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

ROGER KOPPLinterpretation’ (ibid.). I take this to be the same position expressedin 1976 as the invitation to ‘extend’ subjectivism from Mises toShackle, from the subjectivism of ‘tastes’ to the subjectivism of‘expectations’ (Lachmann 1976:58). The theory of expectationswhose absence Lachmann calls our attention to must embrace the‘subjectivism of interpretation’ (ibid.: 69).Lachmann has put a hard task indeed to economics. Expectationsare to be neither data nor variables. They are to be endogenous, butnot functionally related to observable facts. Rather than functionalrelations, we are to see in expectations subjective interpretations offacts whose meaning for future action is always more or less obscure.A theory that satisfies Lachmann’s call for a subjectivism ofinterpretations must satisfy three criteria. First, it must giveexpectations a place within economic theory. Second, the theorymust be subjectivist in a strong sense: Expectations are produced byactive minds, each of which is more or less unique. Finally,expectations must be endogenous to the market process.The hard thing is to satisfy the second and third criteriasimultaneously. Expectations may be right or wrong. Marketefficiency depends crucially on the accuracy of economicexpectations. If one doubts that markets tend to co-ordinate action,one may be inclined to think that expectations are formed throughan essentially psychological process as in Keynes’s Chapter 12.Greater faith in the market may incline one to think thatexpectations are indeed ‘rational’ in a sense close to that of Lucasand Muth. Both the New Classical and old Keynesian approaches toexpectations, unfortunately, require one to choose in advance one’smodelling strategy. One must decide a priori whether to representexpectations as ‘rational’ and co-ordinative or as ‘psychological’and disequilibrating. The trick, I think, is to represent endogenouslyformed expectations in a way that skirts the unsatisfactory choicebetween faith and doubt in the co-ordinative prowess of markets. Ifwe are stuck with an a priori choice between faith and doubt, anessential question of our discipline is not empirical or logical, butpurely ideological. 1 If the Lachmann problem can be solved, perhapswe can avoid this ideologically charged choice.Ludwig von Mises and the Lachmann problemLachmann claimed that Mises never extended his subjectivism fromtastes to expectations. This may seem an odd claim to make of anauthor who emphasised uncertainty as strongly as did Mises. Mises64