Book Reviews

which could reverse "the regressive impact of . . . consecutive Soviet reactions . . . ." Yet at the same time, Feuer provides defenders of the freedom philosophy with an arsenal of weapons to do battle against the economically and his torically simplistic arguments about imperi alism mounted by thinkers such as Hilferding, Lenin, Bukharin, and contemporary defenders of so-called' 'dependency theory," and dra matically raises the question as to how, without emulating the coercive interventionism of con temporary imperialists, free people might counter the regressive imperialism centered in Moscow. D THE MARKET AS AN ECONOMIC PROCESS by Ludwig M. Lachmann New York: Basil Blackwell-1986 - 173 pp. - $29.95 Reviewed by Richard M. Ebeling L udwig M. Lachmann has been a leading . figure in the revival of the Austrian School of Economics. A student of F. A. Hayek at the London School of Eco nomics in the 1930s, for over half a century he has made major contributions to the theory of capital and business cycles, the theory of ex pectations in the market economy, and to the theory of social institutions and their evolution.

Having recently celebrated his 80th birthday, Professor Lachmann now has produced what may be seen as a "summing up," a concise restatement and reformulation of his vision, a vision that is captured in the title of his latest work, The Market as an Economic Process. Professor Lachmann believes that for most of the last 100 years economists have followed a false scent in the construction of their models of the market economy. They have reduced the process of market exchange to pure mathemat ical relationships. In doing so, they have cre ated elegant quantitative images of hypothetical states of market equilibrium. But they have produced little that is insightful about how real markets work in an ever-changing economic and social environment. Instead, Professor Lachmann begins with the following premises, and comes to the following conclusions: (1) Economics is concerned with human action and, therefore, must begin from the subjective, or personal, points-of-view of the market par ticipants. But "subjectivism" means not only that people's tastes and preferences are dif ferent, but that in a complex economy the knowledge that different people possess will be different, too. And from this it necessarily follows that people's expectations about the fu ture will differ because different people will in terpret in various ways the differing knowledge available to them.

(2) The market is an ongoing process in which individuals satisfy their wants through ex change. But in a complex economy, resources pass through many hands in the various stages of the production processes before those re sources are transformed into usable goods. Pro duction plans begun today, therefore, are based on expectational projections about what goods consumers and other producers will want in an uncertain future, and at what prices they may sell. (3) Since people's expectations about the future will differ (because each will interpret in his own way what tomorrow will look like on the basis of today's information), there is as much likelihood that people will guess wrong as that they will guess right. As a consequence, people's actions and reactions to changing con ditions in the market are as likely to result in disequilibrium plan failures as successful plan coordination.

Economics, therefore, says Professor Lach mann, has two central tasks: to explain the un intended consequences of human action that necessarily occur because of man's inability to fully know the future or know the effects of both his own actions and those of others; and to investigate both theoretically and historically the various types of social and economic insti tutions (e.g., money, futures and commodity markets, product pricing methods) that have been and are used by market actors in their at tempts to find solutions to the vagaries and un certainties of market exchange.

To the traditional Austrian emphasis on the problems of knowledge, time, and change in the arena of market activities, Professor Lach mann has added and integrated the problems of people's expectations about the future and what may happen if those expectations diverge. Yet the conclusion he reaches is a disconcerting one: Since people may interpret the future dif ferently in planning their actions, there is no certainty of any sort that the market process brings people's plans into a coordinated pattern through time. In reaching this conclusion, Professor Lach mann seems to neglect an essential aspect of market processes-one that points to a more optimistic view of market activities. While not ignoring the role of the entrepre neur in the market, Professor Lachmann does not see the entrepreneur's role and significance in the same way as have Ludwig von Mises and Israel Kirzner. In their analyses it is the entre preneurs who shoulder the coordinating role, acting as the middlemen between consumer de mands and the suppliers of resources to make commodities. Those entrepreneurs who suc ceed earn profits; those who fail suffer losses.

Over time the market weeds out the less com petent entrepreneurs and shifts control over re sources to those entrepreneurs who demonstrate the greater capacity to anticipate consumer preferences and bring market supplies into bal ance with market demand. While disappoint ment and error are inseparable from a world of uncertainty, the market has its own feedback mechanism to minimize their occurrence. Furthermore, while Professor Lachmann has forcefully drawn attention to the problem of ex pectations in the market, he has not addressed some crucial questions: How are expectations formed? Why is it that people often hold sim ilar expectations about market situations and about people's reactions in those situations? And how does the institutionalization of such common expectations enable people to match their own plans with the actions and activities of others in the marketplace? These questions offer opportunities for much fruitful work for the new generation of Austrian economists. D Richard Ebeling is a professor of economics at The Univer sity of Dallas.

