Expectations and full employment: Hansen, Samuelson and Lange

From the outset, expectations were a central part of the first business cycles and early growth models. In the 1940s, a third line of research emerged which questioned the capacity of an economy to reach full-employment equilibrium. Starting with Alvin Hansen [1938] and culminating with Oskar Lange [1944], the crux of the debate evolved from the existence of full employment equilibrium to the analysis of its stability, suggesting an increased role of expectations and finally challenging the economic system’s global stability. The present paper traces those debates through the contributions of Hansen, Paul Samuelson and Lange. Using archive materials, we show that while Samuelson’s analysis of instability remained implicit, his correspondence reveals that he encouraged Lange to examine it more carefully. Lange’s results are presented in his 1944 Monograph published by the Cowles Commission for Research in Economics. We point out that his contribution cannot be understood in isolation either from his exchanges with Samuelson or the way that Keynesian ideas were being interpreted in the United States. Finally, we emphasize the ambiguity of Samuelson’s view on instability and expectations.