“Genetic-Causal Economics” Is the Method of Reducing Aggregates to Statements about Individual Choices

As is often true, Lachmann's real economic education — his detailed inquiry into the problems of the discipline — began after he met the requirements for his doctorate. In addition to the study of Pareto he and Kauder began work on Hayek's Monetary Theory and the Trade Cycle (1933) and Prices and Production (1931). During these sessions Kauder stressed the importance of subjectivism, especially subjective opportunity cost as the key concept in economic analysis. Lachmann also returned to the study of genetic-causal economics, the term of Werner Sombart and Hans Mayer for the Austrian method of reducing aggregates to statements about individual choices.

By this time, Lachmann's basic theoretical formulation, with the possible exception of the role of changing expectations in economic life, had been worked out. The foundations of Lachmann's theoretical structure were (1) a firm belief in the subjective theory of value and the related concept that the economic cost of an action always refers to a forgone opportunity; (2) a preference for the genetic-causal method of inquiry in contrast to the mathematical-functional approach of the Lausanne school; (3) a familiarity with the verstehende methode as espoused by Max Weber (an aspect of Lachmann's work that lay dormant for the next twenty years); and (4) an acceptance of the Mises-Hayek theory as a cogent explanation of the trade cycle.

—Walter E. Grinder, introduction to Capital, Expectations, and the Market Process: Essays on the Theory of the Market Process, by Ludwig M. Lachmann (Kansas City: Sheed Andrews and McMeel, 1977), 8-9.