Some Adjustment Problems

This paper first takes a rather pessimistic look at what has been accomplished in recent years in understanding the price mechanism. It then takes up two points in some detail. First, it is shown that stationary expectations do not ensure the convergence of all equilibrium paths on to a steady state in a neoclassical model with heterogeneous capital goods (an appendix works an example). Secondly, a tatonnement process is outlined and discussed for an economy with constant returns to scale. I AM CONCERNED on this occasion with the performance of the invisible in a number of abstract economies which have been discussed in recent years. My findings are rather pessimistic in the sense that I see no support for the view that any of the traditional methods of response of various agents to changes in their economic environment makes the hand perform as it is often taken to perform. One cannot exclude the possibility that the world behaves a good deal better than the models-but it is the models that lead people to view the economic system as they do. It certainly is hard to find a justification for the great preoccupation of both research and teaching with equilibrium economics unless one is also prepared to believe in, at least, a Marshallian tendency to equilibrium. Of course one of the reasons why so much of our effort is devoted to the study of equilibria is that they are singularly well suited to study. We all know the endless variety of adjustment models, not uncongenial to commonsense, one is capable of constrUcting. No unifying principle, such as maximization, seems available; no elegant separation theorems reduce the mass of ugly differential or difference equations to the splendid order of a chapter in Debreu. To discuss and analyze how the economy works it may be necessary to go and look. The achievements of economic theory in the last two decades are both impressive and in many ways beautiful. But it cannot be denied that there is something scandalous in the spectacle of so many people refining the analyses of economic states which they give no reason to suppose will ever, or have ever, come about. It probably is also dangerous. Equilibrium economics, because of its well known welfare economics implication, is easily convertible into an apologia for existing