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

SUBJECTIVISM IN ECONOMICS AND THE ECONOMYOften there will be no wish to make plans compatible. As we havepreviously noted, speculation depends on a conflict of expectations,that must lead to the frustration of some plans. In his letter of 17September 1989, Lachmann commented that Hayek was neverinterested in speculation, and that Mises, who was, failed to see itssignificance for the analysis of co-ordination. And so it was left toShackle to point out that a speculative equilibrium must necessarilybe based on incompatible plans. But speculation is by no means theonly problem, as Lachmann (1986:5) knew very well. Even thesimple act of arbitrage with which Kirzner (1973) introduces hisconcept of entrepreneurship is designed to invalidate the plans ofhigh-price sellers and low-price buyers: and the process ofcompetition—in contrast to the myth of perfect competition—entails the deliberate collision of plans. That the competitive idealshould have become a model of perfect co-ordination exemplifiesthe ability of economists to exclude from their analysis the problemsthat they set out to solve.Inter-market co-ordination is also problematic. Walrasrecognised that the attainment of a general equilibrium could beassured only by simultaneous contracting. Where this does nothappen, the sequence in which markets operate may be important.Changes that improve co-ordination in one market are likely todisrupt plans in other markets; and the chain of responses—whichare based, let us not forget, on human interpretation of what hashappened, and human forecasts of what will happen next—maymove the economy away from, rather than towards, generalequilibrium. This is particularly likely if people are unsure of theirinterpretations, lack confidence in any forecast they can make and,as noted earlier, decide to delay commitment to any new plan untilprospects appear clearer.The importance of business confidence in maintaining high levelsof activity was clearly recognised by both Marshall and Keynes; andKeynes incorporated it into the simplest possible kind of intermarketanalysis with his division between investment (much ofwhich could not, Keynes insisted, be based on probabilityjudgements) and consumption goods, in which equilibrium withinthe former market set the conditions for the latter. Lachmann, likeall Austrians, was not happy with such a level of aggregation, but heemphasised the importance of complementarity. In a world full ofsubstitutes, nothing actually matters very much: as Fogel (1964)demonstrated, the United States could have managed very wellwithout the railways, and in such a world each of us could manage27