Lachmann, Mises, and Equilibrium

When I posted my comment on unlearningecon’s blog, I wasn’t expecting such a debate to come out of it… talk about spontaneous order!

I made a comment to this passage:

Mises’ understood the of market process as a series of shifting imperfect equilibria, or plain states of rest. Hayek had views similar to Mises on equilibrium, but he added in the concept of a personal state of rest to Austrian theory. Lachmann accepted the basic elements of the Mises-Hayek theory of shifting equilibrium.

I basically stated that the last sentence is not correct and I referred to Lachmann’s ‘From Mises to Shackle’ where he made it quite clear that Mises had a interpretation of the market process as one which in the long run there was a tendency to go towards equilibrium, regardless if the actual equilibrium state was actually attained. Catalan responded by saying:

Isaac, Lachmann did not disagree with the use of equilibrium in the economics of Mises, largely because Mises was not an equilibrium economists, but a disequilibrium economist

But this was a misinterpretation on what I stated. I am not arguing that Mises was an equilibrium economist, all I was saying was that Mises had the view that there was ‘a long run tendency’ in the market. Lachmann states the following in From Mises to Shackle:

Professor Hayek and Mises both espouse the market process, but do not ignore equilibrium as its final stage. The former, whose early work was clearly under the influence of the general equilibrium model, at one time appeared to regard a strong tendency towards general equilibrium as a real phenomenon of the market economy. Mises, calling the Austrians “logical” and neoclassicals “mathematical” economists, wrote: “Both the logical and the mathematical economists assert that human action ultimately aims at the establishment of such a state of equilibrium and would reach it if all further changes in data were to cease” [8, 1949, p. 352].

It is this view of the market process as at least potentially terminating in a state of long-run general equilibrium that now appears to require revision.

In a kaleidic society the equilibrating forces, operating slowly, especially where much of the capital equipment is durable and specific, are always overtaken by unexpected change before they have done their work, and the results of their operation disrupted before they can bear fruit. Restless asset markets, redistributing wealth every day by engendering capital gains and losses, are just one instance, though in a market economy an important one, of the forces of change thwarting the equilibrating forces. Equilibrium of the economic system as a whole will thus never be reached. Marshallian markets for individual goods may for a time find their respective equilibria. The economic system never does. 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. For Shackle long-run equilibrium theory is of course an expression of the Victorian world view, a vision of a world shaped mainly by the forces of slow but orderly progress.

It is clear that in context, Lachmann is comparing the Mises-Hayek version of how to look at the market process to Shackle’s kaleidic view. In short, the former has the view of a long run tendency towards equilibrium and the latter views the market process as not having a tendency towards equilibrium (it doesn’t even make it possible).

Lachmann’s view on Mises is right, Mises did in fact view the market in the long run as having a tendency to go towards equilibrium. On top of that, Mises did in fact use equilibrium as a tool, though he does stress the fact that it is only imaginary and nonexistent in the real world. Depending on how one defines ‘an equilibrium economist’, Lachmann is not saying that Mises was one, he was simply stating the fact that Mises held the ‘long run tendency ‘ assumption.

Also what I wanted to bring up was what Lachmann states right after the passage above:

The older Austrians, non-Anglo-Saxon Victorians like Menger and Boehm-Bawerk, certainly shared this world view, though not the expression it found in the Walrasian model. Boehm- Bawerk’s capital theory embodies a vision of a world of steady progress through capital accumulation without technical progress or malinvestment. One of Menger’s interests was the increasing range of variety of products in economic progress. The kaleidic society is thus not the natural habitat of Austrian economics, but the alien soil may prove nourishing. A model in which individual plans, each consistent in itself, never have time to become consistent with each other before new change supervenes has its uses for elucidating some striking features of our world.

This is interesting. The kaleidic view was never an Austrian principle in itself. It was an idea adopted outside of the school, but one in which that ‘may prove nourishing’ to the Austrians. Thus, the ‘long run tendency’ assumption was pretty common to the Austrian school before Shackle came to form the kaleidic view and how it applied to economics.

See here, here, here for relevant posts on this subject

-Isaac Marmolejo


11 responses to “Lachmann, Mises, and Equilibrium

  1. Nice post. Catalan also states that the ‘split’ between the moderate subjectivists and radical subjectivists is just not true and misleading, do you hold this view?

    • I do believe there is a ‘split’ between the Austrian school, the debate at unlearningecon’s blog at least seems like a possible example of the split. Though I do think this because I am heavily influenced by Vaughn’s book Austrian Economics in America: A Migration of a Tradition and to a lesser extent, Sandye Gloria-Palermo’s book The Evolution of Austrian Economics. This of course does not mean that the mainstream austrians don’t emphasis things that radical subjectivists do, we just have different interpretations of what they mean, and thus lead to some different major conclusions. I am also not claiming, by accepting this division, that the two sects don’t influence each other, they do.

  2. I’m sorry, but the idea that Mises believed that there is a long-run tendency towards equilibrium is wrong, and it’s clear if you read Human Action. It would be more defensible to argue that he believed in a short-run tendency towards equilibrium. But, Mises held that the real world is characterized by constant changes in the data, and it is these changes that creates disequilibrium. If these changes are constant occurring then it is impossible for there to be a long-run tendency towards equilibrium.

    The “final stage” that Lachmann cites from Mises’ ERE is a totally fictitious concept that Mises explicitly explains cannot exist in the real world. It only exists in a world without change.

    • So you do not believe that Mises thought markets workout overall plans in the long run? How does Mises defned his position on ‘markets work in the long run’ if there is no tendency in the long run to do such a thing?

      • That markets “work” has nothing to do with equilibrium. Lachmann thought that that markets “work,” yet rejected any tendency towards equilibrium. You don’t need equilibrium so that markets “work,” if what we mean by markets “work” is that they allocate the means of production relatively more efficiently than any known alternative.

        • Sorry I should expand. What I mean is that there is this free market view that the answer is always markets. Lachmann did not necessarily agree with this. I just find it kind of hard to believe that one believes in no tendency towards equilibrium but then at the same time, the solution to everything is making the market more free.

          • I don’t find it difficult to believe. Later in his life, Lachmann was influenced by a variety of Post Hayekians — especially those who he knew from his years at the LSE, such as Hicks and Shackle. Mises was never influenced by contemporaneous scholars who deeply believed that there were things the market couldn’t “solve.”

  3. “It would be more defensible to argue that he believed in a short-run tendency towards equilibrium.”

    That represents a major concession and retraction of your previous view on your blog.

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