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

THE SUBJECTIVISM OF ACTIVE MINDSshowed a real appreciation for the subjectivism of expectationswhen he argued that the:farmer who in earlier ages tried to increase his crop byresorting to magic rites acted no less rationally than themodern farmer who applies fertilizer. He did what accordingto his—erroneous—opinion was appropriate to his purpose.(Mises 1957:268)And what are subjective expectations but opinions that might proveerroneous? An action based on failed expectations is ‘contrary topurpose’, but it is not irrational (Mises 1963:20). And yetLachmann’s claim was a fair one. In spite of the very great role ofsubjective expectations in Mises’s economics, Mises never let thesubjectivism of expectation and interpretation enter into thestructures of his pure economic theory.The response of Mises to Lachmann’s 1943 essay is informative(Mises 1943). Lachmann drew from his general considerationsregarding expectations the specific inference, quoted by Mises, that‘Without fairly elastic expectations there can therefore be no crisisof the Austro-Wicksellian type’ (ibid.: 79). With this claim, minorterminological points aside, Mises could ‘fully agree’ (ibid.: 251).Indeed, Mises reports, he had said as much in hisNationaloekonomie of 1940. He then produces a quote from itsaying the ‘teachings of the monetary theory of the trade cycle’ mayhave spread widely enough that in the next credit expansionbusinessmen will replace the ‘naive optimism’ of the past with a‘greater scepticism’ though it is ‘too early to make a positivestatement’ (ibid.).Mises develops the point. As long as a businessman is ‘abusinessman only and does not view things with the eye of aneconomist’, the cycle story applies. But if a businessman wears thehat of an ‘economist’ too, then he may ‘look askance at the low levelof interest rates brought about by the credit expansion’ (ibid.). The‘businessman’ must be an ‘economist’ in order to see that today’scredit conditions are false and temporary manifestations ofexcessive money growth.Mises insists on viewing the more sophisticated actor assomehow more than a businessman; he is also an ‘economist’. Thus,if expectations behave differently than we predict, it is because someoutside element has entered the story. This is the rhetorical tropeImre Lakatos deftly labelled ‘monster-barring’ (Lakatos 1976:14). A65