Ludwig M.Lachmann SUBJECTIVISM AND ECONOMIC ANALYSIS The extraordinary heterogeneity of the scholars interested in the work of Ludwig M.Lachmann—Austrians, Keynesians, Post Keynesians, New Institutional economists, Old Institutional economists and even some Sraffians—testifies to the importance of his ideas. Lachmann made important contributions to the defence and development of the modern Austrian school of economic thought. Few economists have rivalled his willingness to confront problems that appear to fall outside the grasp of the conventional tools of the discipline. His methodological insights in the area of radical subjectivism are particularly important and are the focus of this collection. The contributions in this volume explore, from a variety of perspectives, the methodological issues raised by Lachmann’s work. Leading scholars discuss such issues as: • the connection of Lachmanns ideas to those of Max Weber • the critique of equilibrium analysis • the implications of radical subjectivism for policy activism • the philosophical foundations of radical subjectivism Subjectivism and Economic Analysis is a fitting tribute to a ground- breaking economist and makes a major contribution to an important field of research. Roger Koppl is a Professor of Economics and Finance at Fairleigh Dickinson University, New Jersey, USA. He has published widely in the fields of political economy and economic history. Gary Mongiovi is an Associate Professor of Economics at St John’s University, New York, USA and co-editor of The Review of Political Economy. ROUTLEDGE FRONTIERS OF POLITICAL ECONOMY 1 EQUILIBRIUM VERSUS 12 VALUE DISTRIBUTION AND UNDERSTANDING CAPITAL Towards the rehumanization of Edited by Gary Mongiovi and Fabio Petri economics within social theory Mark Addleson 13 THE ECONOMICS OF SCIENCE 2 EVOLUTION, ORDER AND Methodology and epistemology as if COMPLEXITY economics really mattered Edited by Elias L.Khalil and Kenneth E. James R.Wible Boulding 14 COMPETITIVENESS, 3 INTERACTIONS IN LOCALISED LEARNING AND POLITICAL ECONOMY REGIONAL DEVELOPMENT Malvern after ten years Specialisation and prosperity in small Edited by Steven Pressman open economies 4 THE END OF ECONOMICS Peter Maskell, Heikki Eskelinen, Ingjaldur Michael Perelman Hannibalsson, Anders Malmberg and Eirik Vatne 5 PROBABILITY IN ECONOMICS 15 LABOUR MARKET THEORY Omar F.Hamouda and Robin Rowley A constructive reassessment Ben J.Fine 6 CAPITAL CONTROVERSY, POST KEYNESIAN ECONOMICS 16 WOMEN AND EUROPEAN AND THE HISTORY OF EMPLOYMENT ECONOMICS Jill Rubery, Mark Smith, Colette Fagan, Essays in honour of Geoff Harcourt, Damian Grimshaw volume one Edited by Philip Arestis, Gabriel Palma 17 EXPLORATIONS IN and Malcolm Sawyer ECONOMIC METHODOLOGY From Lakatos to empirical philosophy 7 MARKETS, UNEMPLOYMENT of science AND ECONOMIC POLICY Roger Backhouse Essays in honour of Geoff Harcourt, volume two 18 SUBJECTIVITY IN Edited by Philip Arestis, Gabriel Palma POLITICAL ECONOMY and Malcolm Sawyer Essays on wanting and choosing David P.Levine 8 SOCIAL ECONOMY The logic of capitalist development 19 THE POLITICAL ECONOMY Clark Everling OF MIDDLE EAST PEACE 9 NEW KEYNESIAN The impact of competing Arab and ECONOMICS/POST KEYNESIAN Israeli trade ALTERNATIVES Edited by J.W.Wright, Jnr Edited by Roy J.Rotheim 20 THE ACTIVE CONSUMER 10 THE REPRESENTATIVE Novelty and surprise in consumer AGENT IN MACROECONOMICS choice James E.Hartley Edited by Marina Bianchi 11 BORDERLANDS OF 21 SUBJECTIVISM AND ECONOMICS ECONOMIC ANALYSIS Essays in honour of Daniel R.Fusfeld Essays in memory of Ludwig M. Edited by Nahid Aslanbeigui and Young Lachmann Back Choi Edited by Roger Koppl and Gary Mongiovi SUBJECTIVISM AND ECONOMIC ANALYSIS Essays in memory of Ludwig M.Lachmann Edited by Roger Koppl and Gary Mongiovi London and New York First published 1998 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2003. Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Editorial material and selection © 1998 Roger Koppl and Gary Mongiovi Individual chapters © 1998 the individual contributors All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Subjectivism and economic analysis: essays in memory of Ludwig M. Lachmann/edited by Roger Koppl and Gary Mongiovi. Included bibliographical references. 1. Lachmann, Ludwig M. 2. Economics. 3. Economics—methodology. 