Ludwig Lachmann in a paper, Reflections on Hayekian Capital Theory, provides a quick comment on the Cambridge capital debates that I think is interesting.
Everybody seems to agree today that the stock of capital cannot be measured outside equilibrium, viz. outside entirely artificial conditions. But there are two reasons for it of which we may call one the ‘Ricardian’ or ‘objectivist’, the other the ‘Austrian’ or ‘subjectivist’ reason. We may also say that the one is ‘backward looking’, the other ‘forward looking’. The former rests on the fact that any change in the mode of income distribution, in rate of profit or wage rate, will affect relative prices and thus deprive us of any solid yardstick. It is particularly germane to any view of capital which links the present value of capital resources to their current cost of reproduction, a ‘backward looking’ view.
Lachmann seems to conclude that the Cambridge controversy is a debate that is backward looking on both sides! Of course, a big reason why the British Cambridge side won was in fact by demonstrating to the Americans that ‘capital cannot be measured outside of equilibrium.’ Nevertheless, we can extend the Bohm Bawerk critique – pursuing a Ricardian question and thus failing like a Ricardian – to the Cambridge folks. There is a much greater issue at hand when it comes to capital theory, and the issue Lachmann is implying is about the issue of the view of capital as objective or subjective.
The second reason rests on the fact that the purpose of all capital, hence also of the current maintenance of existing capital goods, is to secure a future income stream. But the future is unknowable, though not unimaginable, and men have to use knowledge substitutes in order to evaluate future income streams, viz. expectations. Experience shows that different persons will typically hold different expectations about the future income to be expected from the same resource, and that the same person may hold different expectations about the same future event at different points of time. The inevitably subjective nature of all ‘forward looking’ views renders the measurement of capital impossible.
There is not much to say here, Lachmann says it all pretty well, but it confirms the fact that the measurement of capital is impossible due to expectations. Lachmann demonstrates briefly that the British Cambridge side fail by setting aside subjective expectations, which is ironic in a way because the British Cambridge side emphasizes expectations far more than the mainstream. Overall, subjectivism is ignored in the Cambridge Capital debates, which is why the Radical Subjectivists can conclude that the British Cambridge economists failed like Ricardians. The capital view in a subjectivist perspective, or to be more specific, Austrian, was already presented in Hayek’s relatively long, but important, paper, ‘The Maintenance of Capital,‘ but it was not even considered as a possible solution to the overall capital problem. Lachmann concludes:
Meanwhile an impious legend has grown up that our inability to measure the stock of capital in the real world was discovered in the Cambridge of the 1950s.
This conclusion has a sense of harshness, or distaste, to the the Cambridge debates, and which we can imply for two reasons, 1: that the ‘solution’ or winners of the debate argued on Neo-Ricardian grounds, which is ‘backwards looking,’ at least according to Lachmann due to its appeal to objectivism, and 2: that the idea of capital being non-measurable was already on paper by the mid 1930’s and it is a more satisfying perspective because of its appeal to subjectivism, nevertheless it is thought that it was the Cambridge debate that settled this issue about capital as being non-measurable.