Ludwig Lachmann, Review of Fluctuations in Income and Employment, by Thomas Wilson (November 1942)

Ludwig Lachmann’s journal book review assesses Thomas Wilson’s attempt to reconcile competing trade-cycle theories and apply the resulting synthesis to American industrial fluctuations between 1919 and 1937. Its central judgment distinguishes Wilson’s capable historical analysis from a theoretical framework insufficiently attentive to scarce resources, heterogeneous capital, and economic change. Lachmann acknowledges the ambition of Wilson’s double task and his aptitude for applying abstract theory to concrete problems, but argues that theoretical synthesis requires more than assembling agreed principles and alternative hypotheses.

The review proceeds from Wilson’s promised eclecticism through his treatment of change and Austrian cycle theory, before turning to the empirical account. Lachmann endorses the idea that disputes between under-saving and over-saving theories often arise from different factual assumptions. His objection is not that Wilson simply favours under-consumption explanations: Wilson criticises those too. Rather, his framework neglects the variety of scarce productive factors and the constraints imposed by fixed production coefficients. Expansion can encounter shortages of raw materials as well as labour or finance.

It seems never to have occurred to him that, apart from monetary stringency, scarcities other than of labour (for instance, of raw materials) may check a process of expansion.

This criticism makes resource composition central to the assessment of cycle theory. An account that excludes important real constraints cannot adequately compare explanations of interrupted expansion. Lachmann then extends the objection to Wilson’s handling of technical progress and expectations. Technical progress appears chiefly as a source of investment opportunities, while expectations are treated as given “data” at an unhelpfully general level. Lachmann also questions the methodological legitimacy of applying elasticity to long-run expectations. Wilson’s discussion of durable-goods industries briefly promises a more concrete approach, but, in Lachmann’s judgment, abandons it prematurely.

The sharpest criticism concerns Wilson’s rejection of Austrian cycle theory. Lachmann argues that Wilson evaluates a dynamic theory using assumptions belonging to static analysis, particularly homogeneous capital and constant returns to scale. Against this representation, he insists on the differentiated character of productive equipment:

For it industrial equipment is an aggregate of instruments of production of various ages and degrees of obsolescence and, hence, of productivity.

Capital’s composition matters because its instruments are neither interchangeable nor uniformly productive. Lachmann therefore regards Wilson’s dismissal of non-homogeneous production functions as a confusion between statics and dynamics, rather than a successful refutation of Austrian theory. He finds a related error in Wilson’s failure to distinguish limits on the size of an individual firm from limits on expansion of the economic system. Wilson’s denial that consumption-goods and investment-goods demand can move in opposite directions likewise reflects, for Lachmann, the exclusion of relevant real scarcities.

The empirical half receives substantially greater approval. Lachmann accepts Wilson’s interpretation of 1920 as a post-war crisis temporarily delayed by government borrowing and exports. He particularly praises the demonstration that credit scarcity did not cause the 1929 crisis and the criticism of crude versions of the acceleration principle. Nevertheless, he finds insufficient attention to the Wall Street boom’s effects on consumption and to raw-material conditions. His qualified acceptance of investment-opportunity exhaustion, especially in building, leads to the review’s concluding conceptual challenge:

Investment opportunities, after all, are never simply "there"; they are the outcome of human will and effort. Can economics as a social science afford to ignore the factors determining whether such effort is to be undertaken successfully?

The ending connects the empirical reservation to the earlier criticism of treating expectations as given. Identifying exhausted investment opportunities does not yet explain the human activity through which opportunities emerge and become actionable. The review’s significance lies in this insistence that a theory of fluctuations must address changing productive structures and purposeful action, rather than rely on static aggregates or take the conditions of investment as already supplied.