If individual entrepreneurs are viewed as acting according to reason, i.e. they are rational in the broadest sense of the term, then ‘in principle’ it may be possible to capture that reasoning in a complete theory of long-run expectations, endogenising animal spirits. Some have advocated that Keynesians attempt to develop Keynes’ theory of long-run expectations in this way (Tarshis, 1980, and Kenyon, 1980, for example). Animal spirits would then lose their special status. Coddington (1982) pushes the argument further. If long-run expectations formation by entrepreneurs cannot be explained by rational behaviour which can be modelled, he argues, then this must be true for all the expectations of agents in all sectors. But then if all decision-making is subject to the =PG?=FGMKAFeM=F;=G>=PH=;L9LAGFKK@A>LK=;GFGEAKLKEMKLJ=LJ=9LAFLGFA@ADAKE

The purpose of this chapter is to re-examine the concept of animal spirits in the light of L@=K=;@9J?=K /@=dJKLL9KCAKLG?G:9;CLGL@=GJA?AFKG>L@=;GF;=HLG>9FAE9DKHAJALKAF Keynes’ early work on probability theory and its development in his theory of entrepreneurial behaviour. This textual analysis allows us to assess Keynes’ own views as LGL@=KA?FAd;9F;=G>9FAE9DKHAJALK9K9FAFeM=F;=GF=PH=;L9LAGFK>GJE9LAGF /@=L@AJ< section is devoted to considering why the concept of animal spirits should subsequently have fallen into such disfavour. Our conclusion is that the orthodox critique of animal spirits is the natural outcome of attempting to understand it within the orthodox framework. In particular, the narrow use of the rationality concept employed within the orthodoxy rules out the possibility of the type of indeterminacy implied by animal spirits. Indeterminacy in the formation of expectations does however make sense within the method which Keynes employed. This method is outlined in the fourth section. Indeterminancy still poses problems, particularly for empirical work. But within the Keynesian framework, the solution lies in being alert to a change of mood within an economy, 9F<MF<=JKL9F<AF?ALKKA?FAd;9F;=J9L@=JL@9FAFJMDAF?ALGMLG>GJ<=JAF9;9<=EA;<=:9L=.