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

BRIAN J.LOASBYRussia the more pessimistic I become. How can this end well? Ofcourse market institutions cannot be introduced by political fiat.’Formal theories of market co-ordination are no less dangerous thanformal models of planning.One should never underrate the ability of very clever people tobe very silly, even to the public peril. It was, perhaps, above all as adefence against illusions that Lachmann insisted on maintainingthe subjectivist perspective. The economic problem is not toallocate known resources to clearly defined ends, but to make thebest of the knowledge that each person has, and of theopportunities that that person can envisage, and also, significantly,to find ways of increasing that knowledge and discovering newopportunities. As Mises above all insisted, it is a problem ofhuman initiative, conditioned by the perception of humancircumstances, not of programmed response to objective data.Human activity is problem-solving. This is Popper’s view also;and, like Popper, Lachmann saw that problems had to be definedbefore they could be solved, and moreover, that the way in whichthey were defined often had a major influence on the solution thatwas chosen. ‘Information’ must be interpreted, and interpretationis problematic. All this is true both of the individual agent, and ofthe observer who is trying to make sense of the individual’sactions; my exploration of this perspective in Equilibrium andEvolution (1991) owed something to Lachmann, and I greatlyregret that I was unable to discuss it with him.Lachmann was the most resolute advocate of subjectivism as themeans of investigating the consequences of individual purposes,understanding and expectations, all of which differ between people,and change with time and experience. He was also the most resolutecritic of formalism, in which all these elements are transformed intodata supposedly available to the analyst, and usually to the agent aswell. It is sometimes asserted that it is important to work out theproperties of an equilibrium based on this data, either because, ifpeople eventually learn the true facts, this equilibrium may beinterpreted as the destination of a process that is itself too difficult tohandle directly or, more ambitiously, that identifying the destinationis a useful prelude to investigating such a process. The latterargument, which Walras took very seriously, is rarely heardnowadays, since the algorithms of rational choice, which aresupposed to guide, or at least predict, action at all times, are definedonly for situations in which everyone other than the chooser isalready pursuing an optimal strategy. But since rational choice is14