OTHER BOOKS 319 by John K. Williams A dvocates of the freedom philosophy who minimize the importance of eccle sial beliefs about economics are making a serious mistake. More men and women in the United States-and in my own skeptical na tion, Australia-attend church services every Sunday than go to football matches every Sat urday! Even non-church people regard main stream churches as significant agencies of what we have been taught in recent years to call "moral legitimization. " For this reason, I urge those who are church members, or whose friends include church members, to read Roger Freeman's essay, Does American Neglect Its Poor? Comments on the American Catholic Bishops' Pastoral Letter: Economic Justice for All (Hoover Institution Press, 41 pp., single copies free). Succinctly, thoroughly, and uti lizing a minimum of technical economic termi nology, Freeman analyzes the recent pastoral letter of the U.S. Catholic bishops. The impact of this letter upon Catholic clergy in particular, and Christian clergy in general, cannot be over stated, and not a few politicians have already made considerable political capital from its conclusions.

Murray Rothbard, in his path-breaking essay, "New Light on the Prehistory of the Austrian School" (in The Foundations of Modern Austrian Economics, edited by Edwin T. Dolan, 1976) challenged the cliche that scholastic philosophers and theologians were economic incompetents to be remembered simply for their theory of the' 'just price." This challenge is sharpened and developed by Ale jandro A. Chafuen in his small but tightly written volume, Christians for Freedom: Late Scholastic Economics. (Ignatius Press, 207 pp., $12.95 paperback) Dr. Chafuen argues that the late Spanish scholastic thinkers who teased out economic insights forged by St. Thomas Aquinas and his immediate successors developed positions un cannily reminiscent of those defended by the 320 THE FREEMAN. AUGUST 1987 Austrian school of economics. Any person versed in the tenets of contemporary Austrian economics who reads the "Hispanic scho lastics" will experience a strange sense of deja vu. He will encounter a consistently subjective theory of value, an insistence upon the impor tance of private property rights, an under standing of the nature of money that would have elicited nodding approval from Mises, a theory of interest not unlike that developed by B6hm-Bawerk, and so on.

Michael Novak contributes a Foreword which he concludes by observing that "the Catholic Church will gain [from this volume] a deeper understanding of her own tradition, and she will achieve a clearer sense of her own slow but steady journey toward liberty, in the eco nomic as well as in the political domain." He further notes that Dr. Chafuen's "linking of the Austrian school to the commonsense observa tions of the Late Scholastics of Salamanca may be a significant event in Latin American intel lectual life. ' , One can but hope that today' s religious leaders and economic historians will gain a greater appreciation of the insights developed by the scholastic thinkers. There are few books which deserve a promi nent place on the bookshelves of all lovers of liberty. The English historian (and one-time ed itor of the left-wing journal, The New Statesman) Paul Johnson has penned such a book in his Modern Times. (Harper and Row, 1983, 817 pp.) Painstakingly, Johnson documents the growth between the 1920s and the 1980s of both statism and of the moral relativism which almost invariably is embraced when the reality Paul)ohnson of natural rights is denied. In the course of so doing, Johnson defends several U.S. Presidents cavalierly dismissed by most contemporary his torians, castigates not a few European and En glish "statesmen" widely hailed as saviors of the West, and provides a compelling account of the rise of tyrants such as Lenin, Stalin, Hitler, Mao, and Castro. Somehow, the author manages to combine an attention to detail with a refusal to be distracted by trivia that is quite .extraordinary.

Not surprisingly, given such a wide canvas, one can criticize isolated claims. This re viewer's reading of revisionist historians leads him to question the adequacy of Johnson's ac count of U.S. involvement in both the First and Second World Wars. Also, while I applaud his defense of transnational corporations against the charge that they spread "U. S. imperi alism' " I regret his failure to note that many transnational firms have been all too ready to form symbiotic relationships with govern ments, and thereby have escaped the discipline of the marketplace. But such criticisms are minor. Like Johnson's earlier work, A History of Chris tianity (New York: Atheneum, 1976) and sub sequent volume, A History of the Jews (New York: Harper and Row, 1987), Modern Times displays the attention to detail, the subtle dis crimination, and the ability succinctly but accu rately to narrate a complex story, that are all too rare in the writing of history. D (The Reverend Dr. John K. Williams is a phi losopher and theologian based in Australia. He is currently spending his third summer at FEE as a senior scholar in residence.) order from: FEE Irvington-on-Hudson New York 10533 $1 0.95 paperback THEFREE IDEAS ON LIBERTY 324 Superstars as Slaves Jerome Ellig A look at the free agency issue.