Subjectivism and Economic Analysis: Essays in memory of Ludwig ...
Subjectivism and Economic Analysis: Essays in memory of Ludwig ...
Subjectivism and Economic Analysis: Essays in memory of Ludwig ...
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
SUBJECTIVISM IN ECONOMICS AND THE ECONOMYOften there will be no wish to make plans compatible. As we havepreviously noted, speculation depends on a conflict <strong>of</strong> expectations,that must lead to the frustration <strong>of</strong> some plans. In his letter <strong>of</strong> 17September 1989, Lachmann commented that Hayek was never<strong>in</strong>terested <strong>in</strong> speculation, <strong>and</strong> that Mises, who was, failed to see itssignificance for the analysis <strong>of</strong> co-ord<strong>in</strong>ation. And so it was left toShackle to po<strong>in</strong>t out that a speculative equilibrium must necessarilybe based on <strong>in</strong>compatible plans. But speculation is by no means theonly problem, as Lachmann (1986:5) knew very well. Even thesimple act <strong>of</strong> arbitrage with which Kirzner (1973) <strong>in</strong>troduces hisconcept <strong>of</strong> entrepreneurship is designed to <strong>in</strong>validate the plans <strong>of</strong>high-price sellers <strong>and</strong> low-price buyers: <strong>and</strong> the process <strong>of</strong>competition—<strong>in</strong> contrast to the myth <strong>of</strong> perfect competition—entails the deliberate collision <strong>of</strong> plans. That the competitive idealshould have become a model <strong>of</strong> perfect co-ord<strong>in</strong>ation exemplifiesthe ability <strong>of</strong> economists to exclude from their analysis the problemsthat they set out to solve.Inter-market co-ord<strong>in</strong>ation is also problematic. Walrasrecognised that the atta<strong>in</strong>ment <strong>of</strong> a general equilibrium could beassured only by simultaneous contract<strong>in</strong>g. Where this does nothappen, the sequence <strong>in</strong> which markets operate may be important.Changes that improve co-ord<strong>in</strong>ation <strong>in</strong> one market are likely todisrupt plans <strong>in</strong> other markets; <strong>and</strong> the cha<strong>in</strong> <strong>of</strong> responses—whichare based, let us not forget, on human <strong>in</strong>terpretation <strong>of</strong> what hashappened, <strong>and</strong> human forecasts <strong>of</strong> what will happen next—maymove the economy away from, rather than towards, generalequilibrium. This is particularly likely if people are unsure <strong>of</strong> their<strong>in</strong>terpretations, lack confidence <strong>in</strong> any forecast they can make <strong>and</strong>,as noted earlier, decide to delay commitment to any new plan untilprospects appear clearer.The importance <strong>of</strong> bus<strong>in</strong>ess confidence <strong>in</strong> ma<strong>in</strong>ta<strong>in</strong><strong>in</strong>g high levels<strong>of</strong> activity was clearly recognised by both Marshall <strong>and</strong> Keynes; <strong>and</strong>Keynes <strong>in</strong>corporated it <strong>in</strong>to the simplest possible k<strong>in</strong>d <strong>of</strong> <strong>in</strong>termarketanalysis with his division between <strong>in</strong>vestment (much <strong>of</strong>which could not, Keynes <strong>in</strong>sisted, be based on probabilityjudgements) <strong>and</strong> consumption goods, <strong>in</strong> which equilibrium with<strong>in</strong>the former market set the conditions for the latter. Lachmann, likeall Austrians, was not happy with such a level <strong>of</strong> aggregation, but heemphasised the importance <strong>of</strong> complementarity. In a world full <strong>of</strong>substitutes, noth<strong>in</strong>g actually matters very much: as Fogel (1964)demonstrated, the United States could have managed very wellwithout the railways, <strong>and</strong> <strong>in</strong> such a world each <strong>of</strong> us could manage27