Liberty Matters

Understanding Lachmann Heterogeneously


Mario Rizzo and I are both "Chicago Austrians." But in a significant way, our journeys went in exactly opposite directions. (See my "A Personal Tribute" at <>.) Whereas, as he reports, he came to Chicago with a foundation in Austrian economics by way of the usual suspects, from Menger to Kirzner including Rothbard, my foundation in Austrian economics started with Lachmann and proceeded to Hayek, Böhm-Bawerk, and Menger. I had read little of Mises, and I don't think I knew of the existence of Rothbard.
I was surprised to find in the "other Austrians" views much closer to the neoclassical paradigm than Lachmann's and views apparently devoid of his concerns about the implications of divergent expectations. But although we started from different ends of the spectrum as it were, I am amazed at the extent to which we ended up in the same place. In every significant respect I can think of, Mario's and my views on Lachmann coincide. I find nothing to disagree with in his work over the years extending Lachmann's insights, for example in his (and Jerry O'Driscoll's) 1985 classic, The Economics of Time and Ignorance, or in his work on law and economics or in his work (together with Glen Whitman) on the new behavioral economics to which he alludes in his response and which the reader is well advised to explore further for the best assessment of that literature that I know of. I agree also with his comments on methodology on both Mises and Lachmann. Perhaps in a later posting I may expand on what I think is the prevailing message for Austrians of Lachmann's radical subjectivism of divergent expectations.
So if you consulted me or Mario Rizzo on Lachmann, you would probably get a very similar picture. This is not true for all Lachmann enthusiasts, and Lachmann would certainly relate to the observation that different people may emphasize different aspects of his work as central and motivating and that one's understanding and interpretation of writings is path-dependent on the experiences of the reader. For example, Bill Tulloh's experience contrasted interestingly with mine – and I am thankful it did, so I could be the recipient of his different viewpoint, which is so insightfully complementary to my own.
I came to Lachmann as a clueless, but highly motivated undergraduate. For me he was all about the subjectivism of expectations, and I guess that entre has stayed with me ever since. It is ironic that in those very years when I was learning from him (1966-1971), he was busy with The Legacy of Max Weber, a project I learned about only later and about which I am still learning. Bill, on the other hand, as he reports, learnt of Lachmann during after Austrian revival and like many around him was greatly influenced by the insights of Don Lavoie, whose view of Lachmann was much more extensively based on his understanding of continental philosophy. Lavoie and Tulloh understood the milieu in which Lachmann's thinking was shaped – the very nature of which provoked Rothbard and others to be deeply suspicious of him. Others who came to Lachmann via Lavoie's personal influence were Steven Horwitz, Peter Boettke, David Prychitko, Howard Baetjer, and others. (HT: Steve Horwitz.)
So Tulloh has a good point when he suggests that attention to the divergence of expectations (provoked by Hayek's "Economics and Knowledge") came later and that this matter was, in some important sense, derivative of Lachmann's more fundamental subjectivism based in both Menger and Weber and related works. But for many the expectations story is the more resonant and where Lachmann's influence on his fellow Austrians may be most noticeable.
Lachmann Today – via His Epistemology and His Capital Theory
That being said, continuing work on the implications of Lachmann's insights for modern-day conditions is highlighted by both his views on expectations and the fundamentals of his epistemology as grounded in the individual plan. And Bill Tulloh and his collaborators' work on connections to and applications of the digital age are apt and pregnant with potential. A poignant example being the blockchain technology and its applications. Another is the analogy between software and capital and how this illuminates the nature and role of knowledge in capital (Baetjer 1997, Lewin and Baetjer 2011), most particularly the importance of modularity – a digital (or physical) encapsulated capital-combination. (See also Bill's reference to the work of Hernando de Soto and the related literature on property rights and capital in economic development.)
According to Lachmann, time and knowledge belong together in that it is inconceivable that time should pass and people's knowledge should remain the same. We may add that, consequently, knowledge is in effect connected to time. Each moment of time has its unique knowledge configuration (within and among individuals), and this punctuates the problem of coordinating individual actions because knowledge (as distinct from information or data) is subjective. One of the most significant achievements of the complex society is found in the existence of capital-goods (including software) that in effect embody the ready-to-use knowledge of anonymous others. A safety razor "knows how" to shave your face if you know how to hold and move it properly. (Baetjer 1997) That knowledge was purposely put there by painstaking efforts of the designer, who knows all about the angles, materials, connections, etc. that are needed for the resulting effects, but about which we the users need know nothing. It is the epitome of the division of knowledge about which Hayek spoke, but not found solely within an individual mind; rather it is extended by technology and applied by markets in a way that becomes useful to untold millions. Indeed, as Bill suggests, Lachmann's work may be "more relevant than ever."