The Notion of Equilibrium in Economic Theorizing

By Caravale, Giovanni | Atlantic Economic Journal, March 1992 | Go to article overview

The Notion of Equilibrium in Economic Theorizing


Caravale, Giovanni, Atlantic Economic Journal


I. Introduction

When I realized that is was high time for me to sit down and prepare the Presidential Address - an enterprise on which I had never been engaged before - I thought i could find some relief to my anxiety, and at the same time draw some inspiration for the practical fulfillment of my task, by looking at illustrious examples of speeches given in the past on similar occasions by eminent economist.

My search, however, was not particularly illuminating. At least from the sample of material I had in my hands, there seemed to be no consolidate model neither concerning the topic nor regarding the tone of the Address. The spectrum of the topics treated on such occasions was very wide. It covered personal experiences (ranging from the domain of scientific research to bicycle or mountain excursions); the so-called state of the art in specific fields of analysis; methodological questions; and sweeping syntheses on the great problems with which contemporary systems are faced. The tone of the speeches varied on the other hand from the garrulous, the extremely technical, the mournful, and even the catastrophical.

I was thus left in the uncomfortable position of having to make the decision on both planes with practically no point of reference. After some reflection, however, the die was cast.

As far as the topic is concerned, my choice - the notion of equilibrium in economic theorizing - was guided by the desire to place my address in a constructive perspective with the discussion of something which hopefully will be of some use and interest to all participants. Inn one way or another, explicitly or implicitly, every single work in the wide field of economics employs the notion of equilibrium. On the other hand, even if someone may at first be tempted to consider the notion of equilibrium as an elementary problem, long ago and once-and-for-all defined in an old (possibly unspecified) textbook, the question is in fact far from being settled in the profession and is at the same time the source of considerable confusion in the debates among economists.

For what concerns the tone of the speech I can only say what I shall try to avoid and what instead I shall try to achieve. I shall try to avoid all the kinds I have listed above (the garrulous, the technical, and the mournful) and shall make an effort to treat a serious topic in a non-technical way. As I am perfectly aware, however, that to strike just the right combination of flippancy and seriousness goe far beyond my capabilities, I strongly fear that my talk today will prove tedious without being rigorous, stale and flat without being totally profitable.

II. Some Notions of Economic Equilibrium

All classifications are bound to be arbitrary to a certain extent. Yet, they continue to be suggested, especially when the risk of misunderstandings is high. This is in fact the case with the notion of equilibrium. It is no mystery that frequently theoretical controversies among individual economists and schools of thought are made more intractable by existing differences in the conceptions of economic equilibrium (which are often not clearly spelled out) and in the role assigned to such notion [Caravale, 1987].

An attempt at a systematic classification of the most important notions of economic equilibrium employed in the literature may, therefore, prove of some utility. Clearly, my effort will not be to say something new but rather to proceed to a certain amount of basic spring cleaning in the hall placed at the entrance of the old, dignified, fascinating, but rather messy house with which economics, or political economy, may perhaps be identified.

(A) The Neutral Notion of Equilibrium

The first concept on which I wish to draw your attention is the one I shall call the "neutral" notion of equilibrium.

The neutral notion consists of the abstract definition of a possible state of affairs in which certain conditions are realized for the smooth functioning of the system - either at a point in time or through time; a definition that neither implies that these conditions, identifying an optimum state of affairs, are likely to be realized, nor is proposed with the aim to show that the real world will never comply with them (thus assuming the character of a critical tool). …

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