Shackle’s essay is a selective theoretical reconstruction of Gunnar Myrdal’s Monetary Equilibrium, framed as a claim about its place in interwar monetary theory rather than as a conventional review. He treats Myrdal as one of the decisive developers of Wicksell’s problem: how to define monetary equilibrium in an economy where investment, saving, and income are realized only through time and under expectations that may be disappointed.
It is not too much, in my opinion, to claim for Myrdal’s essay an originality and path-breaking importance equal to anything which appeared in economics in the period between the two wars; and my first purpose in putting together this essay is to claim for it a more just recognition.
The argument begins by clarifying the time-structure of Myrdal’s categories. Shackle distinguishes the date from which expectations are formed, the interval to which they apply, and the later comparison between what had been anticipated and what actually occurs. On this basis, the familiar Wicksellian contrast between the money rate and the natural rate is displaced from an observable yield on existing capital to the prospective profitability of new investment. Existing capital, valued as the discounted stream of expected net receipts, cannot yield a genuinely independent natural rate; once valuation is performed with the current interest rate, its yield is tautologically tied to that rate.
There can be a difference between the capital value and the anticipated cost of construction of a projected plant, and the size of the difference $v - u$ between them, if positive, will largely determine the strength of the inducement to construct this particular plant.
This difference, not the return on already existing capital, becomes the active Wicksellian variable. It is a valuation gap perceived before construction, and therefore a matter of expectations. A cumulative process arises when such expected gains induce investment outlays, those outlays create receipts for others, and the resulting experience strengthens rather than exhausts the inducement to invest. Monetary dynamics are thus not reducible to movements of a rate of interest; they turn on the way present decisions revise future beliefs.
The essence of Wicksell’s conception of a cumulative process, as interpreted by Myrdal, is, I think, a state of affairs where action induced by expectations of profit will lead to revised expectations of still higher profit, and thus to action of the same kinds as before but on a greater scale, and so forth.
Shackle then recasts equilibrium as compatibility among plans. Each person enters a period with intended investment, production expenditure, consumption, and expectations about receipts; each person’s realized receipts depend on the expenditure decisions of others. Disequilibrium is therefore not merely an aggregate inequality, but the discovery that one’s own plans rested on mistaken anticipations of others’ actions. In this respect, Shackle reads Myrdal together with Hayek: equilibrium is a property of the whole constellation of individual expectations at a date.
Monetary equilibrium in this meaning is a means of classifying the set, considered as a whole, of systems of expectations which are entertained, one system by each individual, at some one point of time.
The essay’s later discussion tests Myrdal’s two equilibrium conditions. The first, equality between natural and money rates, is reinterpreted as equality between the capital value and construction cost of contemplated investments. But because investors differ in expectations, costs, and reactions, no single natural rate can perform the required task without a weighting procedure. Myrdal’s coefficients of investment-reaction show both the ingenuity and fragility of the aggregation.
The second condition compares gross real investment with waiting, where waiting combines saving with the anticipated value-change of capital. Shackle translates this into a relation between expected net receipts, intended consumption, and intended investment. In a closed system, equality between aggregate intended investment and aggregate intended waiting ensures equality between aggregate expected and realized net receipts. Yet the aggregate equality may conceal offsetting individual errors. One person’s excess receipts and another’s disappointment can cancel statistically while still forcing revisions of plans.
The essay’s significance lies in this shift from monetary theory as a theory of rates and aggregates to monetary theory as a theory of dated expectations. Shackle honors Myrdal’s originality while tightening the concept of equilibrium: not merely balanced totals, but a situation in which realized events do not require the individual systems of plans and anticipations to be remade.
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