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

THE SUBJECTIVISM OF ACTIVE MINDSThe ‘modern theory’ of the 1930s had brought the ‘introductionof expectations’ into economics (ibid.: 65). Some, Keynes amongthem, had treated expectations as ‘data’ (ibid.). Others hadproposed to treat them as ‘variables it is our task to explain’(Schumpeter 1939, vol. I:55 as quoted in Lachmann 1943:66).Lachmann rejected both ways of treating expectations.We cannot regard expectations as mere ‘data’ given to us butmust ask ‘why they are what they are’ (Lachmann 1943:65). We are,indeed, ‘compelled’ to seek out a ‘causal explanation’ of economicexpectations (ibid.: 65). Expectations, after all, are on a ‘somewhatdifferent plane’ (ibid.: 66) from the distribution of mineral depositsor the public’s preference between movie directors. The distributionof expectations, unlike that of mineral deposits, is ‘largely the resultof the experience of economic processes’ (ibid.).But neither can we regard expectations as variables to be inferredfrom the ‘business situation’. Different interpreting minds will drawdifferent inferences from the same ‘objective’ data. Thus, ‘there willbe as many “business situations” as there are differentinterpretations of the same facts, and they will all exist alongsideeach other’ (ibid.: 67).Here we come to the dark heart of Lachmann’s ideas onexpectations. Expectations are not constant, or even changing, dataimpinging, as it were, from outside the economic process; they areinterpretations. But interpretations differ in ways that defyprediction: ‘The absence of a uniform relationship between a set ofobservable events which might be described as a situation on the onehand, and expectations on the other hand, is thus seen to be the cruxof the whole matter’ (ibid.: 67). We are thus obliged to viewexpectations as ‘economically indeterminate’ (ibid.). For Lachmann,‘it cannot be emphasised too strongly’ that attempts to test empiricalhypotheses with historical data will be ‘quite useless’ if they are‘confined to the study of [the] relations between objective facts andexpectations’ (ibid.: 68). The best we can do is to renderexpectations ‘intelligible’ by seeing in them a plan based on aninterpretation of the facts of experience (ibid.: 68–73).For Lachmann, ‘it is by reducing “action” to “plan” that we“understand” the actions of individuals’ (ibid.: 69). He infers fromthis that ‘it is the subjective nature of beliefs which impartsindeterminateness to expectations’ but ‘it is their mental naturewhich renders them capable of explanation’ (ibid.: 73). He drawsthe further conclusion that economists must (in 1943), expandbeyond ‘the subjectivism of wants’ to embrace ‘the subjectivism of63