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

BRIAN J.LOASBYconfusions are confusing human action with mere reaction tochanging circumstances. Our mind is in continuous motion,making and ordering experience. The formalists confuse thisactivity with its momentary product, which is an order, butnot one that could last.When people try to work out what to do they break problems upinto manageable units; and if we wish to understand human actionso must we. I do not know what Lachmann thought of the ways inwhich Herbert Simon used his concepts of decomposability andbounded rationality, but he certainly made effective use of similarideas. Instead of general theorising about ‘the market process’, itwas necessary to get down to the detail of particular markets, andsubsequently to explore inter-market relationships. Lachmann’semphasis can be clearly differentiated from that of both Schumpeterand Kirzner: unlike Schumpeter, he believed that most progressresulted from a multitude of specific changes within particularmarkets, and unlike Kirzner, he believed that people were creativeand not merely alert—the ten-dollar bill had to be imagined before itcould be brought within one’s grasp.These differences arise from a more fundamental distinction:Lachmann insisted not only that all action, and all thought, relies onrules and conventions, but that these rules and conventions arelikely to vary between markets in ways that significantly affect thecourse of history. In a letter of 2 July 1989 he wrote:I entirely agree with you when you exhort us Austrians to paymore attention to institutions and organisations.…In fact myChapter 6 is at bottom an attempt to explain fixprice marketsof our world in terms of their institutional and organisationalpeculiarities, with salesmen and the hierarchies to which theybelong rather than merchants.In that chapter (Lachmann 1986:103–38), Lachmann explores thecauses and consequences of the different ranges of action envisagedby different classes of agent, noting (ibid.: 120–1) that in Keynes’sGeneral Theory entrepreneurs have a much wider range than workers.Realising the potential gains from the division of labour requires astandardisation of tasks and, to a substantial extent, of the productsthat result from those tasks. And so markets in which productioncosts are falling are likely to be markets in which customers are notonly price-takers but product-takers, dependent for their range of22