Capital, Expectations, and the Market Process: Essays on the Theory of the Market Econony (Studies in Economic Theory) Review

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Capital, Expectations, and the Market Process: Essays on the Theory of the Market Econony (Studies in Economic Theory) ReviewLachmann Follows Mises and Hayek by emphasizing individual choice and action given fragmented dispersed economic knowledge based on subjective interpretations. Lachmann also viewed capitalism in proper evolutionary terms. As for subject matter, Lachmann focuses on the same subject that is central to Mises/Hayek economics: capital (as the title implies). Lachmann was thinking about capital at a time when Neoclassical capital theory was under assault (see p252). Cambridge UK economists (Robinson, Sraffa) attacked the abstract equilibrium model of capital advanced by Cambridge USA economists (Solow, Samuelson). It is often said that the Cambridge UK economists won their war over capital, but it is obvious that the Cambridge USA economists won the ensuing peace. Today, most economists accept Solow type models of capital, where the capital structure is reduce to K as a homogenous variable that is meaningless in any discussion of real economic phenomena.
Some critics of Lachmann see his work as overly subjectivist and abstract, even nihilistic. While Lachmann's essays are abstract, we must also recognize that he examines real institutions and real processes. I find his remarks on financial institutions particularly interesting and insightful. Overall, I find that Lachmann's economics is tied more closely to that of Mises than many Austrian recognize. Lachmann was a Hayek student, and many Lachmann students emphasize Hayek-type analysis. However, Lachmann's emphasis on financial markets and some of his remarks on action tie him in with Mises more so than Hayek, at least on these points.
Another strong point of the essays of this book is his critique of General Equilibrium analysis. Lachmann explains very clearly why the concept of general equilibrium has no relevance in realistic economic theory. One should also note that there are other equilibrium concepts that are more appropriate in describing real market situations. Lachmann recognizes that different equilibrium concepts have different degrees of usefulness in explaining real markets. This book is not a categorical rejection of all equilibrium analysis, but should be seen as a thoughtful critique of equilibrium analysis. Lachmann's essays should be read by more economists, along with The Economics of Time and Ignorance by O'Driscoll and Rizzo.Capital, Expectations, and the Market Process: Essays on the Theory of the Market Econony (Studies in Economic Theory) Overview

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