The “Tendency Toward Equilibrium Spectrum” Has Lachmann (“Never”), Mises-Hayek (“Sometimes”), and Lucas (“Always”)

Roger Garrison's contribution to the Festschrift, “From Lachmann to Lucas: On Institutions, Expectations, and Equilibrating Tendencies” is nothing short of magnificent. By creating a “tendency toward equilibrium spectrum” and then placing on it Lachmann (“never”), Mises-Hayek (“sometimes”), and Lucas (“always”), Professor Garrison does more to elucidate the views of the Austrian, the Rational Expectations, and the “kaleidic” schools of thought on the equilibrating tendencies in an economy than an essay of ten thousand words or more could have done. Through this astute and innovative feat, moreover, the author of this chapter is able to once again establish praxeology as the moderate and reasonable view that takes on an intermediate position between two extremist beliefs that might otherwise have appeared more attractive than they are.

Garrison uses Lachmann's concern with future expectations to cast doubt on Lucas's assertion that the economy must always and ever be in equilibrium. He mobilizes the Mises-Hayek insight that on the free market, those who are better able to anticipate consumer demands will tend to have command over more and more resources and thus will be able to cast a disproportionate impetus toward equilibrium. This undercuts the extreme Lachmannian skepticism that there can be even a tendency toward equilibration.

Further, with this spectrum device, the Auburn University professor can focus attention on the crucially important role played by institutions. The Hayekian criticism of Keynes is that there is not enough disaggregation in this system to allow for the equilibrating role of entrepreneurial success. But this can only occur, shows Garrison, in a marketplace where businessmen can reap the reward of their superior insight. Paradoxically, or perhaps not so paradoxically, Keynesian-inspired government “stabilization” measures can actually retard movements toward equilibrium. Says Garrison: “They nullify the market forces that give rise to equilibrating tendencies, thus causing the economy to perform in the very way that Keynes envisioned it.”

—Walter Block, review of Subjectivism, Intelligibility and Economic Understanding: Essays in Honor of Ludwig M. Lachmann on His Eightieth Birthday, edited by Israel M. Kirzner, Review of Austrian Economics 3, no. 1 (1990): 223-224.