Expectations And The Meaning Of Institutions: Essays In Economics By Ludwig Lachmann (foundations Of The Market Economy)

EXPECTATIONS AND THE MEANING OF INSTITUTIONS FOUNDATIONS OF THE MARKET ECONOMY SERIES Edited by Mario J.Rizzo, New York University and Lawrence H.White, University of Georgia A central theme of this series is the importance of understanding and assessing the market economy from a perspective broader than the static economics of perfect competition and Pareto optimality. Such a perspective sees markets as causal processes generated by the preferences, expectations and beliefs of economic agents. The creative acts of entrepreneurship that uncover new information about preferences, prices and technology are central to these processes with respect to their ability to promote the discovery and use of knowledge in society. The market economy consists of a set of institutions that facilitate voluntary cooperation and exchange among individuals. These institutions include the legal and ethical framework as well as more narrowly ‘economic’ patterns of social interaction. Thus the law, legal institutions and cultural or ethical norms, as well as ordinary business practices and monetary phenomena, fall within the analytical domain of the economist. Other titles in the series THE MEANING OF MARKET PROCESS Essays in the development of modern Austrian economics Israel M.Kirzner PRICES AND KNOWLEDGE A market-process perspective Esteban F.Thomsen KEYNES’ GENERAL THEORY OF INTEREST A reconsideration Fiona C.Maclachlan LAISSEZ-FAIRE BANKING Kevin Dowd EXPECTATIONS AND THE MEANING OF INSTITUTIONS Essays in economics by Ludwig Lachmann Edited by Don Lavoie London and New York First published 1994 by Routledge 11 New Fetter Lane London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York NY 10001 © 1994 Don Lavoie All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. Library of Congress Cataloging in Publication Data Expectations and the meaning of institutions : essays in economics by Ludwig Lachmann / edited by Don Lavoie. p. cm. Includes bibliographical references and index. 1. Economics 2. Rational expectations (Economic theory) 3. Financial institutions. I. Lachmann, Ludwig M. II. Lavoie, Don, 1951 HB34.E84 1994 93–29051 CIP ISBN 0-203-97655-X Master e-book ISBN ISBN 0-415-10712-1 (hbk) This book has been sponsored in part by the Austrian Economics Program at New York University. CONTENTS Editor’s note Acknowledgements INTRODUCTION: EXPECTATIONS AND THE MEANING OF INSTITUTIONS Don Lavoie Part I Uncertainty, investment and economic crises 1 COMMODITY STOCKS AND EQUILIBRIUM [1936] 2 UNCERTAINTY AND LIQUIDITYPREFERENCE [1937] 3 INVESTM