Abstract
This chapter discusses the economic theory and dynamic problems and static models in economics. The economic theory accomplished the escape from the moral problems and conflicts of actual relations by means of a simple device, that is, by claiming universal and unconditional validity for a model of the economic system based on the assumption of perfect competition. Atomistically organized producers, striving independently to maximize their own profits without regard for the actions of others, were assumed to supply identical, standard products to markets consisting of alert consumers in possession of all the facts, and with conscious, unalterable and independent tastes. This picture carried with it the implicit assumption of mutual independence as between demand and supply, and the postulation not only of perfect foresight, but the unchanging repetition of an identical process, in which accidental disturbances and their effects are smoothly eliminated and the original balance restored. The traditional theory, and particularly the traditional theory of international trade, was founded on a strictly static model of the economic system, in which resources, including technical knowledge and tastes, were assumed to be given.
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