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

BRIAN J.LOASBYFinancial assets provide purchasing power; but they also providethe power to delay purchases, in the hope of seizing futureopportunities, to allow speedy response to future threats againstwhich no satisfactory insurance can be purchased, or simply whileattempting to assess the significance of some development. Theimplications of such delays for the co-ordination of economicactivities will be considered shortly, but first we should give duecredit to Lachmann’s recognition that people may also develop thepower of future action by the accumulation of physical assets.Indeed, the durability of physical assets impels their owner to lookto the future, which cannot be known. No one has given moreemphasis than Lachmann to the importance of capitalcombinations, which enable complementarities to be exploited forspecific purposes, but at some inevitable cost in flexibility.Capital and capabilitiesEconomists who have little sympathy for Austrian conceptions havepaid attention to capital combinations only as part of the conditionsof equilibrium, either in neoclassical terms or as an implication ofthe gravitational principle of a uniform rate of profit; but thepractical question for those who have charge of capital is how toshape their own particular combinations to suit their own particularpurposes in the light of their own particular knowledge andexpectations. As Menger taught us, there are no goods withoutknowledge, and what good is constituted by a particular assemblageof capital is determined by those who are contemplating its use. Thisgood changes as knowledge changes, even if there is no change inthe capital instruments. Capital combinations must be understoodin terms of their orientation. The need to review the orientation of afirm’s capital, and to reshape it accordingly, as knowledge,expectations and innovative ideas change, implies a particularconcern for the problems of capital maintenance. Lachmann(1986:68–70) reminded us that the preservation of a constantincome stream can hardly ever be secured by the direct replacementof particular items as they wear out, or even by the purchase ofimproved equipment sufficient to maintain production ofunchanged products at an unchanged rate. Keynes’s (1936:69–70)user cost, which influences the entrepreneur’s choice betweenconserving or using up his equipment, depends on ‘the expectedsacrifice of future benefit’, and this expectation is likely to differbetween firms, and to change over time.24