Full text: Expansion, Stagnation und Demokratie - 1982 Heft 2 (2)

The attempt (whether deliberate or instinctive) to save equilibrium
theory from Keynes has landed it in a number of contradictions.
First of all, on the analytical plane, there is the problem about time.
When is the date when equilibrium is going to rule? It is usually said
that, at any moment, markets are tending towards equilibrium, or that
demand governs supply in the long run. Equilibrium, it seems, lies in
the future. Why has it not been established already? Jam tomorrow but
never jam today.
There is a contradiction also on the plane of ideology. The bürden of
the equilibrium theory is still the same as in Marshall's day - the
presumption in favour of laisser faire, of the beneflcial effects of the
"free play ofmarket forces", which brings about the maximisation of the
flow of "Utilities" to be got from "given resources". The free play of
market forces necessarily brings about inequality. If it did not, it would
have no effect. It operates by rewarding success and penalising failure.
Thus freedom necessarily produces inequality not only in the "rewards"
to be earned in each generation but in the distribution of handicaps -
inherited wealth and education - from one generation to the next. This
comes into conflict with the claim that the market system is efficient for
a flow of Output cannot be measured just in tons of stuff- it is supposed
to be measured by its power to offer "satisfaction" or "UtilitiesBecause
of the principle of diminishing utility of additional consumption, a
given flow of goods produces less total utility for a given population if it
is very unequally distributed. Some individuals are near starvation
while others are spoiling their livers by overeating. It has to be admitted
that inequality in the distribution of consuming power amongst a given
number of human beings reduces the amount of satisfaction to be got
from a given flow of consumption.
At gone time the neoclassics (particularly the Austrian branch of the
school) tried to get out of this by appealing to the principle of "no
bridge" between subjective consciousnesses so that a comparision of
quantities of utility has no meaning. In that case, comparisons of
quantities of products has no meaning either.
The whole subject is so embarrassing that in fact it is scarcely
mentioned. There is no treatment at all of the determination of the
distribution of income in orthodox teaching, and precious little about its
consequences. What to the general public appears one of the most
interesting of all questions in economics is simply left out of the
syllabus.
In its general influence on educated public opinion, orthodox teach¬
ing has been not merely feeble and confused but positively pernicious.
It gives support to the view that expenditure by a government that is
beneficial to the inhabitants of its territory is "socialism" and must be
prevented at all costs, which leaves only military expenditure as a
legitimate sphere for goverment outlay to boost effective demand. This
reconciles an otherwise more or less sane and benevolent public
opinion to the arms race which seems to be dragging us all to
destruction. But that is another story.
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