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

SUBJECTIVISM IN ECONOMICS AND THE ECONOMYchoice on the ways in which entrepreneurs exploit their own broaderscope for initiative. The large organisations that deliver thesestandardised products must also restrict the range of action of theiremployees—notably of their salesmen, for the advantages of efficientproduction must not be frittered away in the costs of negotiatingprices and conditions with every customer. Whether the need forconformity in large organisations can be reconciled with theencouragement of initiative through ‘empowerment’ is a questioncurrently being explored in many companies. If it is to be achieved,it will clearly require new institutions, probably in some variety tosuit different specific situations.Industrial markets in which there are few customers each placinglarge orders operate with different conventions, and there are otherkinds of markets with their own particular patterns of behaviour,and variations between classes of participants in the degree and kindof discretion. All these patterns are open to challenge, and many arechallenged, sometimes successfully. The process of institutionbuilding has no determinate conclusion. Here is scope for a majorAustrian programme of empirical research, of a kind withoutprecedent in economics. It would be much more like business historythan econometrics, but if, as Lachmann agreed with Hicks,economics is on the edge of history, why not?In any study of particular markets, we should not forget theobvious point, on which Mises insisted, that goods are exchangedfor money. The analysis of a barter economy is not sufficient for aneconomy that runs on money and credit. Credit in particular, asLachmann (1986:85) reminds us, is endogenous: its creationrequires agreement between lender and borrower, and thus aperceived convergence between their purposes and between theirinterpretations of the appropriate ways of achieving them. So muchis obvious from any reasonably diligent observation of financialmarkets. Convergence does not mean identity: in some transactions,for example where there is a pooling of risk, something very close toidentity is required, but a banker making a secured loan is much lessinterested in the profitability of the business than in the prospectivevalue of the hypothecated assets in the best alternative use to whichthey could be put should that business fail; and in speculativemarkets it is the conflict of expectations that motivates agreementon a specific transaction. Financial markets cannot be properlyunderstood by postulating a representative market, any more thaninteraction between individuals can be understood by postulating arepresentative agent.23