of eagerness concerning the purchasing of milk. The theorist may then describe terms on which suppliers might sell and consumers buy milk, that, if actually put into practice, would leave no opportunity for any market participant to improve his position in the future through a change in his actions. This fictional construction of the economic theorist is known as the state of equilibrium. The prices the milk is sold at, and the quantities of milk bought at these prices, are equilibrium prices and quantities.
Should the market participants (whose attitudes are assumed to be maintained without change) take actions that do not correspond to those that characterize the equilibrium market, then pressures will emerge on the participants that will lead them to alter their actions. Should, for example, the sellers of milk offer their milk at a price higher than the equilibrium price, then some sellers will find that milk sales are so low that it would be profitable for them to undercut the existing price. The non-equilibrium price would generate economic forces that would ensure that subsequent prices are different; and so on.
The state of equilibrium should be looked upon as an imaginary situation where there is a complete dovetailing of the decisions made by all the participating individuals. Every single supplier of milk, for example, who has decided that he values twenty-five cents more highly than a bottle of milk (and offers milk to the market at this price), is successful in discovering some consumer who happens to prefer a bottle of milk over twenty-five cents (and is willing to buy milk at this equilibrium price). A market that is not in equilibrium should be looked upon as reflecting a discordancy between the various decisions being made. Some of these discordant decisions cannot be successfully consummated in market action; they do not mesh. If sellers of milk charge too high a price, they will not find sufficient buyers. Decisions will have to be revised until a compatibility is attained between decisions that is the condition of a market in equilibrium.
The theorist who fastens his attention on a particular market upon a particular date is well aware that the decisions being made are different from the decisions that would be made in a market that had attained equilibrium. Whatever the current buying and selling attitudes of the market participants might be, they are likely to be somewhat different than on previous dates. Thus, even if previous market activity had succeeded in achieving equilibrium, from the point of view of the previous market attitudes, the situation is no longer one of equilibrium with respect to the new attitudes of buyers and sellers. But the theorist knows that the very fact of disequilibrium itself sets into motion forces that tend to bring about equilibrium (with respect to current market attitudes). If current attitudes were maintained unchanged (and the theorist is of course well aware that they will do nothing of the kind), then the initial state of dis equilibrium would itself tend to bring about an eventual equilibrium. The very fact that some of the decisions and plans currently being made are incompatible with others, so that some individuals must be disappointed, will force market participants to revise their plans in the direction of closer harmony with the other plans being made in the market. If current attitudes, to repeat, were to continue unchanged, then one might expect the plans of market participants to reach eventual full compatibility. Until then, decisions would be continually revised and adjusted. When equilibrium would have been attained, all plans would be carried out successfully and would be therefore maintained without alteration for as long as the basic attitudes continue unchanged.
The market theorist distinguishes, therefore, (a) a process of adjustment during which the market is in agitation, and (b) a state of equilibrium (the imaginary situation that would be achieved if the adjustments set in motion by the current market attitudes would be permitted to work themselves out fully; that is, if current market attitudes continue without change). In his analysis, the theorist may determine the conditions that would prevail on a market where equilibrium had been attained; he may do this by describing the actions that will be taken in a given disequilibrium market, tracing the tendency of such actions toward the attainment of equilibrium.
COMPLETE AND INCOMPLETE EQUILIBRIUM
Some further attention to these various analytical approaches is in order, and will help us, incidentally, toward a clearer grasp of the market process. A market process, we have seen, is essentially a process of adjustment. In this process, individuals adjust their actions to take advantage of the opportunities offered by the market; that is, they adjust their actions to “fit” the actions of other market participants. So long as unexploited opportunities exist that can be grasped through a change of action, the process of adjustment is not yet complete; somebody’s plans must go unfulfilled—equilibrium has not yet been attained. Until the attainment of equilibrium, there will be unspent forces at work in the market. These forces will impel men, sooner or later, to produce different quantities or qualities of goods, to try to buy or to sell at different prices, to move in or out of industries, and so on. All these forces, it will be borne in mind, are set in motion by the simultaneous existence of two sets of factors: first, a given set of basic buying and selling attitudes (imagined by the theorist to be continuously maintained); and second, a set of prevailing decisions by market participants that have not yet been “shaken down” through the market process into a harmoniously fitting, self-renewing pattern.
Now, it must be emphasized that the twin notions of adjustment and equilibrium, while seeming to pertain only to a world of unchanging basic attitudes, are in fact the tools with which the theorist analyzes the effects of change. A new tax is imposed, a new oil field discovered, a wave of immigration is expected, a revolution in tastes is considered—the theorist explains the consequences of these changes by means of the analysis of adjustment and the description of equilibrium. In all these problems the theorist imagines a market that, before the occurrence of the change, had been in equilibrium; he imagines the state of disequilibrium such a market would be thrown into by the postulated change; he traces through the process of adjustment that would be touched off by this disequilibrium; and he finally describes the new state of equilibrium that can be attained when all the forces of adjustment have worked themselves out, imagining, of course, that throughout the adjustment period no other change in basic attitudes has occurred.
In his analysis of the consequences of such a change in the basic data, the theorist frequently finds that ripples of market forces set off by the change do not completely spend themselves until adjustments have been made in market actions far removed from the initial change. The discovery of a new oil field not only affects the price and sale of oil, but eventually affects numerous other industries; and so on. If the theorist ignores any of the adjustments—however remote—that must sooner or later be made, his system will, of course, not be one of full equilibrium. Nevertheless, economists frequently are content to trace out the market consequences of a particular event only insofar as it directly entails adjustments. The theorist may mark out either a time range, or a market area, within which he is especially concerned to discover the course of adjustment. When the forces which change the actions of market participants can be held to have spent themselves within this selected range—even though further adjustments will eventually have to be made beyond it—the theorist, loosely, may describe his selected range of the market as having attained equilibrium. Such an “equilibrium” obviously is quite incomplete; there are still market decisions (outside the “range”) that will be disappointed and will have to be revised.4 Nevertheless, it may clearly be expedient for the analyst to concentrate his attention on particular waves of adjustment, and the concept of “incomplete equilibrium”—although self-contradictory—may be of considerable usefulness.
Two kinds of incomplete equilibrium may be distinguished, depending on the criterion by which the theorist selects his “range.”
1. The theorist may discover that certain market forces work themselves out fully within a relatively short period of time, while other such forces are felt generally only after a longer interval. He may confine his attention to the first group of forces. When these have spent
