The Potentials and Limits of the Market in Resource Allocation

Abstract

The prestige status of the purest of pure economic theory has never been higher; and yet there is now, as there has always been, a pervasive scepticism about the descriptive power and normative utility of Walrasian or other varieties of the theory of general competitive equilibrium.¹ The mutual adjustment of prices and quantities represented by the neoclassical model is an important aspect of economic reality worthy of the serious analysis that has been bestowed on it; and certain dramatic historical episodes suggest that an economic mechanism exists that is capable of adaptation to radical shifts in demand and supply conditions.