Paul Rosenstein-Rodan Told Ludwig Lachmann That “the Major Flaw in Hayek” Is the Question of Expectations

Lachmann had for a while been troubled by the influence of people's expectations on their actions, and felt that in Price and Production (1935a)  and Monetary Theory and the Trade Cycle (1933a) and in his debate with Keynes subsequent to the publication of Keynes's Treatise (1930), Hayek had neglected to adequately address expectations in the trade cycle story offered as a counter-argument to Keynes. Reading Keynes's General Theory (1936) upon its publication, he was surprised to find Keynes's extensive treatment of the subject.

Lachmann always maintained that the quarrel (the Hayek-Keynes debate) was unnecessary and that no important economic principles were at stake. It concerned empirical questions about how markets work in the modern industrial world (that is, which markets were fix-price and which were flex-price, in Hicks's terminology) although there were also some political undertones. Keynes had won, he thought, partly because he had introduced expectations most effectively into his theory, at least where it suited his purposes, whereas neither Mises nor Hayek responded in like manner. In 1934 Paul Rosenstein-Rodan had said to Lachmann that the question of expectations was ‘the major flaw in Hayek.’ Keynes had not made the same mistake.

—Peter Lewin, “Hayek and Lachmann,” in Elgar Companion to Hayekian Economics, ed. Roger W. Garrison and Norman Barry (Cheltenham, UK: Edward Elgar Publishing, 2014), 166.