George Lennox Sharman Shackle, “Studies in the Theory of Money and Capital” (1940)

Shackle’s review of Erik Lindahl’s Studies in the Theory of Money and Capital (1939) presents the book as a major advance in dynamic economic analysis. Its central concern is the Swedish economists’ replacement of equilibrium shortcuts with an account of how people plan, act, encounter disappointment, and revise their expectations. Shackle’s praise is substantial but discriminating: Lindahl supplies a logically coherent framework for tracing economic change, while leaving insufficiently examined the uncertainty on which that framework depends.

The review begins with the distinctive role of expectations in Swedish “period analysis”:

Its distinguishing feature is the concentration of attention on expectations, for whose formation our ignorance of the future gives such a large measure of freedom, and which are therefore usually inconsistent as between different individuals, and are very often disappointed.

Ignorance is consequential here because it permits divergent expectations rather than merely imperfect estimates of a common, known future. Individuals act upon plans that need not be mutually compatible; the resulting disappointments shape new expectations and subsequent actions. Economic dynamics thus become a succession of planning and revision. Compared with static analysis, this approach is more complex and less general, but it follows the actual process of human adjustment instead of moving directly to an outcome under ideal conditions.

Shackle recognises that Lindahl’s realism remains selective. The book constructs a stylised model by isolating important features of economic conduct and treating them as more universal and sharply defined than experience warrants. His description of the methods as occasionally “Procrustean” qualifies rather than cancels his approval: the difficulties have been acknowledged, and the argument is logically satisfying once its assumptions are accepted. The achievement lies in making a recognisable process of economic change tractable without reducing it to equilibrium.

The review’s structural account concentrates on Part I, published here for the first time. Its first chapter proposes a general abstract framework from which theories suited to particular conditions can be developed. As Shackle explains through an extended quotation from Lindahl, the basic assumption is that actions over a period fulfil plans established at its beginning. A theoretical reconstruction of subsequent developments therefore requires knowledge of initial plans, of how individuals would revise them under different circumstances, and of the external conditions affecting both revision and results. This is a conditional analytical programme, not an assertion that economists already possess the information needed to predict events.

Shackle identifies one crucial weakness in this otherwise exceptionally clear exposition. Lindahl uses “probability” when an individual does not regard the future result of a present action as definitely known:

In this he seems to be turning aside from the central problem of dynamic economics: how to give risk and uncertainty precise meaning and fit them into our analysis.

The objection reaches beyond terminology. If expectations drive the process, then the nature of people’s knowledge—and of their inability to know—cannot remain an unspecified foundation. Shackle makes the conceptual treatment of risk and uncertainty the outstanding task within the very approach he endorses.

Chapter 2 supplies a comprehensive notation for organising the framework. Its particular merit is temporal discrimination:

Its great merit is that it distinguishes clearly the dates at which estimates are made or facts registered, and the dates or periods to which these estimates refer.

That distinction separates the moment of forming an expectation from the future period it concerns, allowing revised estimates to be represented coherently. Shackle notes a parallel scheme developed by A. G. Hart. He treats the remaining parts more briefly, describing them as essays developing and criticising Wicksell’s basic structures. Read with Part I, they show Lindahl’s movement from equilibrium methods toward disequilibrium analysis. The review’s concluding judgement is emphatic: Part I is path-breaking. Its significance rests on explaining economic development through changing plans, while Shackle’s reservation establishes uncertainty as the problem this new framework must still resolve.