Shackle on Equilibrium: A Critique
Mongiovi, Gary, Review of Social Economy
Abstract This paper presents a critical evaluation of Shackle's views on economic method. Shackle's arguments against equilibrium analysis are shown to apply to orthodox theory, which has subjectivist foundations, but not to the objectivist classical approach associated with Sraffa. The long-period equilibrium method is indispensable to the analysis of how market societies function. Moreover, since the classical theory contains no trace of the factor substitution mechanisms that underpin neoclassical orthodoxy, its explanations of distribution, employment and outputs must take explicit account of institutions, power and ethical norms. Thus there is no conflict between social economics and the method of the classical economists and Sraffa. On the contrary, the classical approach provides a rigorous framework for the investigation of the very issues that are at the center of institutional and social economics.
Keywords: Shackle, Sraffa, equilibrium, uncertainty
"The analytic method embodied in value theory, with its central idea of equilibrium, answers questions that defied all previous attempts for centuries."
(Shackle 1972: 54)
The writings of Shackle constitute a penetrating methodological challenge to orthodox economic theory. His reflections on time and uncertainty underscore the dangers of excessive formalism in sciences that deal with the meaning and consequences of human action. Economic behavior in particular is a manifestation of plans formed under conditions of radical uncertainty; each agent plans his activities on the basis of an unknowable, and therefore only imagined, future. The knowledge required for the application of a rational calculus of choice does not come into existence until well after the agents have made and acted upon their plans--too late to be relevant to the decisions that, in fact, produce the knowledge.  "Economics", Shackle contends, "has gravely and greatly misled itself by a tacit belief that rational self-interest is as simple a basis of prediction as the laws of physical motion" (1972: 37).
The methodological position advanced by Shackle lies within the modern Austrian tradition associated mainly with Lachmann (1956, 1986). There are close affinities also with a Post Keynesian tradition perhaps best represented by Robinson (1953, 1974) and Kaldor (1972). Common to both perspectives is a profound skepticism about the usefulness of models that attempt to explain economic phenomena in terms of equilibrating forces.
This skepticism extends beyond marginalist general equilibrium theory.  Shackle never remarked upon the classical surplus approach pioneered by Smith, Ricardo and Marx and then rediscovered and clarified by Sraffa (1951, 1960) in this century. But Lachmann (1973, 1986) was scathingly critical of this theoretical research program, which he rightly viewed as anti-subjectivist.  Robinson, while she approved the destructive implications of Sraffa's work, nevertheless came to regard capital reversing as a red herring. The essential flaw in marginalist theory, she insisted, is its failure to recognise that any actual change in technique almost always involves changes in the state of technological knowledge which, by definition, alter firms' production functions and thereby invalidate the application of the comparative static method (Robinson 1975). Nor did she ever manage to overcome her doubts about the practical relevance of Sraffa's constructive project to resurrect the classical theory of value and distr ibution. 
The focus of Kaldor's critique is axiomatic general equilibrium theory. But the long-period analysis of the classicals, which in substance is that of Sraffa, is also a target:
One can trace a more or less continuous development of price theory ... Smith through Ricardo, Walras, Marshall right Debreu.... The basic assumption of this theory is constant costs, or constant returns to scale. …