Lachmann and Shackle: On the Joint Production of Interpretation Instruments

26 Pages Posted: 20 Nov 2017 Last revised: 22 Jul 2018

See all articles by Erwin Dekker

Erwin Dekker

Erasmus University Rotterdam (EUR)

Pavel Kuchař

University of Bristol

Date Written: April 12, 2017

Abstract

In this paper we present fragments of previously unpublished correspondence between Ludwig Lachmann and G. L. S. Shackle on the nature of institutions. This correspondence allows us to rationally reconstruct a theory of institutions, which extends Lachmann’s theoretical work. Shackle pointed out to Lachmann that institutions might be inputs into economic activities and that they themselves may be reproduced and transformed by these activities. Lachmann in turn contended that institutions consist of ‘instruments of interpretation’. We develop the concept of ‘instruments of interpretation’ as a subset of institutions. These instruments are mental models and cognitive tools which are (1) inputs complementary to capital goods (2) jointly produced, reproduced and transformed through economic activity. We suggest that in contrast to privately produced capital goods, parts of the institutional infrastructure are produced jointly as shared goods because the use of certain institutional elements is non-exclusive and non-subtractable; these elements – instruments of interpretation – are produced and reproduced by sharing and contributions through a process of joint production. This paper explicitly connects two different but essential themes in Lachmann’s work, capital and institutions. By combining these two strands of Lachmann’s work, we are able to demonstrate that there is a cross-complementarity between institutional orders and capital structures. This connection in turn provides a thicker understanding of the workings of markets.

Keywords: Institutions, Capital Goods, Economic theory, Entrepreneurship, Capital Structure, Institutional Orders, Shared goods, Joint production

JEL Classification: B25, B31, D02, D46, E22

Suggested Citation

Dekker, Erwin and Kuchař, Pavel, Lachmann and Shackle: On the Joint Production of Interpretation Instruments (April 12, 2017). Available at SSRN: https://ssrn.com/abstract=3072489 or http://dx.doi.org/10.2139/ssrn.3072489

Erwin Dekker

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Pavel Kuchař (Contact Author)

University of Bristol ( email )

8 Woodland Road
Bristol BS8 ITN
United Kingdom

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