Subjective Expectations and the Process of Equilibration: The Views of Lachmann and Mises

Abstract

Ludwig Lachmann claimed that expectations are subjective, and argued that this phenomenon, coupled with the ceaseless change characterizing market data, greatly undermines the strength of any process of equilibration. This paper compares his views on this subject with those of Mises. It argues that Mises also viewed expectations to be subjective. But contrary to Lachmann, he did not conclude that this phenomenon undermines the process of equilibration. Thus, in Mises’ view, a thoroughgoing subjectivism goes hand in hand with a belief in a dynamic market economy where there are strong forces at work ensuring that the decisions of entrepreneurs are coordinated with those of consumers.

Keywords: Subjectivism, Expectations, Equilibrium, Coordination

JEL Classification: B20, B53, D50, D84.