Tuesday, October 25, 2011

A Note on "Radical Subjectivism" and Equilibrium Tendency

Lachmann and Shackle, the so-called "radical subjectivists", claimed that the fact that we live in a "kaleidic" world, where consumer preferences, the supply of consumer and producer goods of various orders, and technological possibilities constantly change, renders the future essentially unpredictable, hence not ruling out as a logical impossibility a scenario in which the majority of entrepreneurs consistently fail to anticipate and meet the demands of the consuming public. In other words, these authors contend, there can be no purely logical argument for the claim that there exists a market tendency towards equilibrium - its existence or non-existence is a matter of historical observation and institutional analysis.

I have the following to say contra this argument: there can be no market without the exchange of consumer goods, from which it follows that there can be no market without the existence of capital goods needed to produce the aforesaid consumer goods. However, even in the most primitive economy the continued existence of capital goods presupposes their necessarily time-consuming assembly and maintenance, which in turn presuppose a requisite, even if minimal, degree of preference stability and correctness of entrepreneurial foresight (otherwise how could the funds needed to create and maintain these capital goods be obtained in the first place?).

I suppose that at this point one might object by suggesting that very primitive capital goods can be created and conserved single-handedly, outside of the nexus of the division of labor. However, to the extent that one fails to utilize these capital goods for the satisfaction of the preferences of one's fellow human beings (i.e., uses them to produce final goods that nobody wants to purchase), they cannot be regarded as goods at all, and, a fortiori, under such conditions we cannot talk about the existence of any market (defined as a nexus of voluntary exchange) in the first place.

To conclude, even though I do not deny that it is not a logical impossibility that the world could be so kaleidic that the purposive agents inhabiting it would fail to engage in any mutually beneficial exchanges, I claim that as soon as we stipulate that some exchanges of this kind do in fact take place (as Lachmann and Shackle do insofar as they refer to the market environment), we need to acknowledge that there is an equilibrium tendency necessarily built into the socioeconomic system within which they occur. In other words, there is certainly nothing logically necessary about the existence of markets (and by the same token competent entrepreneurs), but it is, I contend, a logically necessary truth that any actually existing market displays a tendency towards equilibrium, or else it disintegrates and disappears by turning from a nexus of exchange into that of non-exchange.

1 comment: