Saving "the Market” out of Cambridge: “Equilibrium”

How would we like “equilibrium”? As always, we have to clarify what we mean with the term. As a rule of thumb, we would very much as regards to a mechanism, but should never as regards to an organism.

             For instance, the vending machine out of equilibrium must be put on with a sign “out of order.” Otherwise, your guess is as good as mine. As quipped by one of the Founding Fathers, on the contrary, an organism is finished when it in equilibrium finishes changing.

             At any rate, we come across such terms as “the equilibrium price” and “the general equilibrium” as often as we open a textbook thereabout: the former in elementary economics as abstract science, the latter in Cambridge macroeconomics as “empirical science.”

             Between you and me, the 20^th-century macroeconomics is no more reliable than early-the-millennium alchemy: Honey, I fused Economics (Y for GDP in T^-1) with Finance (M for money in T⁰)! Or equivalently, the income statement (about activities) and the balance sheet (on ownership) are algebraically combined “for the sake of convenience.”

             The “market equilibrium” is O.K. as long as the classical market framework is a metaphor to promote comprehension of and communication about the nature of trade in a certain marketplace over a certain accounting period.

             Confined, equipped and defined with the product, the space and the period, we are ready to make a few calls. First, the aggregate quantity bought is identical to the quantity sold. Viola, but for fraud the market is always cleared without any regard whatsoever to the term “price.” On the other hand, prices are all different but for a public ordinance, a monopoly, a consumer union or collusion among sellers.

             A thought experiment: If the ex-post average of whatever type, aka “the equilibrium price,” is prevailed ex ante, the market would have been cleared at the price ex post. After all, tautology does always hold true. Or, a definition is everywhere correct by definition, of definition and for definition. Let us be happy ever after equilibrium in the communal markets all the way to the macro economy. See I told you so, the general equilibrium!

             Exogenous of Cambridge, unfortunately, most everybody, not excluding Elon, Mark, Jensen, Jeff, Larry, Bill, Warren..., has never been in equilibrium of desire, money or time. Neither is the economy, national or global, if in term of demand for goods. Alas, Globe is overflown by all kinds of bads and uglies.

             A question: Where is the so-claimed “ineffective aggregate demand”? The answer: It is nowhere but in Cambridge. Larry Summers in the footstep of Alvin Hansen might lament over “secular stagnation” due to ineffective aggregate demand for bads and uglies.

The Good, the Bad and the Ugly