Front Page Titles (by Subject) Macroeconomic Formalism vs. Human Action - Literature of Liberty, April/June 1979, vol. 2, No. 2
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Macroeconomic Formalism vs. Human Action - Leonard P. Liggio, Literature of Liberty, April/June 1979, vol. 2, No. 2 
Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.
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Macroeconomic Formalism vs. Human Action
Macro-economic Thinking. Studies in Economics No. 6. Menlo Park, Calif.: Institute for Human Studies (1978) 48 pp.
Professor Lachmann outlines the debate between two schools of economic thought: Cambridge (U.S.) and Cambridge (U.K.). These schools represent, respectively, neoclassical and post-Keynesian economics. Though the debate is ostensibly about capital theory and theoretically abstract, Lachmann points out its wider implications.
Cambridge (U.K.) economists have continued the attack of economist Piero Sraffa on marginalism in economic theory, denying in particular its applicability to factor pricing. This attack is the key element in their general critique of the market economy. The American neoclassical response has been ineffectual because these economists have evidenced no enthusiasm for defending the market economy. Their reluctance bespeaks the remoteness from reality of the neoclassical model. In particular, neoclassical economists view the world through the eyes of their model of perfect competition, a perspective from which real world competition will always be questioned and criticized.
The debate is further narrowed because of the limiting context of macro economic equilibrium. In this context, the focus is on long-term economic forces and their effects on highly aggregated variables like national income or “investment.” This macro perspective avoids any appreciation of human action in the real world of constant change—a world in which there is no equilibrium, though there are equilibrating forces. Though the protagonists give lip service to the need for microeconomic, causal explanations of macro phenomena, these admissions do not in practice affect their thinking. As Lachmann puts it: “Economic events are the result of some kind of collective process of decision-making the modus operandi of which is never explained. Imaginary beings take the place of real people.”
Lachmann, critical of both schools, adopts the perspective of Austrian economics, which focuses on human choice and human action in an uncertain world. He emphasizes the need to coordinate individual plans, an insight that directs attention to the market process instead of equilibrium states. The Austrian approach directs one's attention from macroeconomic formalism to microeconomic processes. This in turn enables one to understand how much Cambridge (U.S.) has conceded to Cambridge (U.K.) by accepting macro-formalism as the proper approach to economic questions.