A Curious Contention
"In equilibrium, where, by definition, all values are consistent with each other, the use of money value as a unit of measurement is not necessarily an illegitimate procedure." -- Ludwig Lachmann, Capital and Its Structure, p. 2.
Lachmann does not offer further explanation of what he is thinking, at least at this point. Certainly, out of equilibrium, the price of capital goods will change. Furthermore, there will be disagreement about the price of various capital goods. So two entrepreneurs, or two economists, might not reach agreement about the amount of capital in a firm or in a nation. But as long as one recognizes this, so what? As Mises noted, this valuation problem is no different for land or labor: all three are valued for the future income streams they will produce, and out of equilibrium those are always uncertain.
If this is all Lachmann means, I agree with him, but I can't see why he calls using the estimated monetary NPV of a capital to "measure" it "illegitimate," rather than "plagued by uncertainty."
If he means something more, perhaps someone can fill me in on what that is.
Lachmann does not offer further explanation of what he is thinking, at least at this point. Certainly, out of equilibrium, the price of capital goods will change. Furthermore, there will be disagreement about the price of various capital goods. So two entrepreneurs, or two economists, might not reach agreement about the amount of capital in a firm or in a nation. But as long as one recognizes this, so what? As Mises noted, this valuation problem is no different for land or labor: all three are valued for the future income streams they will produce, and out of equilibrium those are always uncertain.
If this is all Lachmann means, I agree with him, but I can't see why he calls using the estimated monetary NPV of a capital to "measure" it "illegitimate," rather than "plagued by uncertainty."
If he means something more, perhaps someone can fill me in on what that is.
Maybe his point is quite simple: in equilibrium, prices are constant / not volatile. Outside of equilibrium, they are constantly adjusting to changes in people's ? Prices don't reflect any kind of "stable value" because new trades done at a different price will also affect our valuations, etc.
ReplyDeleteI think the idea is that in equilibrium money prices will equal the "utility" attached to each good.
ReplyDeleteGentlemen, I don't disagree with your points, but I don't see why that makes a money measure out of equilibrium illegitimate, rather than inexact.
ReplyDelete