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PKSG Working Paper Series

Working Paper PKWP1107

The state of short-term expectation

September 2011

Mark Hayes

The claim that Keynes makes a tacit assumption in Chapter 3 of The General Theory, that short-term expectations are fulfilled, is unwarranted and unnecessary. The seminal paper by Kregel (1976) and its subsequent development by Chick, among others, which has contributed to the general acceptance of this claim, is critically evaluated in depth. The present paper clears the ground for a recognition that Keynes instead adopted the assumption of judicious foresight, which would now be called short-term rational expectations. This recognition in turn should encourage a reappraisal of Keynes’s thought, by mainstream economists and others.

Keywords: Keynes, effective demand, formation of expectations

JEL classification: B22: History of Economic Thought: Macroeconomics B31: History of Economic Thought: Individuals E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian

Download: Working Paper PKWP1107