Prices and Production: Elements of a System-Theoretic Perspective (Contributions to Economics) - Softcover

My original intention in writing this book was to consider evolving mar­ ket systems and Hayekian criteria of efficiency (see von Hayek (1931, 1945) ), and to discover those formal structures which might possibly lie at the base of economic systems capable of evolution. Much work in this field had already been done by others (see, for example, Kirzner (1975) and Nelson/Winter (1982) ), and a consensus seems to have been reached that something like system theory must be the logical point of departure for evolutionary theory in economics. But most of the previous work in this area is purely intuitive, and though there is much talk in it of systems and system theory, a precise definition of the concept of a system in this context is nowhere to be found. I had hoped to be able to sketch a working definition of pricing and production systems in a few pages and then to go on to investigate their performance within the framework of modern stability analysis. It soon became clear, however, that difficult and complex problems arise from the very outset of such an endeavor. If, for example, one speaks of dynamic systems of pricing and production, it should be made clear just how these systems differ from those portrayed in standard price theory and why that theory is inadequate for such analysis.

This book presents a system-theoretic foundation of the theory of price formation and production. System theory is shown to constitute a common framework to a variety of seemingly different approaches to that field. The author is able to demonstrate that traditional Walrasian theory is intertemporally inconsistent while the systems of intertemporal equilibrium, both neo-classical and neo-Ricardian, are shown to merely emphasize different aspects of the same underlying structure, irrespective of their rivaling claims to generality. The method employed by the author also proves useful in a variety of applications, e.g. input-output theory, the incorporation of durable capital and the analysis of Marxist theory. Problems of empirical analysis and of control are also briefly discussed. Adjustment processes are provided for both cross-section data and time-series observations of varying period length. As to control, it is shown that contrary to conventional view, control over the economy by the price mechanism becomes rather uncertain and incomplete when analysed from a thoroughly dynamic point of view. A pioneering study which is indispensable to both teachers and researchers in the fields of economic dynamics, input-output theory, and general equilibrium.