From a radical subjectivist point of view, expectations was something that the early Austrians failed to grasp, but this was not a claim in the absolute sense. For example, Ludwig Lachmann states the following about the Cambridge Controversy in his ‘Reflections on Hayekian Capital Theory’ (in 1975):
Everybody seems to agree today that the stock of capital cannot be measured outside equilibrium, viz. outside entirely artificial conditions. But there are two reasons for it of which we may call one the ‘Ricardian’ or ‘objectivist’, the other the ‘Austrian’ or ‘subjectivist’ reason. We may also say that the one is ‘backward looking’, the other ‘forward looking’. The former rests on the fact that any change in the mode of income distribution, in rate of profit or wage rate, will affect relative prices and thus deprive us of any solid yardstick. It is particularly germane to any view of capital which links the present value of capital resources to their current cost of reproduction, a ‘backward looking’ view…
The second reason rests on the fact that the purpose of all capital, hence also of the current maintenance of existing capital goods, is to secure a future income stream. But the future is unknowable, though not unimaginable, and men have to use knowledge substitutes in order to evaluate future income streams, viz. expectations. Experience shows that different persons will typically hold different expectations about the future income to be expected from the same resource, and that the same person may hold different expectations about the same future event at different points of time. The inevitably subjective nature of all ‘forward looking’ views renders the measurement of capital impossible…
Meanwhile an impious legend has grown up that our inability to measure the stock of capital in the real world was discovered in the Cambridge of the 1950s.
Lachmann quite defends the Austrian position (the subjectivist position) in that Hayek was one of the first economists to take the concept of capital not being measurable in disequilibrium and applying it to subjectivism and expectations. His concluding remarks are almost that of distaste to the Cambridge school in that during their whole debate, Hayek’s name was not mentioned once even though he concluded the same thing decades before this debate, but using subjectivist reasoning.
What the radical subjectivists imply is that Austrians do not use expectations to their fullest extent. This is to say, most Austrians do not see reality as one of kaleidicity. The view of a kaleidic reality brings most to conclude that this is some nihilistic position on reality. As Roger Garrison states, there is too much of a good thing, and the good thing he is talking about is subjectivism. Garrison, appealing to Yeager, sees too much of subjectivism as seeing in not having any sense of objective reality. This is not quite true, but it is true that radical subjectivists are more skeptical of the data if it is in disequilibrium than the average Austrian. Or as Buchanan states, even though he is not Austrian, I could only imagine most Austrians agree with this, if we go down all the way down the road [to radical subjectivism] we are left with a nihilistic position. Though he makes quite a weird claim in stating that Wiseman is the closest to his methodology, even though Wiseman is himself a radical subjectivist. Or as what the infamous Rothbard states, economists leading to ‘Lachmannia’ are led to believe institutionalist conclusions, that of believing there is not such thing as economic theory, and thus are non-economists.
To further the point on why Austrians are not using expectations to their fullest extent, Lachmann in his lecture on the ‘History of the Austrian school of Economics’ speaks of George Shackle’s book Epistemics and Economics highly, considering the “most important contribution to the Austrian revival.” Now I think it is quite obvious that what he means by this is that it is the most important contribution as far as what is in the book, instead of speaking of how popular it is in the Austrian circles. Lachmann is quite right, though, on its importance. If anyone was to read only a single book by Shackle, let it be this book. It is a book of ideas that the Austrians I think, and I think so would Lachmann, failed to grasp.
Why are Austrian so afraid of the kaleidic world? The biggest reason, I think, has to do with the fact that viewing the world as a kaleidic one is not an Austrian insight in itself. As Lachmann states in his paper, ‘From Mises to Shackle’, “The kaleidic society is thus not the natural habitat of Austrian economics, but the alien soil may prove nourishing.” I think most Austrians are afraid to accept this because they are afraid that if they do, they will be in the same nihilistic boat as that of Shackle, even though I strongly think that thinking Shackle as a nihilist is highly misleading.
This said then, I think this puts into question some of the Austrian comments on the Lachmann critique that they lack expanding subjectivism to expectations. As I said, it wasn’t a failure of Lachmann to recognize that Austrians did have some things to say about expectations, given the passages in the beginning of the post. It is actually still a failure of the Austrians to adopt expectations, in the way radical subjectivists are describing them. In short, there is just more to Lachmann’s critique than “Austrians failed to adopt expectations and Keynes did.”