Keynes - The General Theory - Chapter V

Section I: In this chapter, Keynes deals with the role expectation plays for the entrepreneur. He offers some sensible advice, but also puts things in such a way that they are liable to be misunderstood. He also introduces distinctions and terminology without necessity.

For instance:

“The first type [of expectation] is concerned with the price which a manufacturer can expect to get for his “finished” output at the time when he commits himself to starting the process which will produce it; output being “finished” (from the point of view of the manufacturer) when it is ready to be used or to be sold to a second party. The second type is concerned with what the entrepreneur can hope to earn in the shape of future returns if he purchases (or, perhaps, manufactures) “finished” output as an addition to his capital equipment. We may call the former short-term expectation and the latter long-term expectation.”

The concept is clear enough: a manufacturer expects to sell a certain good; he expects the addition of capital—for instance, a new machine for his shop—to increase production. The reason why these expectations merit distinctions as short-term or long-term escapes me.

Keynes writes: “The actually realised results of the production and sale of output will only be relevant to employment in so far as they cause a modification of subsequent expectations.” This is correct, but he gives too little attention to “actually realized results”. True, expectations are ever-changing, but what really alters employment are not fluctuations in expectation—which are far smaller than Keynes implies; it's not as if a manufacturer changes the goods he produces on a daily basis—but the disparity between expectations and reality. In other words, small changes in plans of production will alter employment little compared to the realization that produced goods cannot be sold profitably on the market. In his exuberance to emphasize expectation, he under-emphasizes the importance of actual results.

Section II: Little is added in this section, so I leave it without comment.