The disappointment of expectations and the theory of fluctuations

The role of expectations in macroeconomic theory was launched in the 1930s and has been re-launched in the second half of the 20th century. The focus of the first phase was on the impact on macroeconomic fluctuations of «errors in time» (Fanno 1933) or, which comes to the same, of the «disappointment of expectations» (Hicks 1933). This was in line with the replacement of the paradigm of General Equilibrium Theory – which took place in those years and whose framework is logical time – by the new paradigm of Uncertainty and Expectations – whose framework is historical time and whose initial centre of gravitation was the fluctuations of effective demand (Keynes 1936). The scope of this paper is to evaluate the role assigned to errors in time or disappointment of expectations in the theory of macroeconomic fluctuations. The paper is divided in two parts. The first is concerned with the achievements of the ‘years of high theory’, the second with the achievements of the ‘years of rational expectations’. The first part provides a benchmark for evaluating the achievements discussed in the second part. The paper shows that the focus on errors in time has been replaced in recent times by a set of assumptions and arguments which either neglect the impact on fluctuations of the disappointment of expectations or even exclude the very possibility of this disappointment. The paper concludes by comparing the achievements of macroeconomic theory in the two phases of its development and by ranking their different relevance for the modern theory of fluctuations.