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Keynes, Uncertainty and the Global Economy

Beyond Keynes, Volume Two

Edited by Shelia C. Dow

The revival of interest in Keynesian economics since the late 1980s reinstates the importance of Keynes’s contribution to economic theory and policy. This is the second of two volumes in which authoritative contributions are presented by an outstanding group of international experts to celebrate Keynesian economics, and to review and further the developments of post Keynesian economics of recent years.
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Chapter 2: Innovation, equilibrium and welfare

G.B. Richardson


G.B. Richardson INTRODUCTION I should perhaps begin by justifying my choice of title. The aim of this chapter is to provide, on the basis of assumptions more realistic than those normally made, a summary analysis of the process of resource allocation within free enterprise systems. As it takes into explicit account the fact that products and processes are subject to continuous development, the chapter deals with innovation. It seeks also to adapt the notion of equilibrium, which economists have long since found indispensable in what has been called ‘Economic Statics’,1 to a context of which innovation is a feature. I turn finally to consider whether the outcome of the process of resource allocation under consideration will exhibit allocative rationality, of the kind studied in the economics of welfare. All this, it may strike the reader, is a very tall order. It may be urged that we have been able to develop a theory of the determination of prices and outputs in competitive markets on the basis of simplifying assumptions, such as that of a fixed list of goods between which consumers have given preferences. This theory has enabled us to identify equilibrium configurations towards which the actual configurations produced by the system would tend to move. Surely, it may be said, some coherent theory is better than none at all; all theories involve abstraction, but may nevertheless, like Newtonian physics, be exceedingly powerful. I believe that we must reject this line of reasoning. The theory in question,...

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