Jonathan Finegold Catalán, “Sloppy Interpretations,” Economic Thought, 9 June, 2012.It is unfortunate that the response is attacking nothing but a straw man version of my arguments. This is easily demonstrated, as follows:
(1) Catalán says:Once the distinction between“... blogger ‘Lord Keynes’ unconvincingly continues the argument that Mises was predominately an equilibrium economist.”I say no such thing. I do not deny that Mises was different from neoclassical economists on the position of equilibrium. I have always accepted that Mises never thought that the ERE or a state of general equilibrium is ever reached in the real world.
(2) Catalán says:“The world of equilibrium is a world without change; it is purely imaginative. ‘Lord Keynes’ fails to recognize that the evenly rotating economy, as used by Mises, is merely an explicitly fictitious mental construct meant to derive the origins of certain economic relationships. It is nothing more than an ideal type. In the real world, replete with constant change, this fictitious relationship obviously fails to hold.”I have never asserted that Mises thinks that the ERE is a real world phenomenon. Catalán has simply made this up. In fact, nearly a year ago I wrote a post on Mises’s concepts of equilibrium, and explicitly recognised that, for Mises, the ERE is a fiction:“Mises’s Three Concepts of Equilibrium,” June 23, 2011.(3) What I assert is that Mises believed in a “strong tendency towards general equilibrium as a real phenomenon of the market economy,” although the actual state is never reached.
Belief in a tendency to equilibrium is completely compatible with the view that Mises believed that an actual equilibrium state is never reached. I take it that Catalán can understand the difference between (1) a tendency towards general equilibrium, and (2) actual equilibrium as a real world state.
This is exactly what Ludwig Lachmann was saying here:“Professor Hayek and Mises both espouse the market process, but do not ignore equilibrium as its final stage. The former, whose early work was clearly under the influence of the general equilibrium model, at one time appeared to regard a strong tendency towards general equilibrium as a real phenomenon of the market economy. Mises, calling the Austrians ‘logical’ and neoclassicals ‘mathematical’ economists, wrote: ‘Both the logical and the mathematical economists assert that human action ultimately aims at the establishment of such a state of equilibrium and would reach it if all further changes in data were to cease’ ... It is this view of the market process as at least potentially terminating in a state of long-run general equilibrium that now appears to require revision.“Potentially terminating in a state of long-run general equilibrium” is Lachmann’s way of referring to a tendency towards general equilibrium, not the state of equilibrium itself (or the ERE). Even Lachmann’s “equilibrating forces,” I would argue, should be distinguished from a fundamental and strong tendency of the real world market to general equilibrium, because the “equilibrating forces,” as Lachmann says, are thwarted by change, uncertainty and subjective expectations of economic agents which are liable to shift. If the “equilibrating forces” did in fact work consistently and in a reliable way, there would be a strong tendency to general equilibrium in market economies. But they do not.
In a kaleidic society the equilibrating forces, operating slowly, especially where much of the capital equipment is durable and specific, are always overtaken by unexpected change before they have done their work, and the results of their operation disrupted before they can bear fruit. Restless asset markets, redistributing wealth every day by engendering capital gains and losses, are just one instance, though in a market economy an important one, of the forces of change thwarting the equilibrating forces. Equilibrium of the economic system as a whole will thus never be reached. Marshallian markets for individual goods may for a time find their respective equilibria. The economic system never does. What emerges from our reflections is an image of the market as a particular kind of process, a continuous process without beginning or end, propelled by the interaction between the forces of equilibrium and the forces of change. General equilibrium theory only knows interaction between the former.” (Lachmann 1976: 60–61).
(1) a tendency towards general equilibrium, andis understood, some kind of serous argument is possible.
(2) actual equilibrium as a real world state
But straw man arguments refute nothing.
BIBLIOGRAPHY
Lachmann, Ludwig M. 1976. “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14.1: 54–62.
It has to be important to stress that the debate started not because the claim was that Mises was an equilibrium economist, but that he believed that there was a tendency towards equilibrium. Thus in accepting such a thing, one automatically implies that there is an end state to the market process. This is what Lachmann was objecting to. Lachmann was not wrong to say such a thing, Mises did in fact accept this 'tendency in the long run' position.
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