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

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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
BRIAN J.LOASBYrelationships between those capabilities. This seems to be preciselythe type of analysis for which Lachmann argued, and it exposes thelimitations of contemporary theories of corporate governance.Co-ordinationThe analysis of economic processes operating within and betweenmarkets offers a distinctive perspective on the co-ordination ofeconomic activities. The economic problem is the continual creationof order on the basis of continually changing knowledge, which iswidely dispersed and always imperfect. It is a problem that is neverperfectly solved, and that Lachmann, unlike most Austrianeconomists, insisted could sometimes prove too difficult for amarket system, because the requisite knowledge was not availableor not effectively communicated. If the division of labour promisesgreater productivity but imposes greater demands for co-ordination,the division of knowledge promises an increase of local knowledgebut threatens to prevent the effective communication, and inparticular the shared interpretation of communication, thateffective co-ordination requires.Each person tries to construct a plan that is internally consistent,for there are always gains from eliminating inconsistency.Moreover, one can learn more from the failure of a plan, as from thefailure of a scientific hypothesis, if it is internally consistent and thefailure of plans, as of scientific hypotheses, is a necessary, thoughnot sufficient, condition of progress. That a perfectly co-ordinatedeconomy is an economy in which progress has ceased is a thoughtthat might disturb some orthodox economists; it is a thought thatimpelled Schumpeter, despite his great admiration for Walras’sachievement, to go outside Walras’s theory for an explanation ofeconomic development.Because agents’ plans are based on different knowledge anddifferent expectations about an unknowable future, there is noreason to believe that they will be entirely compatible, even within asingle market. Will they be adjusted towards compatibility? Theymay be, but the process may be impeded by differences ininterpretation—Why did customers refuse to buy? Why do ourcompetitors seem to have lower costs?—by divergent expectations,and by unexpected changes. Learning by doing, using or choosingmay lead different people in different directions, as Penrose (1959)observed, although the institutions of a particular market, like theinstitutions of a scientific community, may inhibit conjectures.26
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Page 9 and 10: CONTENTSNotes 57References 594 Lach
Page 11 and 12: CONTENTS10 Expectations and stock m
Page 14 and 15: 1INTRODUCTIONRoger Koppl and Gary M
Page 16 and 17: INTRODUCTIONdirection of Israel Kir
Page 18 and 19: INTRODUCTIONand revising plans, det
Page 20 and 21: INTRODUCTIONAs the language of Lach
Page 22 and 23: INTRODUCTIONits deep insight and me
Page 24 and 25: INTRODUCTIONthe frontispiece to thi
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Page 44 and 45: 3MISES AND LACHMANNON HUMAN ACTIONS
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Page 74 and 75: 4LACHMANN ON THESUBJECTIVISM OF ACT
Page 76 and 77: THE SUBJECTIVISM OF ACTIVE MINDSThe
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THE SUBJECTIVISM OF ACTIVE MINDSact
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THE SUBJECTIVISM OF ACTIVE MINDSexp
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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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ENDOGENOUS CHANGEP=Wa 0+rP(K/X)wher
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ENDOGENOUS CHANGEThere is no room i
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ENDOGENOUS CHANGEmodel that Dutt ha
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ENDOGENOUS CHANGE3 The difficulty i
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7RADICAL SUBJECTIVISMAND AUSTRIANEC
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RADICAL SUBJECTIVISMdecisions under
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RADICAL SUBJECTIVISMconsidered as
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RADICAL SUBJECTIVISMnot simply enta
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RADICAL SUBJECTIVISMperformed by th
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RADICAL SUBJECTIVISMeconomic theory
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RADICAL SUBJECTIVISMAustrian resear
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RADICAL SUBJECTIVISMoutcomes of the
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RADICAL SUBJECTIVISM——(1990)
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8HIERARCHICALMETAPHORS IN AUSTRIANI
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HIERARCHICAL METAPHORScoordination
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HIERARCHICAL METAPHORSpioneering ef
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HIERARCHICAL METAPHORSbe understood
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HIERARCHICAL METAPHORSlegal order.
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HIERARCHICAL METAPHORSMany of these
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HIERARCHICAL METAPHORSBanking and t
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HIERARCHICAL METAPHORSdemand’, th
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HIERARCHICAL METAPHORS(eds) (1993);
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HIERARCHICAL METAPHORS——(1988)
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9LACHMANN’S POLICYACTIVISMAn Aust
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LACHMANN’S POLICY ACTIVISMLachman
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LACHMANN’S POLICY ACTIVISMcapital
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LACHMANN’S POLICY ACTIVISM‘plan
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LACHMANN’S POLICY ACTIVISMcapital
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LACHMANN’S POLICY ACTIVISMwithdra
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LACHMANN’S POLICY ACTIVISM…Supp
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LACHMANN’S POLICY ACTIVISMchain o
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LACHMANN’S POLICY ACTIVISMKnowled
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LACHMANN’S POLICY ACTIVISMinvestm
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10EXPECTATIONS ANDSTOCK MARKET PRIC
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EXPECTATIONS AND STOCK MARKET PRICE
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INDEXaction: individual 32-3, 38-9,
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INDEXefficient allocation/co-ordina
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INDEXmarket 119-20; theory of value
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INDEX19; stock market expectations1
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