Two types of disequilibrium and the mainstream of current economic restructuring (1988)

Abstract

Differences of resource allocation in equilibrium and disequilibrium In economics, disequilibrium is pertinent to Walrasian equilibrium. The latter is achieved under the assumption of a complete market and a flexible price system. Disequilibrium, which is a kind of equilibrium arrived at in the absence of a complete market and a flexible price system, is also dubbed “non-Walrasian equilibrium.” According to the theory of French economist Leon Walras (1834–1910), given that the market is complete and the price system flexible, given also that traders possess full information and prices adjust instantaneously with changes in supply and demand, then under a given price condition aggregate demand must equal aggregate supply, excess demand and excess supply do not exist, and the settlement of every transaction is guaranteed by an equilibrium price. No deals will be reached before equilibrium price is attained; only with equilibrium price can transactions take place. According to this theory, overproduction, unsalable products, chronic unemployment, and inflation associated with excess demand will never happen. The analysis of Walrasian equilibrium, alien to economic reality, had long drawn acute criticism from dissentient Western economists. In The General Theory of Employment, Interest, and Money published in 1936, John Maynard Keynes (1883–1946) went out of his way to dissect the unemployment and other perennial problems in capitalist society. Nevertheless, up till the early 1960s Western economists' study of disequilibrium was partial and unsystematic at best.