Critique of Long-Run Equilibrium Prices (1966)
Suppose there is an equilibrium set of normal prices, as Marshall thought, or natural prices; ... If you diverge from this ... set of normal prices .. then ... [r]esources will move from the less profitable to the more profitable, ... and we come back to equilibrium. This is familiar normal price theory. ...if you interfere with the price system so that it cannot perform this function, you will have shortages and surpluses. ... [But] there are tricks to this. If you take a very long run, there is a certain tendency for the shortages and surpluses to eliminate themselves through their impact on the total system. That is, I have argued that it is very hard to say, I think almost impossible to say, what the long run normal price set is, in fact there isn't any such thing, because of the fact that the normal price set is a function of technology ... It's also a function of tastes and utility functions. And if you look at the dynamics of the system, well, then, these production functions and utility functions may adjust themselves to the price set of the system just as th price system adjusts itself to them. I think that you get mutual adjustment here, which is real mathematical hell, that is, this really blows equilibrium theory to hell and high water, because there isn't any equilibrium really; you don't know what it is; all you have is a jelly-like dynamic process, which goes and you don't know where it goes, that's the trouble. I don't think there's any longrun equilibrium that anybody knows anything about at all. Certainly we've had no experience of it; certainly for the last two hundred years, really for he last five hundred years, we've been in a process of profound and continuous change of the normal price structure, as a result of the differential impact of technological change, for one thing. ... Here we just have to face the fact that here we have an element in endless dynamic process, with really no equilibrium at all. ... within any conceivable time horizons that anybody has at the moment there is no equilibrium in sight for technical change.
"The Competing and Possibly Inconsistent Roles of the Price System," transcipt of speech at Western Michigan University March 23, 1966, pp. 10-12, Kenneth E. Boulding Papers, Archives (Box # 38), University of Colorado at Boulder Libraries.
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