4 - Expectation and plan: The microeconomics of the Stockholm School

Summary

The Stockholm School had its roots in Knut Wicksell's (1898) macroeconomic analysis of the cumulative process and Gunnar Myrdal's (1927) attempt to extend neoclassical microeconomics (in Gustav Cassel's version) to cover nonstationary phenomena. Both Wicksell's analysis of price level changes and Myrdal's of firm planning in a changing and uncertain environment were attempts to study processes for which comparative statics was an insufficient analytical tool.

The macro- and the microeconomic lines were connected in the twin concepts ex ante and ex post. Starting from the expectations for the future (ex ante), individual firms and households plan their actions for the coming period. The values of the expectation variables registered at the end of the period (ex post) will, however, differ from the expectations held at the beginning of the period. This may result from a lack of coordination between the plans of individual agents or from unexpected external events. The discrepancy between expectations ex ante and outcomes ex post will initiate revisions of both expectations and plans for the coming period. The unexpected – the gap between expectations ex ante and outcomes ex post – is thus one of the factors that drives the system in the period analysis of the Stockholm School (see Lindahl, 1939). The stress on analyzing gaps between plans and expectations on one hand and outcomes on the other reflected the dissociation from equilibrium theory that was a characteristic feature of the Stockholm School.