From the article: ‘Speculative Markets and Economic Complexity’ republished in Expectations and the Meaning of Institutions:
Speculation is apt to engender more speculation, volatile markets more volatility. Such a market may for a time attract many people who know very little about it and who would not dream of entering it, but for the chances of gain it seems to hold. The contrast to the ordinary market with its stable pattern of demand and supply is striking, so much so that any attempt to reduce the scope of speculative markets by restricting access to them would be futile (p 267).
What Lachmann means by ordinary market is that in which there is a stable pattern of supply and demand. That is to say, a market where there are either buyers and sellers, and people rarely switch sides. This is a market in which we can say is a ‘discovery process’ because it is generally seen to have constant supply and demand and peoples’ expectations conform to it.
Speculative markets are almost like an opposite. There is not so much a stable pattern of supply and demand, given that buyers and sellers change quite frequently. Buyers in the morning could be sellers in the afternoon and vice versa. Changes in prices are quite common due to diverging expectations.
In such markets every transaction is a departure for the unknown, but buyers and sellers depart in different directions. The future is unknowable —though not unimaginable. Images of it take the shape of expectations. Different men hold different expectations because human minds differ. At any moment the market is thus divided not merely into bulls and bears, but also into those of mild and fierce variety. This distinction is important because the same price movement may, for instance, turn some fierce bears into mild bears but make others quit the market altogether, at least for the time being.
On a side note, the infamous Lachmann quote shows up in this article, that is the world is unknowable but not unimaginable. But the reason I brought this up is because I think he explains the quote best in this article than his others. Most people read the quote and simply think that he is saying something that it quite obvious. Sure people do not know the future but the latter part of the quote is mind opening because it is implying subjective expectations, a topic in which is not discussed enough in current economic circles.