Ludwig M. Lachmann — Review of An Approach to a Price Theory for a Changing Economy (August 1939)

Lachmann’s review of Moses Abramovitz’s book addresses a methodological problem in the emerging economics of change: whether abandoning stationary-state assumptions also requires abandoning equilibrium analysis. Taking Hicks’s Value and Capital as his principal benchmark, while recognising Lundberg’s pioneering contribution, Lachmann welcomes Abramovitz’s emphasis on time, entrepreneurial investment plans, and expectations. His central objection is that Abramovitz rejects precisely the analytical framework needed to connect individual plans into an account of economic processes.

The review moves from this shared research agenda to Abramovitz’s criticism of attempts, especially the cobweb theorem, to introduce time into traditional theory. Lachmann argues that dissatisfaction with such attempts does not justify discarding equilibrium analysis:

Whether or not there is in reality a "tendency towards equilibrium" (and whatever that may mean), equilibrium analysis is the only method known which allows us to test simultaneously the internal consistency of the economic plans of a number of individuals and—in a free exchange economy—the mutual compatibility of these plans.

The distinction is crucial: equilibrium analysis need not assert that actual economies converge towards rest. Its purpose here is to test whether plans make sense individually and can coexist collectively. Lachmann consequently proposes a sequence from the firm’s dated production plan through intertemporal market analysis and temporary equilibrium of the whole system to process analysis in Lundberg’s time-sequences.

Abramovitz, in Lachmann’s account, scarcely advances beyond the first step. His industry investment plan is restricted to an industry too small to affect total incomes, while his conception of a standard plan whose results fulfil entrepreneurs’ expectations tacitly restores equilibrium over time. The criticism thus concerns both a missing connection between firm and market and an unacknowledged dependence on the concept rejected.

Lachmann’s positive alternative centres on forward markets:

It seems a pretty safe guess that until it is generally realised that dynamic equilibrium theory is nothing else but a generalised theory of the forward market, our progress in this direction will be extremely slow.

Expectations are not merely additional psychological inputs; they introduce relations among prices at different dates, requiring a corresponding market framework.

For expectations involve intertemporal price-relations, but these cannot be made determinate without an intertemporal market.

This claim explains Lachmann’s frustration with Abramovitz’s discussions of speculation and carry-over: they supply material for intertemporal analysis without developing its theoretical implications. Yet the review ends in encouragement, describing the book as valuable pioneer work and urging its discouraged author to continue. Its significance lies in the compact methodological case that a theory of change must connect expectations and dated plans through market coordination, rather than treat equilibrium and process as incompatible subjects.