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Equilibrium and Process Analysis in the Traditional Theory of the Firm*
Published online by Cambridge University Press: 07 November 2014
Extract
At an early point in the Economics of Imperfect Competition Mrs. Robinson assures us that her attention is to be confined to equilibrium analysis only and that she proposes to make no study of the process of inter-equilibrium adjustment. “The technique set out in this book is a technique for studying equilibrium positions. No reference is made to the effects of the passage of time. Short-period and long-period equilibria are introduced into the argument to illustrate various technical devices, but no study is made of the process of moving from one position of equilibrium to another ….” There are two alternatives open to the theorist who has adopted a methodological precept involving the complete separation of equilibrium and process analysis. It is possible, on the one hand, to follow the precept with the utmost rigour, in which case the equilibrium theory will be almost purely formal and hardly constitute an explanation of the equilibrium. Or the theorist can in practice relax his rule and introduce process propositions into the equilibrium theory. Few writers have been able fully to resign themselves to the first alternative and most have in greater or less degree followed the second. Thus there has been elaborated, largely unconsciously, a theory of the process of interequilibrium adjustment which forms an integral part of the accepted theory of the equilibrium of the firm in its usual form. It is the purpose of this paper to bring this adjustment theory explicitly to view and to determine the degree to which the validity of the equilibrium propositions is dependent upon it. It is emphasized that the discussion is restricted to the questions of internal logical consistency and formal generality of the theory.
- Type
- Articles
- Information
- Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 10 , Issue 4 , November 1944 , pp. 448 - 463
- Copyright
- Copyright © Canadian Political Science Association 1944
Footnotes
*
I am indebted to Professor Oscar Lange for a careful and helpful reading of the manuscript.
References
1 Robinson, Joan, The Economics of Imperfect Competition (London, 1933), p. 16.Google Scholar
2 Carlson, Sune, A Study on the Pure Theory of Production (London, 1939), pp. 32–3.Google Scholar
3 Robinson, , The Economics of Imperfect Competition, pp. 56-7, and 97.Google Scholar Representative references from the text-book literature are: Garver, F. B. and Hansen, A. H., Principles of Economics (Revised ed., New York, 1937), pp. 66 and 188 Google Scholar; McIsaac, A. M. and Smith, J. G., Introduction to Economic Analysis (Boston, 1937), p. 119 Google Scholar; Meyers, A. L., Elements of Modern Economics (New York, 1938), pp. 104–12Google Scholar; Boulding, K. E., Economic Analysis (New York, 1941), pp. 499 and 507.Google Scholar References could be multiplied in the same and other texts.
4 Carlson, , A Study on the Pure Theory of Production, pp. 34–5.Google Scholar See also Allen, R. G. D., Mathematical Analysis for Economists (London, 1938), pp. 369–74.Google Scholar
5 Robinson, , The Economics of Imperfect Competition, p. 239.Google Scholar
6 Ibid. See also Pigou, A. C., The Economics of Welfare (London, 1932), p. 173.Google Scholar
7 The analytic treatment throughout is quite general, covering cases of imperfect as well as perfect competition. Geometric illustration at this point has, however, been confined to the case of perfect competition since further (and considerably more complex) illustrations would add little to the argument.
8 In the case of fixed proportions for the variable factors the equilibrium curves will coincide.
9 It is necessary to say that the output equilibrium curve gives only an approximation to the socially ideal adjustment path due to the fact that time has not been explicitly introduced as a variable. Yet it would be possible to argue along Pigovian lines against an “irrational discounting of the future” and, if so, the approximation would be very close under perfect competition, as in Figure 1. If imperfect markets are involved, the output equilibrium curve does not, of course, indicate minimum social costs and so would not give the socially ideal adjustment path in any case.
10 Cf. Boulding, , Economic Analysis, p. 523 Google Scholar, where it is argued that a change in the price of labour will affect the “labor curve” but not the “land curve.” Boulding's proposition is identical with that here stated, the apparent difference being but terminological, for he defines what I would call a labour equilibrium curve as a “land curve.” It would seem, however, to tend toward clarity of analysis to label the curve underlying the equilibrium analysis of labour as the labour equilibrium curve and not as the “land curve.”
11 See, e.g., Robinson, , Economics of Imperfect Competition, pp. 57–9.Google Scholar
12 Harrod, R. F., “Doctrines of Imperfect Competition” (Quarterly Journal of Economics, May, 1934)CrossRefGoogle Scholar, and Lerner, A. P., “Statics and Dynamics in Socialist Economics” (Economic Journal, June, 1937).CrossRefGoogle Scholar