Rothbard (front, he wasn't always in a bowtie) along with Lachmann (back right) and Kirzner at the South Royalton conference, not too far from Lancaster, NH.

The first Porcfest? Rothbard (front, he wasn’t always in a bowtie) along with Lachmann (back left) and Kirzner at the 1974 South Royalton Conference, credited with reviving the Austrian School (and only a couple of miles from where Porcfest is held today!).

The Boston Austrian Economics Group and the Manchester Austrian Economics Group joined forces to host the event “Who is Ludwig Lachmann?” on Wednesday, May 7, 2014. We were joined by leading Lachmann scholar Michael Valčić for an evening of lively discussion and debate. So, who is Ludwig Lachmann, and why would anyone spend dinner discussing him?

Murray Rothbard noted in a preface to Man, Economy, and State that: “It has indeed become evident in recent years that there are three very different and clashing paradigms within Austrian economics: the original Misesian or praxeological paradigm, to which the present author adheres; the Hayekian paradigm, stressing ‘knowledge’ and ‘discovery’ rather than the praxeological ‘action’ and ‘choice,’ and whose leading exponent now is Professor Israel Kirzner; and the nihilistic view of the late Ludwig Lachmann, an institutionalist anti-theory approach taken from the English ‘subjectivist’-Keynesian G.L.S. Shackle.”

Lachmann was not only an Austrian economist: He was an Austrian economist of high historical importance. To prepare for the May 7 event, the Boston and Manchester groups got a dose of Lachmann with a few suggested readings by him: “The Role of Expectations in Economics as a Social Science,” “Complementarity and Substitution in the Theory of Capital,” and “From Mises to Shackle.”

So, is Rothbard’s above description of Lachmann accurate? He attributes nihilism to Lachmann. Rothbard is charging Lachmann with epistemological nihilism, not moral nihilism, since as a wertfrei (“value free”) endeavor, Austrian economics is not concerned with morality, just means and ends. Epistemological nihilism holds that no theory, law, or other form of knowledge can accurately describe reality.

According to Rothbard, Lachmann has this “institutionalist anti-theory approach.” In another passage, Rothbard opines: “It must be noted that nihilism had seeped into current Austrian thought…It began when Ludwig M. Lachmann, who had been a disciple of Hayek in England in the 1930s and who had written a competent Austrian work entitled Capital and Its Structure in the 1950s, was suddenly converted by the methodology of the English economist George Shackle during the 1960s. Since the mid-1970s, Lachmann, teaching part of every year at New York University, has engaged in a crusade to bring the blessings of randomness and abandonment of theory to Austrian economics.” Is this charge of epistemological nihilism true?

Lachmann writes: “As regards universal laws, nobody doubts that human beings are subject to them. The question we face is not whether such laws exist, but whether those which do are of much help in enabling us to understand how social situations change.” He is not an epistemological nihilist, it is clear. And his hesitance at applying economic theory to history and its data in order to verify laws is quintessentially Austrian. Correlation does not imply causation, and economics is essentially about causation, about what humans cause to happen through their actions. Only experimentation can prove causation. And on experimentation, Rothbard himself wrote: “In the sciences of human action…it is impossible to test conclusions. There is no laboratory where facts can be isolated and controlled; the ‘facts’ of human history are complex ones, resultants of many causes.”

That is not to say there is no disagreement between Lachmann’s economics and Rothbard’s economics. Rothbard is comfortable with statements such as: “Any increase in capital goods can serve only to lengthen the structure, i.e., to enable the adoption of longer and longer productive processes.” (MES 8.4).

Lachmann, on the other hand, decries any quantitative reference to capital as a whole, such as “increase in capital goods.” He says in Capital and Its Structure (the book Rothbard claimed to approve of): “…we cannot add beer barrels to blast furnaces nor trucks to yards of telephone wire…Where [the economist] has to deal with quantitative change he needs a common denominator. Almost inevitably he follows the business man in adopting money value as his standard measurement of capital change. This means that whenever relative money values change, we lose our common denominator…In equilibrium, where, by definition, all values are consistent with each other, the use of money value as a unit of measurement is not necessarily an illegitimate procedure. But in disequilibrium where no such consistency exist, it cannot be applied.” And to Lachmann, we live in perpetual disequilibrium: “We are living in a world of unexpected change; hence capital combinations, and with them the capital structure, will be dissolved and re-formed.”

Both the Boston and Manchester groups were receptive to Lachmann’s ideas on the inherent problem with quantifying capital. After all, do breweries represent capital goods to the temperance promoter? Does a brewery constitute more capital than, say, a tow truck? Breweries are not even goods to the promoters of temperance: Breweries are bads and detract from total capital goods. Because valuations differ and there is no homogenous/equilibrium valuation in terms of money, the very concept of an objective “increase in capital goods” seems faulty.

So where is Lachmann’s paradigm today in Austrian thought? Other than Jamie’s Restaurant in North Andover, Massachusetts, it is conspicuously absent. Most of Lachmann’s works are out of print, cost a small fortune to purchase, and are not viewable anywhere online. To compare with the other paradigmatic leaders in Austrian thought that Rothbard named: Hayek is commonly taught in economics classrooms around the world, even at the undergraduate level. Rothbard is dear to hundreds of thousands of anarcho-capitalists, constitutionalists, and even the Communist Party secretary of Shanghai is getting into him. Lachmann has inspired no such mass adoration, but perhaps he should. Is it time to resurrect Lachmann? Whether the answer is yes or no, it can’t hurt to learn about him.