The Concept of Equilibrium in Different Economic Traditions

The Concept of Equilibrium in Different Economic Traditions

An Historical Investigation

Bert Tieben

This book deals with one of the most puzzling concepts in economic science, that of economic equilibrium. In modern economics, equilibrium is considered a key assumption, but its role is contested by economists both from within the mainstream and from rival schools of thought.

Chapter 14: Creative Entrepreneurship: Chaos or Coordination?

Bert Tieben

Subjects: economics and finance, austrian economics, history of economic thought, methodology of economics, post-keynesian economics


INTRODUCTION In the history of economic thought the Austrian school is the tradition that has most persistently pursued the analysis of processes in disequilibrium. We have seen in Chapter 10 that the founding fathers of the school – Menger, Böhm-Bawerk and Wieser – developed a subjective theory of value which treated price as a range of possible outcomes rather than as a determinate point of equilibrium. Chapter 12 argued that the second generation of Austrian economists used this theory to explain the business cycle as a disequilibrium phenomenon that is typical of monetary economies. Hayek introduced a new, dynamic definition of equilibrium into business cycle analysis and put the role of knowledge on the agenda of economic science. His contributions in these areas are said to have inspired a host of modern developments like the economics of information (Zappia 1997) and the new classical analysis of the business cycle (van Zijp 1992). Ample reason to investigate what contemporary Austrians may contribute to the modern analysis of economic processes in disequilibrium. This objective is hindered by the fact that the Austrian treatment of disequilibrium processes is far from uniform. Chapter 10 concluded that Böhm-Bawerk was the only one of the Austrian grandfathers to stress the capacity of real markets to continuously tend towards a position of supplyand-demand equilibrium. Menger and Wieser did not unconditionally share this conviction and discussed several aspects of the market processes that would disturb rather than establish economic equilibrium. Similar disagreements mark the later development of the...

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