Prices and knowledge: A market-process perspective

Chapter 2A theory of the market processMost economic theory today is almost exclusively concerned withequilibrium states. Research efforts are largely devoted to provingthe existence of equilibrium for specific models, proving itsstability, and comparing the equilibria for different sets of data(comparative statics). As the theory becomes more sophisticated,so do the models and their equilibria. Thus there are not only staticequilibria but also a variety of ‘dynamic’ and ‘stochastic’equilibria, among others.However dissimilar different areas of economics are in otherrespects, they almost all rely heavily on the notion of equilibrium.And to practically all these areas can be applied Franklin Fisher’sremark about microeconomic theory. According to Fisher, inmicroeconomicsvery little is said about the dynamics of the process that leads anequilibrium to be established in the first place or by which thesystem adjusts to a new equilibrium when the old one is displacedby a parameter shift. Attention is centered on the equilibriathemselves…, and points of non-equilibrium are discussed byshowing that the system cannot remain at such points.(Fisher 1983:3)This is true of most theory, whether it is concerned with staticequilibrium, equilibrium ‘paths,’ ‘sequential’ equilibria, or any otherequilibrium state.