Lachmann’s 1973 article reviews John Hicks’s Capital and Time: A Neo-Austrian Theory as both a further stage in Hicks’s work on capital and a contribution to the contemporary crisis of economic theory.
Today neoclassical economics is very much on the defensive.
For Lachmann, Hicks is not simply abandoning neoclassical economics; he is attempting to defend its central equilibrium vision by giving capital theory a more explicitly temporal form. Hicks’s “Neo-Austrian” label rests on restoring the time dimension of production associated with Böhm-Bawerk and Hayek. Yet Lachmann’s central reservation is that temporality alone does not make a theory Austrian. A genuinely Austrian account would stress heterogeneous capital, entrepreneurial plans, subjective expectations, and market processes of coordination and discoordination.
His strategy is the defence of the central neoclassical notion of general equilibrium, and in particular its modern extension, “steady growth.”
Lachmann therefore reads the book as a sophisticated but limited rescue operation. Hicks replaces timeless comparative statics with “sequential analysis,” tracing how one week’s outcomes become the next week’s data. This makes possible an analysis of the “Traverse”: the path by which an economy disturbed by technological change might move from one steady growth path to another. Lachmann admires the elegance of this construction, especially where old and new techniques coexist during transition, but he argues that Hicks obtains tractability by imposing severe simplifications: a one-commodity world, static expectations, limited substitution, and insufficient attention to the reshuffling of existing capital combinations.
The question arises whether this neo-Austrian theory is not altogether too “classical” to be characteristically “Austrian.”
The most important criticism concerns expectations. Hicks rejects perfect foresight because it would empty time of significance, but Lachmann argues that static expectations are hardly better. If actors merely expect tomorrow to resemble today, the theory still misses the open-ended character of economic action. Capital values depend on anticipated future uses and yields, and such anticipations differ among market participants. For Lachmann, this diversity is not a complication to be suppressed but a defining feature of the economic world.
To “Austrian” thinking the diversity of expectations is a feature of the world no less significant than the diversity of preferences. They really belong together.
The review thus presents Hicks as both an ally and an object of critique. Against aggregate production functions and timeless capital measurement, Hicks restores process, dated inputs, and transitional dynamics. Against a fuller Austrian subjectivism, however, he remains too committed to equilibrium demonstration. The Traverse is made intelligible by excluding much of what an Austrian theory would most want to explain: entrepreneurial reinterpretation, relative-price adjustment, and the continuous recombination of heterogeneous capital goods.
Lachmann’s final judgment is respectful but firm. Hicks has produced a powerful intervention in capital theory and a serious challenge to crude neoclassical aggregation. Yet the “Neo-Austrian” project remains incomplete because it brings time into equilibrium theory without fully bringing in uncertainty, divergent expectations, and the market process through which plans are revised.
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