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

SUBJECTIVISM IN ECONOMICS AND THE ECONOMYSince, as Lachmann insisted, the plans of individuals, or oforganisations, rest on complementary assemblages of knowledgeand of other kinds of capital, the productive capacity of an economydepends upon complementarities, which are partly crafted, but alsopartly the unintended consequences of human action which wasdirected towards other purposes. People learn by doing, by using(Rosenberg 1982: Chapter 6) and by choosing (Woo 1992: Chapters5 and 6); but neither they nor we, as analysts or observers, canforesee what they will learn. Here Lachmann’s perspective comesvery close to that of Penrose (1959), and it comes even closer in hisemphasis on the orientation of each particular capital combination,which is equivalent to the ‘productive opportunity’ available tothose in charge of a Penrosian firm. This productive opportunity,like Lachmann’s orientation, is subjective, but not arbitrary.Lachmann’s treatment of capital combinations, and particularlytheir relationship with complementary structures of knowledge andthe overriding importance of orientation, give him a substantialclaim to be recognised as a founder of the modern capability-basedtheory of the firm. He recognised that complementarity oftendominates relationships between particular pairs or groups of firms,and that when it does it may need to be managed by workingagreements, as has been argued by Richardson (I960, 1972), whomLachmann admired (letter of 2 July 1989). Relationships betweenthe capital combination that is embodied in a particular firm andthose who buy and sell the shares that are its financial counterpartmay not be so easy to manage because stock exchanges aremerchants’ markets, in which participants can be either buyers orsellers, switching rapidly between the two, and entering and leavingthe market at will, whereas the managers of the firm are committedto their side of the markets in which they operate, and to the capitalstructures that they have built up. This particular kind ofintermarket relationship deserves particular attention.I would much like to have heard Lachmann’s comments onAlfred Chandler’s (1992) argument that some of the majorproblems of the American economy have resulted from the attemptby many business leaders to behave as merchants, buying and sellingcompanies or divisions of companies, at the expense of theirtraditional role of shaping the capabilities of their businesses tomatch their changing long-term visions of the markets in whichthose capabilities are to be used. A portfolio of businesses can beswiftly rebalanced, but the capabilities that constitute theproductive assets within that portfolio cannot. Nor can the25