Wednesday, September 18, 2013

Lachmann on Speculative Markets and Economic Complexity

Ludwig Lachmann’s article “Speculative Markets and Economic Complexity” (1988) was written in the wake of the US stock market crash of 1987, and was meant to be defence of the market order. Lachmann, an Austrian economist, takes aim at those who stress “financial fragility,” a reference which was perhaps aimed at Hyman Minsky and his theories.

Lachmann divides markets into (1) ordinary markets and (2) speculative markets (Lachmann 1988: 7). In the “ordinary markets,” Lachmann sees a certain stability that is the result of underlying patterns of supply and demand, and the tendency for expectations to converge (Lachmann 1988: 7–8).

By contrast, speculative markets have an instability owing to the way in which market participants can quickly switch from being bears to bulls, and how “divergent expectations” are the very essence of such “speculative markets” (Lachmann 1988: 8). The latter is a crucial point because general equilibrium theory is dependent on the idea that expectations convergence over time, but that is not possible in speculative markets where, as in other areas of economic life, the future is unknowable. This is why speculative markets create a destabilising element in capitalist systems.

Strangely, while trying to defend markets, Lachmann ends up undermining the case for them in this article.

Lachmann, L. M. 1988. “Speculative Markets and Economic Complexity,” Economic Affairs 8.2: 7–10.


  1. "Strangely, while trying to defend markets, Lachmann ends up undermining the case for them in this article."

    You assume that Lachmann has this State -v- Market mentality, like most Austrians do, but Lachmann didn't. He understood that markets are a creation from individual and state institutions. Him considering IMF actions and other international actions on speculative markets is not an "anti-market" view, it at least isn't one to Lachmann. It doesn't undermine the market order, in fact actions like these, Lachmann would say is furthering the market order.

    Oh and Hi by the way, long time no see. Been busy as hell, nevertheless couldn't resist commenting on this post.

    Regards as always