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

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LACHMANN’S POLICY ACTIVISMcapital. The effect of investment on the profitability of oldcapital is now seen to depend on which of the various forms ofold capital are complementary to, or substitutes for, the newcapital.(Lachmann 1956:6)The relationships between new and old capital are thus morecomplicated than a homogeneous aggregate conception would leadus to believe. The economics then becomes more complicated, andno small amount of damage is done to one of the central features ofthe Keynesian analysis of the macroeconomy:Looking at the matter in the way we have done also opens upa new vista on the problem of the ‘incentive to invest’. Newcapital goods are being used in combination with existingones. This form of complementarity means that the lower theprice of existing capital goods the greater the profitability ofthe new goods…Keynes, to be sure, did not neglect the effect of prices ofexisting capital goods on new investment, but, treating incharacteristic fashion all capital as homogeneous, only sawthe possibility of substitution. So he held that prices of existingcapital goods below reproduction cost would weaken theincentive to invest. But in reality capital is as a ruleheterogeneous and complementary. Except in the case, whichKeynes alone considered, where existing and new capitalgoods happen to be substitutes, low prices of the former willhave a favourable effect on the incentive to invest. Neglect ofthe heterogeneity of capital thus vitiates the theory ofinvestment.(Lachmann 1956:49–50)Such issues of standard economics, we shall argue below, whiledamaging to the particulars of the Keynesian analysis, are secondaryin importance to the implications of the Lachmannian vision for theproblem environment of the planner. To hint at argumentsdeveloped more fully below, one can imagine the increased degree oftechnical knowledge required to centrally plan investment in acapital-using economy if one recognises the heterogeneity of capital.Yet this daunting increase in the data requirements merely reflectsthe task of the investment planner in a world where knowing that isall the relevant knowing; the relevant knowing in Lachmann’s167
PETER J.BOETTKE AND STEVEN T.SULLIVANframework is not merely a laundry list of engineering relationshipsbut knowledge of context— knowing how.Adding to this level of complexity, and generally raising the stakesof the intervention game, is another notion arising out ofheterogeneity—that of multiple specificity. Capital goods arecharacterised by joint use, and are capable of many alternativecombinations, but the scope for their alternative use is not unlimited.Some modes of joint use are not feasible—there only exist certain‘technically possible’ modes of complementarity; furthermore, theschedule of ‘economically significant’ and technically possiblecombinations is not given at once to the entrepreneur. Theentrepreneur must deploy resources (i.e. search) and be alert towardsthe discovery of such economical modes of complementarity, beingcareful all the while because specification mistakes are admitted intothe theory. Without multiple specificity, there would be no need toask why certain capital combinations are used and others are not—the problem facing the capital combination operator would be solvedex hypothesi. 6 Heterogeneity adds the possibility of mis-fits, or malinvestment,in the combinations of capital goods employed by agents.In a world of capital factor homogeneity, of course, each additionaldK of capital is exactly like the last, except that its expected marginalvalue product is different. In Lachmann’s world, an additional ‘dK’can cause the capital combination to become incoherent and requirecostly revision of the plan. Furthermore, mistakes are durable—thefailed combinations of the past may shape the current problemenvironment, therefore contributing a pronounced degree of pathdependency. 7 Investment is an undertaking on a higher plane ofuncertainty in Lachmann’s view of the world. This further adds tothe would-be planner’s problems.Heterogeneity and multiple specificity are not the end ofLachmann’s vision, however, but rather the beginning. Investmentplanning is not the computationally simple affair that emerges frommodels that assume homogeneity of capital goods. The problem ofthe maintenance of capital, and the role of signals employed by actorswithin the economy in forming and revising capital-using plans, areminimised in alternative models. 8 The Austrian analyticalcontribution to capital theory represents, rather, a way of looking atcapital that effectively denies the theoretical aggregation, which isoften employed to motivate interventionist arguments. Why? Lookingat the texts provides us with a revealing distinction. The differencebetween the outcome of plans as envisioned at the firm level andmanifested at the level of the market is reflected in the concepts of168
