Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

ENDOGENOUS CHANGEIntroductionAmong the different notions of equilibrium in economic theory, onecontends that equilibrium is a state of affairs that can be disruptedonly by an exogenous change. This fundamentally implies that allforeseeable changes have been discounted and that what is there tobe learned has been learned. This notion of equilibrium, therefore, isinconsistent with the emergence of novelty. Continuity cannot bepreserved if novelty emerges; such an occurrence will necessarilybreak continuity. As far as economic theory goes, such noveltiesremain inexplicable.In Chick and Caserta (1994) a different notion of equilibrium isput forward, in which it is argued that equilibrium and thepossibility of novelty are not necessarily incompatible. Equilibriumcan be dissolved from within as well as from without. Continuitycan be preserved without having to portray equilibrium asencompassing all possible developments. All this becomessustainable if equilibrium is not seen as the outcome of a fullyspecified model, where all contingencies have been taken intoaccount and where choice is predetermined.A partially specified model implies that not all aspects of relevantbehaviour have been spelled out nor that all the relevant actors havebeen included in the picture. This partial specification, however,does not render the model necessarily wrong. This would be the caseif those aspects of behaviour or those actors were fully operative inthat particular situation. Let us take, for instance, the neoclassicalmodel of economic growth. There entrepreneurial propensities arealtogether neglected. One can deem entrepreneurial propensitiesrelevant or not relevant. If the latter is the case, it would be right toignore them in the model; if the former is the case, the neoclassicalmodel of economic growth would be incorrectly specified. There is athird option, however: entrepreneurial propensities may beconsidered relevant, but in a state of quiescence in that particularsituation. What this means is that they are suspended but notsuppressed. Since suspension presupposes resumption, the state ofrest that is represented in the model may be dissolved from withinrather than from without.It must be noticed that the difference between a partially and afully specified model is not the same as that between a short-termand a long-term model. The difference between a short-term and along-term model turns on the number of variables that are keptconstant, this number decreasing as we move from a short-term to a105