Abstract
Rohatinski completes his review of relations by presenting equilibrium relations. He shows how, in normal economic reproduction over the flow of events and processes, equilibrium relations represent the links that serve to harmonise value and purpose, as well as how partial equilibriums are necessary to ensure the overall equilibrium of the system. The author concludes by discussing how equilibrium relations comprise the framework for causal and structural relations and arguing that they are essential in providing linkages among all economic categories within a system and regulating the functioning of the system.
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Notes
- 1.
Fritz Machlup, Equilibrium and Disequilibrium: International Payments, Debts, and Gold (New York: New York University Press, 1975).
- 2.
A broader definition of equilibrium relations was given by Joseph A. Schumpeter. In his view, equilibrium represents a set of relations between economic categories, the variables in a system, that determine a series of values of the variables without a tendency to change under the exclusive influence of the facts, which are per se included in these processes (Joseph Schumpeter, History of Economic Analysis [New York: Oxford University Press, 1954]).
- 3.
See, for instance, Nicholas Kaldor, Collected Economic Essays: Essays on Value and Distribution (London: Gerald Duckworth and Co. Ltd., 1960).
- 4.
The conceptual basis of this approach is Jean-Baptiste Say’s Law of Markets (Loi des Debouches) (New York: Augustus M. Kelley, 1971), which argues that the supply of products on the market automatically ensures the formation of the purchase funds to promote the demand for these products. Therefore, an increase in production not only leads to an increase in supply, but also to an increase in demand. See also Karl William Kapp and Lore L. Kapp, History of Economic Thought: A Book of Readings (New York: Barnes & Noble, 1949).
This is mathematically expressed by a modified Keynes–Lange equation of identity:
$$ \sum_{i=1}^{n-1}{P}_i{D}_i=\sum_{i=1}^{n-1}{P}_i{S}_i $$where:
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S i = supply of the product i (quantity),
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D i = demand of the product i (quantity),
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P i = current price of the product i,
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n−1 = number of product
Schumpeter proposed that if money itself is taken as n-number of product the identity equation takes the form:
D n = S n Joseph Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954).
Further analysis of this model leads to the conclusion that the activity of the market mechanism under perfect competition automatically ensures the equilibrium of supply and demand on the market of commodities and production factors at full employment of the production factors. This implies the laisser-faire view of the economic reproduction in a society and makes a policy of streamlining by subjects on the higher decision-making level redundant and even adverse if it interferes with the free functioning of the invisible hand of the market.
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- 5.
Among others, Paul A. Samuelson , Foundation of Economic Analysis (Boston: Harvard University Press, 1971); Michael D. Intriligator, Econometric Models, Techniques and Applications (Amsterdam: North-Holland, 1978); and Alpha C. Chiang, Fundamental Methods of Mathematical Economics (New York: McGraw-Hill, 1974).
- 6.
One of the critiques of the theory of general equilibrium in an economic system was given by János Kornai in Anti-Equilibrium. He synthesized 12 groups of extreme assumptions on which individual theories of general equilibrium are implicitly based:
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Static character of analysis and stationary character of the functioning of the economic system.
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Immutability of the set of organisations in the system.
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Economic system consisting exclusively of two types of organisations: producers and consumers.
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Immutability of the set of products in the system.
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Simultaneity of activities of producers and consumers without any time period between production, sale, and consumption and, thus, without the ability of this period to influence the prices.
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Convex production set, for example, no indivisible products and resources, relations between the product input and output may be described by using continuous and differentiable functions , no increase in yield, while there is no increase of the marginal substitution rate between the production factors.
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Maximisation of profits as the criterion for selection of the production alternatives.
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Convex set of possible consumption, where the consumer has a preference-based arrangement and maximises its function of utility which is concave.
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Constant sets of production and consumption, including the preference-based arrangements.
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Prices as the only flow of information between organisations in the economic system.
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Anonymity of market relations in terms of absence of any individual relations between producers and consumers.
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Lack of uncertainty.
János Kornai, Anti-equilibrium (Zagreb: Centar za kulturnu djelatnost, 1983).
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- 7.
Albert O. Hirschman, The Strategy of Economic Development (New Haven: Yale University Press, 1958) 62–70.
- 8.
Fritz Machlup, Equilibrium and Disequilibrium: International Payments, Debts, and Gold (New York: New York University Press, 1975) 114.
- 9.
Samuelson , Foundation of Economic Analysis.
- 10.
Karl Marx, Capital. Vol. 2, The Process of Circulation of Capital, trans. I. Lasker (Moscow: Progress Publishers, 1956).
- 11.
The cumulative disequilibrium can be seen as the share of the value of disequilibrium in the cumulative value of production of the first sector for the circuits of capital in which the initially advanced instruments of labour are not exchanged in kind:\( \sum_{i=1}^n\frac{D_i}{W(I)} \)
References
Chiang, Alpha C. 1974. Fundamental Methods of Mathematical Economics. New York: McGraw-Hill.
Hirschman, Albert O. 1958. The Strategy of Economic Development. New Haven: Yale University Press.
Intriligator, Michael D. 1978. Econometric Models, Techniques and Applications. Amsterdam: North-Holland.
Kaldor, Nicholas. 1960. Collected Economic Essays: Essays on Value and Distribution. London: Gerald Duckworth and Co. Ltd..
Kapp, Karl William, and Lore L. Kapp. 1949. History of Economic Thought: A Book of Readings. New York: Barnes & Noble.
Kornai, János. 1983. Anti-equilibrium. Zagreb: Centar za kulturnu djelatnost.
Machlup, Fritz. 1975. Equilibrium and Disequilibrium: International Payments, Debts, and Gold. New York: New York University Press.
Marx, Karl. 1956. Capital. Vol. 2, The Process of Circulation of Capital. Trans. I. Lasker. Moscow: Progress Publishers.
Samuelson, Paul A. 1971. Foundation of Economic Analysis. Boston: Harvard University Press.
Say, Jean-Baptiste. 1971. A Treatise on Political Economy. New York: Augustus M. Kelley.
Schumpeter, Joseph A. 1954. History of Economic Analysis. New York: Oxford University Press.
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Rohatinski, Ž. (2017). Equilibrium Relations. In: Time and Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-61705-3_9
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