy makersto be able to co-ordinate economic affairs in a successful manner?The very subjectivism that Lachmann championed undermines hisKeynesian proclivities. The analytical arguments that flow fromsubjectivism, in other words, cannot sustain the Keynesian visionof policy activism. It is not the determinism of New Classicaleconomics that defeats Keynesian policy, but the ‘dark forces oftime and ignorance’ that engulf us all.179