One of John Maynard Keynes’ alleged contributions to economic science is a focus on “expectations.” What is meant by expectations is how individuals predict the uncertain future to be; expectations will influence what actions individuals will undertake in the present (since all action is intertemporal). Keynes, of course, considered these expectations to be one of the facets of the instability of capitalism. It was an emphasis on expectations that led Ludwig Lachmann to consider Keynes a radical subjectivist; Lachmann, in fact, lamented that Austrians had not spoken of expectations (at least, more overtly) during the debates of the 1930s (Lachmann, The Market as an Economic Process [Oxford, United Kingdom: Basil Blackwell Ltd., 1986], p. 24).
In my reading of John Hicks’ chapter on Ralph Hawtrey (in Economic Perspectives [Oxford, United Kingdom: Clarendon Press, 1977]), I found an interesting tidbit on Keynes’ supposed “radical subjectivism.” Writes Hicks,
When I reviewed the General Theory, the explicit introduction of expectations was one of the things which I praised; but I have since come to feel that what Keynes gave with one hand, he took away with the other. Expectations do appear in the General Theory, but (in the main) they appear as data; as autonomous influences that come in from outside, not as elements that are moulded in the course of the process that is being analysed.
This seems to me as a remnant of the Neoclassical theory Keynes had set out to refute. To Walras and the Neoclassical School that he and (more directly) Alfred Marshall bred, prices are data exogenously provided to the market. This is an important difference between Neoclassical and Austrian price theory, where the latter focuses on price formation as a result of the actions of individuals. In other words, to Austrians, prices are an endogenous phenomena; expectations, likewise, are also an endogenous phenomena. It is the Austrian approach (methodological individualism) that gives the school a distinct advantage in understanding economic phenomena, since markets (and the phenomena which characterize it) are constructs designed by individuals partaking in the division of labor.
It seems that the primacy of the individual was even beyond Keynes.