4. Economics—History—20th century. I. Lachmann, Ludwig M. II. Koppl, Roger, 1957– . III. Mongiovi, Gary. HB107.L33S83 1998 330–dc21 98–7044 CIP ISBN 0-203-41081-5 Master e-book ISBN ISBN 0-203-71905-0 (Adobe eReader Format) ISBN 0-415-11058-0 (Print Edition) CONTENTS Contributors xi 1 Introduction 1 ROGER KOPPL AND GARY MONGIOVI Acknowledgements 10 References 11 2 Ludwig M.Lachmann: subjectivism in economics and the economy 12 BRIAN J.LOASBY Methodology 13 Marshall and equilibrium 15 Catallactics 18 Human action 20 Capital and capabilities 24 Co-ordination 26 Conclusion 28 References 29 3 Mises and Lachmann on human action 31 STEPHEN D.PARSONS Mises and Lachmann on history and economics 32 Mises and the a priori 34 The problem of future intentions 42 Lachmann on human action 48 Conclusion 56 vii CONTENTS Notes 57 References 59 4 Lachmann on the subjectivism of active minds 61 ROGER KOPPL Introduction 61 The Lachmann problem 62 Ludwig von Mises and the Lachmann problem 64 J.M.Keynes and the Lachmann problem 67 Alfred Schutz and the Lachmann problem 68 F.A.Hayek and the Lachmann problem 72 Conclusion 77 Acknowledgements 77 Notes 78 References 78 5 Subjectivism and ideal types: Lachmann and the methodological legacy of Max Weber 80 LÁSLÓ CSONTOS Introduction 80 Subjectivism 80 Ideal types 92 Conclusion 97 Notes 98 References 102 6 Endogenous change, open systems and provisional equilibrium 104 MAURIZIO CASERTA Introduction 105 The nature of change 106 Hahn’s notion of equilibrium 109 Models of provisional equilibrium 113 An open-system approach 114 Four regimes of growth 118 Conclusion 122 Acknowledgements 122 viii CONTENTS Notes 122 References 124 7 Radical subjectivism and Austrian economics 125 CARLO ZAPPIA Introduction 125 Rational ignorance 127 Economic order and economic institutions 133 Concluding remarks 138 Acknowledgements 139 Notes 139 References 140 8 Hierarchical metaphors in Austrian institutionalism: a friendly subjectivist caveat 143 STEVEN HORWITZ Austrian institutionalism 144 Subjectivism and the institutional order 148 Parallels between Austrian theories of institutions and capital 151 Banking and the law: an illustration 155 Conclusion 158 Notes 158 References 160 9 Lachmann’s policy activism: an Austrian critique of Keynesian proclivities 163 PETER J.BOETTKE AND STEVEN T.SULLIVAN Introduction 163 Understanding the capital-using economy 166 Lachmann on the price system and the trade cycle 170 Lachmannian stabilisation policy 173 Conclusion 178 Notes 180 References 181 ix CONTENTS 10 Expectations and stock market prices 183 JOCHEN RUNDE AND JÖRG BIBOW Expectations 184 Divergent expectations and equity prices 186 Diverse opinion and equity prices 188 Conclusion 196 Notes 197 References 199 Index 201 x CONTRIBUTORS Jörg Bibow, University of Hamburg, Germany. Peter J.Boettke, George Mason University, Fairfax, Virginia. Maurizio Caserta, University of Catania, Italy. Lásló Csontos†, Central European University, Budapest, Hungary. Steven Horwitz, St Lawrence University, Canton, New York, USA. Roger Koppl, Fairleigh Dickinson University, Madison, New Jersey, USA. Brian J.Loasby, University of Stirling, Scotland. Gary Mongiovi, St John’s University, New York, USA. Stephen D.Parsons, DeMontfort University, Leicester, England. Jochen Runde, Girton College, Cambridge, England. Steven T.Sullivan, New York University, New York, USA. Carlo Zappia, University of Siena, Italy. xi 1 INTRODUCTION Roger Koppl and Gary Mongiovi The extraordinary heterogeneity of the scholars interested in the work of Ludwig Lachmann testifies to the importance of his ideas. Lachmann gets serious attention from Austrians, Keynesians, Post Keynesians, New Institutional economists, Old Institutional economists, and even some Sraffians. Most of these schools are represented in this volume. Even the two editors of this volume are very far apart on issues of political economy, technical economic theory, and methodology. This unusual diversity suggests that what Lachmann had to say was significant. He was working at the foundations of our science, where depth of insight counts for more than technical prowess. And the problems Lachmann found at the foundations have been recognised as important by very diverse economists. The path leading to Lachmann’s broad influence led him through four different countries on three different continents speaking two different languages, uniting one very long and distinguished career. Lachmann’s career as an economist began in his native Berlin during the years of the Weimar Republic. In 1924 he enrolled in the University of Berlin where Werner Sombart would become his dissertation advisor. As a member of the ‘younger