CH. 5 EXPECTATION AND EMPLOYMENT 47

second type is concerned with what the entrepreneurcan hope to earn in the shape of future returns if hepurchases(or, perhaps, manufactures)“finished” out-put as an addition to his capital equipment. We maycall the former short-term expectation and the latter long-term expectation.

Thus the behaviour of each individual firm indeciding its daily1 output will be determined by itsshort-term expectations—expectations as to the cost ofoutput on various possible scales and expectations asto the sale-proceeds of this output; though, in the caseof additions to capital equipment and even of sales todistributors, these short-term expectations will largelydepend on the long-term(or medium-term) expecta-tions of other parties. It is upon these various ex-pectations that the amount of employment which thefirms offer will depend. The actually realised resultsof the production and sale of output will only berelevant to employment in so far as they cause amodification of subsequent expectations. Nor, onthe other hand, are the original expectations relevant,which led the firm to acquire the capital equipment andthe stock of intermediate products and half-finishedmaterials with which it finds itself at the time when ithas to decide the next day’s output. Thus, on eachand every occasion of such a decision, the decision willbe made, with reference indeed to this equipment andstock, but in the light of the current expectations ofprospective costs and sale-proceeds.

Now, in general, a change in expectations(whethershort-term or long-term) will only produce its fulleffect on employment over a considerable period.The change in employment due to a change in ex-pectations will not be the same on the second dayafter the change as on the first, or the same on the

1 Daily here stands for the shortest interval after which the firm is freeto revise its decision as to how much employment to offer. It is, so tospeak, the minimum effective unit of economic time.