Ludwig M. Lachmann: Review of The Theory of Competitive Price (1943)

Lachmann’s review of George J. Stigler’s 1942 advanced economics textbook combines strong pedagogical praise with a more pointed assessment of its theoretical foundations. He commends its precision, lucid style, and illustrations from contemporary economic life, but locates its chief significance in its transmission of Frank Knight’s teaching:

But the distinguishing characteristic of his book is its unmistakably Knightian flavour.

Because Knight’s work remained dispersed across journals and only partly gathered into books, Lachmann welcomes Stigler’s exposition as a valuable supplement. The debt extends beyond chapters explicitly based on Knight’s lectures and writings: it shapes the treatment of opportunity cost, productive services, and wants.

For once, costs are really treated as foregone alternatives, and the difficulties thereby raised are intelligently discussed and not merely used as a practical pretext for infringing the principle after theoretical lip-service has been paid to it (107-9).

The emphasis falls on conceptual consistency: Stigler takes opportunity cost seriously even where it complicates analysis. Lachmann also notes that treating production through anonymous productive services, rather than land, labour, and capital, evades the difficulties involved in valuing capital goods by their discounted future services. The distinction between innate generic needs and culturally formed specific wants supplies another instance of the book’s Knightian orientation.

The review moves from these theoretical merits to the textbook’s organization, then closes with reservations. Lachmann describes a methodological introduction covering economics’ scope and method, basic concepts, economic functions, and quantitative relationships, followed by a treatment of demand, cost, production, and competitive price formation. Recommended readings and exercises reinforce its usefulness for advanced students.

His criticisms concern questions insufficiently pursued rather than conclusions simply rejected. The methodological discussion glosses over differences between the social and natural sciences. More sharply:

One may legitimately complain that in the section on expectations (95-7) the really essential problem, viz., the nature of "determinateness", is scarcely recognised.

This objection makes the status of determinacy central to evaluating a theory that incorporates expectations, although the short review does not develop an alternative account. Likewise, Lachmann accepts Stigler’s argument that inventories undermine a rigid distinction between the short and long run, but finds the resulting analysis of time insufficiently extended.

Lachmann finally ranks these shortcomings as minor defects in an admirable book and welcomes the prospect of further treatments of imperfect competition, multiple products, and capital theory. The review’s interest lies in this balance: it values rigorous Knightian price theory while identifying expectations, time, and methodological differences as points where greater analytical depth remains necessary.