Lachmann and Shackle: On the Joint Production of Interpretation Instruments
26 Pages Posted: 20 Nov 2017 Last revised: 22 Jul 2018
Date Written: April 12, 2017
In this paper we present fragments of previously unpublished correspondence between Ludwig Lachmann and G. L. S. Shackle on the nature of institutions.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: Suggested Citation