Lachmann’s essay is a compact retrospective survey of economic thought from 1933 to 1953, written as intellectual history rather than as doctrinal inventory. Its scope is deliberately selective: Keynesian economics, imperfect and monopolistic competition, and welfare economics are treated as the visible debates, but the essay’s deeper subject is the displacement of static equilibrium by problems of time, expectations, knowledge, and process.
All history is interpretation.
That methodological sentence governs the whole piece. Lachmann quickly dismisses the new welfare economics as ingenious but remote from political reality: its “social welfare function” may guide a rational theory of choice, but not actual statesmanship.
In reality, as every newspaper reader knows, politicians pursue power, not welfare.
His account of Keynes is more balanced. The Keynesian model is not logically defective; if its premises are granted, its conclusions follow. The question is whether those premises describe normal capitalism. Lachmann argues that they fit only situations in which factor heterogeneity can be ignored—mass unemployment, wartime shortage, or inflationary over-full employment.
The Keynesian economics is an economics of extreme situations: it fits the circumstances of war and post-war inflation with the universal shortage of labour and material resources just as much as it did the world of the early 1930s with almost universal unemployment and “excess capacity.”
The same concern shapes his reading of theories of mixed market forms. Chamberlin, Robinson, and Harrod exposed the unreality of textbook perfect competition, but Lachmann thinks they still too often classified market structures statically instead of explaining how one form turns into another. The essay’s central conceptual move is therefore to reinterpret dynamics as a problem of learning under changing conditions.
The real objection to the equilibrium method is that it must ignore the process by which men acquire and digest new knowledge about each others’ needs and resources.
Time matters because it changes knowledge and its distribution. In a stationary world, assuming adequate knowledge is harmless; in a changing world, yesterday’s knowledge becomes today’s ignorance, and different actors “catch up” at different speeds. This is why Lachmann treats expectations as the period’s most important theoretical opening.
It remains true nevertheless that the introduction of expectations into economic theory was one of the major events of our period.
Yet Keynes’s use of expectations was, for Lachmann, incomplete and inconsistent: investment and liquidity preference are expectational, while consumption is treated too mechanically. More broadly, formal tools such as elasticities of expectations or surprise functions remain too mechanistic if they omit interpretation—the human act of assigning meaning to change.
The constructive alternative is Swedish Process Analysis. It distinguishes the coherence of an individual plan from the compatibility of all plans. Market order is not a state in which everyone is already right, but a sequence of revisions after disappointment.
Process Analysis takes account of the fact that in a changing world men only gradually and imperfectly acquire knowledge about each other’s needs and resources.
The final sections apply this to competition. Lachmann rejects both the inevitability-of-monopoly thesis and the textbook ideal of perfect competition as a normal benchmark. Competition is not one market form beside others; it is the knowledge-spreading process through which temporary monopolies arise and are eroded.
In other words, competition is not a market form, but the very process by which one market form evolves into another.
This also recasts product differentiation: viewed dynamically, it is not merely manipulation but a condition of quality improvement and progress.
The process of diffusion of knowledge is inherent in a society of specialists who exchange goods and services with each other.
The essay’s relevance lies in this revaluation of the period. Keynesianism was the dramatic event, but Lachmann’s lasting emphasis falls on expectations, disequilibrium adjustment, and market processes as learning processes. Its core argument is Hayekian-Austrian in spirit: economics must move from comparing equilibrium states to explaining how plans, knowledge, and market forms change through time.
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