Disequilibrium and Prices

This is in response to a comment on Lord Keynes’ blog

Why should the public believe an economist who says his subject can’t even be measured? That sounds like mere market apologetics — not that you’d expect much more from an ‘Austrian’ economist.

This comment is a basic critique towards Austrians, but more specifically the Radical Subjectivists, because the other Austrians, while they hold this basic idea of prices not being measured in principle, contradict themselves very often by indeed using price as a measurable thing. But here is the basic response to this criticism:

We live in a world of constant changing disequilibrium. Therefore, prices are disequilibrium and not equilibrium prices.  Why then does it make sense to aggregate goods in prices then? As Lachmann states in Capital and It’s Structure, it is not possible to measure capital in terms of prices if these prices are not in equilibrium. This is because, I’ll take the case of Capital goods, these goods are used in plans and plans either succeed or fail. So if you aggregate these prices then, you are mixing the successful plans with the failed, which would leave you with a nonreliable and nonmeaningful aggregate.

So now to answer the question to why should people believe in an economist that believes in immeasurable prices, the people should listen because the Radical Subjectivist does not assume equilibrium and is only demonstrating the error in aggregating in disequilibrium. Again, constant change is the reality of this world, to think that aggregation of disequilibrium prices are indeed meaningful, is to assume away with constant change and its implications.

This is the basic premise of Ludwig Lachmann’s book Capital and It’s Structure and this book should be read carefully in order to grasp this basic concept of meaningless aggregates, at least in the case of monetary terms (prices).

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2 responses to “Disequilibrium and Prices

  1. Have you looked at the comments section on his blog post recently? What is your take on Lord Keynes’ response to disequilibrium prices and objectvie value

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