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SUBJECTIVISM ANDECONOMIC ANALYSISTh
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SUBJECTIVISM ANDECONOMICANALYSISEss
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CONTENTSNotes 57References 594 Lach
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CONTENTS10 Expectations and stock m
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1INTRODUCTIONRoger Koppl and Gary M
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INTRODUCTIONdirection of Israel Kir
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INTRODUCTIONand revising plans, det
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INTRODUCTIONAs the language of Lach
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INTRODUCTIONits deep insight and me
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INTRODUCTIONthe frontispiece to thi
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SUBJECTIVISM IN ECONOMICS AND THE E
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3MISES AND LACHMANNON HUMAN ACTIONS
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MISES AND LACHMANN ON HUMAN ACTIONM
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MISES AND LACHMANN ON HUMAN ACTIONc
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MISES AND LACHMANN ON HUMAN ACTION2
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MISES AND LACHMANN ON HUMAN ACTIONc
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4LACHMANN ON THESUBJECTIVISM OF ACT
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THE SUBJECTIVISM OF ACTIVE MINDSThe
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THE SUBJECTIVISM OF ACTIVE MINDSLan
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SUBJECTIVISM AND IDEAL TYPESthis or
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SUBJECTIVISM AND IDEAL TYPESof Gott
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SUBJECTIVISM AND IDEAL TYPESIn the
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SUBJECTIVISM AND IDEAL TYPESsuffici
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SUBJECTIVISM AND IDEAL TYPESAccordi
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SUBJECTIVISM AND IDEAL TYPESto his
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SUBJECTIVISM AND IDEAL TYPESEconomi
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SUBJECTIVISM AND IDEAL TYPESanswer
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SUBJECTIVISM AND IDEAL TYPES1 B wan
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SUBJECTIVISM AND IDEAL TYPESconclus
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SUBJECTIVISM AND IDEAL TYPESOn the
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SUBJECTIVISM AND IDEAL TYPES——(
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ENDOGENOUS CHANGEIntroductionAmong
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ENDOGENOUS CHANGEconsequences. If,
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ENDOGENOUS CHANGEHahn’s notion of
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ENDOGENOUS CHANGEentertain theories
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ENDOGENOUS CHANGEwords, is it possi
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ENDOGENOUS CHANGEX=X (L*,X*) [1]w=X
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Page 138 and 139: 7RADICAL SUBJECTIVISMAND AUSTRIANEC
Page 140 and 141: RADICAL SUBJECTIVISMdecisions under
Page 142 and 143: RADICAL SUBJECTIVISMconsidered as
Page 144 and 145: RADICAL SUBJECTIVISMnot simply enta
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Page 148 and 149: RADICAL SUBJECTIVISMeconomic theory
Page 150 and 151: RADICAL SUBJECTIVISMAustrian resear
Page 152 and 153: RADICAL SUBJECTIVISMoutcomes of the
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Page 156 and 157: 8HIERARCHICALMETAPHORS IN AUSTRIANI
Page 158 and 159: HIERARCHICAL METAPHORScoordination
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Page 162 and 163: HIERARCHICAL METAPHORSbe understood
Page 164 and 165: HIERARCHICAL METAPHORSlegal order.
Page 166 and 167: HIERARCHICAL METAPHORSMany of these
Page 168 and 169: HIERARCHICAL METAPHORSBanking and t
Page 170 and 171: HIERARCHICAL METAPHORSdemand’, th
Page 172 and 173: HIERARCHICAL METAPHORS(eds) (1993);
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Page 176 and 177: 9LACHMANN’S POLICYACTIVISMAn Aust
Page 178 and 179: LACHMANN’S POLICY ACTIVISMLachman
Page 182 and 183: LACHMANN’S POLICY ACTIVISM‘plan
Page 184 and 185: LACHMANN’S POLICY ACTIVISMcapital
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Page 194 and 195: LACHMANN’S POLICY ACTIVISMinvestm
Page 196 and 197: 10EXPECTATIONS ANDSTOCK MARKET PRIC
Page 198 and 199: EXPECTATIONS AND STOCK MARKET PRICE
Page 214 and 215: INDEXaction: individual 32-3, 38-9,
Page 216 and 217: INDEXefficient allocation/co-ordina
Page 218 and 219: INDEXmarket 119-20; theory of value
Page 220 and 221: INDEX19; stock market expectations1
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