A Critique on a Critique

Jakub Bożydar Wiśniewski has this short critique about Radical Subjectivists and equilibrium tendencies.  Basically, he states that there has to be some form of equilibrium tendencies, for if there were not, there would be no market. As he states:

I contend, a logically necessary truth that any actually existing market displays a tendency towards equilibrium, or else it disintegrates and disappears by turning from a nexus of exchange into that of non-exchange.

And furthermore, he responds to the Radical Subjectivists by stating:

[T]here can be no market without the exchange of consumer goods, from which it follows that there can be no market without the existence of capital goods needed to produce the aforesaid consumer goods.

I think his overall critique is a straw man. The latter quotation is the start of the theory of roundaboutness, which no Radical Subjectivist objects to. Basically saying such a thing as a critique of the kadeidic world or of our rejection to aggregated equilibrium is irrelevant. But we do have a slightly different interpretation than most Austrians on it. Here I explain the difference to a commentor:

On roundaboutness, to the mainstream Austrians is very useful but to the radical subjectivist, it’s only half right. We agree that its explanation on economic progress is correct but disagree on Bohm Bawerk’s time variable, we substitute the time variable with something Lachmann called “the degree of complexity.” Thus, instead of saying that the period of production increases as capital accumulation increases, capital accumulation increases due to the increases of complexity of the production process.

Lachmann never said that there was never equilibrium tendencies, he simply stated that while there are individual equilibrium tendencies, one cannot simply aggregate all individual tendencies to one and formulate them into one big equilibrium analysis.  These individual equilibrium tendencies are only internal, thus are only known through subjectivity, but also they do change over time, for there would be no form of action or time if they stayed at the stage.  Or in economic jargon:

Marshallian markets for individual goods may for a time find their respective equilibria. What emerges from our reflections is an image of the market as a particular kind of process, a continuous process without beginning or end, propelled by the interaction between the forces of equilibrium and the forces of change. General equilibrium theory only knows interaction between the former.*

Lachmann’s overall critique on general equilibrium analysis could be summed up as followed:

It is perhaps only another aspect of this dilemma that it has never, to our knowledge, been made clear whether a “state of knowledge” means a state of affairs in which everybody shares the knowledge everyone else has, or whether it merely denotes an existing “pattern of knowledge” that permits differences in knowledge between individuals. If the former, we should be told how it could come about and how, in a world of change, it could ever be maintained. If the latter, and knowledge as a datum means just any existing pattern of knowledge, evidently not a day can pass without some change in this interindividual pattern of knowledge. As it seems to be widely agreed that some constancy of the data is necessary for general equilibrium theory to be of much relevance, daily changes in the pattern of knowledge, quite inevitable in a world of change, must be fatal to it. Whatever assumptions about knowledge we may attribute to it, general equilibrium does not seem to stand up well to a critical inquiry into them.*

* From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society
Ludwig M. Lachmann
Journal of Economic Literature , Vol. 14, No. 1 (Mar., 1976), pp. 54-62

-Isaac Marmolejo

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6 responses to “A Critique on a Critique

  1. A crucial point is the role of shifting subjective expectations and financial asset markets in preventing the equilibrating mechanisms from working properly. That is to say, what equilibrating mechanisms do exist are not reliable:

    Lachmann, L. M. 1988. “Speculative Markets and Economic Complexity,” Economic Affairs 8.2: 7–10.

    Unrelated, but here is a post you might like:

    http://socialdemocracy21stcentury.blogspot.com/2011/12/ludwig-lachmann-bibliography-and.html

    • LK,

      Exactly right and in accepting subjective expectations, one also has to accept the fact that markets are not stable. The concept of market instability is something lacking in the Austrian literature, mainly because most Austrians fail to see that the market is an unstable process.

      Also, nice to see that there is a nice list of Lachmann’s work.

  2. Pingback: Radical Subjectivism Is Radical and Subjectivist! « The Radical Subjectivist

  3. Pingback: Mundane Austrian Economics? « The Radical Subjectivist

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