DISEQUILIBRIUM MARKET ADJUSTMENT: MARSHALL REVISITED

DISEQUILIBRIUM MARKET ADJUSTMENT:

MARSHALL REVISITED

PAUL DAVlDSON* Rutgers University

It is often argued that certain fundamental differences between Keynes and the Neoclassics derive from different implicit assumptions about relative speeds of adjustment of prices and quantities in response to changes in demand. Indeed, Leijonhufvud has asserted that “The ‘revolutionary’ elements in The General Theory can perhaps not be stated in simpler terms” [ 12, p. 521. Moreover, certain issues currently in dispute among monetarists and between monetarists and Keynesians appear t o turn on much the same issue. For example, Friedman and Patinkin have quarreled over whether Fisher and the quantity theorists “simply took over Mar- shall’s assumption (that) prices adjust more rapidly than quantities” [ 7, p. 933-4; also 14, p. 892-71. Friedman insists that Fisher and all other quantity theorists must adopt Marshall’s assumption, which Friedman describes as follows:

. . . prices adjust more rapidly than quantities, indeed, so rapidly that the price adjustment can be regarded as instantaneous. An increase in demand (a shift to the right of the long-run demand curve) will produce a new market equilibrium involving a higher price but the same quantity. The higher price will, in the short run, encourage existing producers to produce more with their existing plants. . . it takes time for output to adjust but no time for prices to do so [7, p. 9341.

Keynes and the Keynesians, according to Friedman, “deviated from Mar- shall . . . in reversing the roles assigned to price and quantity” [7, pp. 934-51. Patinkin, on the other hand, suggests that Fisher and the Chicago school of the 1930’s concentrated on short-run simultaneous variations in prices and output in their “formal theoretical framework” [ 14, pp. 888- 901.

Brunner and Meltzer, however, seem to support Friedman’s view of relative speeds of adjustment when in a recent paper they state:

The response of output and prices to money and other variables sum- marizes the interaction on the markets for money, output, and credit . . . We assume, throughout, t ha t . . . asset markets are cleared by suitable adjustment of asset prices within the time units relevant for our analysis. Output prices do not adjust rapidly enough to maintain equilibrium on the output market [3, p. 953-4, italics added] .

*I am grateful to Paul Wells and the editor of this journal for comments on an earlier draft.

146

DAVIDSON: DISEQUILIBRIIJM MARKET ADJUSTMENT 147

Thus, it appears that some prominent monetarists base their models and policy prescriptions on hypothesized differential speeds of reaction of prices and output to changes in demand, despite Patinkin’s claim that this did not differentiate the earlier quantity theorists from Keynes.

In this connection, it is interesting to note that Leijonhufvud, who argued initially that the faster speed of adjustment of output was the revolutionary aspect of Keynes now believes that:

It is not correct to attribute to Keynes a general reversion of the Mar- shallian ranking of relative price and quantity adjustment velocities . . . [Although] most recent writings on Keynes’ theory, including my own, insist on examining it from a Walrasian prospective . . . Keynes was, of course, a price-theoretical Marshallian and . . . ignoring this fact will simply not do [13].

Like Patinkin, therefore, Leijonhufvud now regards the relative speed of adjustment issue as a red herring.

Even if the adjustment speed issue is irrelevant, the question remains: How may we best approach the study of real-world price and output adjustment processes? In my opinion, these problems are most conveniently dealt with by utilizing the traditional Marshallian concepts of market- and short-run period analysis or, to use an alternative and more descriptive terminology, in terms of spot and forward market analysis.

A spot market involves transactions in pre-existing durables for immediate delivery and payment. A forward market involves current contractual agreements for delivery and payment at future dates. Implicit in all discussions of the flow of output in the real world is the notion that, as long as production takes time and involves contractual obligations, all production decisions involve forward contracts. In an ongoing market economy, therefore, magnitude and direction are given to aggregate output and employment by entrepreneurs entering into forward contracts t o purchase labor services and to supply producible goods in the future.

Now, for any durable goods, there is a possibility of two separate, but related markets existing side by side-a spot market and a forward market. If a spot market exists, the spot price will be whatever is necessary to allocate the existing stock of goods among willing holders. (The spot price is equivalent to Marshall’s market-period price, or the price determined by the Walrasian auctioneer in a pure exchange economy.) A spot market, by its very nature, deals solely with the determination of the price of existing stock of a commodity, hence for truly non-durable goods (e.g. services) no spot market can exist. A forward market, on the other hand, permits the quantity of goods to be augmented by short-period flow sup-

148 ECONOMIC INQUIRY

ply considerations. The forward price for a future date corresponding to the normal length of a production process can never exceed the short- period flow-supply price associated with that gestation period. If it did, it would be possible to make a profit by placing an order with a producer of the good to buy the commodity at the future date at its short-period flow-supply price and simultaneously selling a forward contract to deliver at the higher forward price at the future date. Hence, the short-period flow-supply price must always set an upper limit to the forward price, and as long as production is going on, the short-period flow-supply price will equal the forward price.’

Any market in which buyers enter into contracts to make payments in the future while suppliers agree to make delivery at future specified dates is inherently a forward market. In practice, virtually all transactions for the flow of output of industry in a non-integrated chain occur via such contractual agreements; that is, all stages before the retail state (and often at retail, e.g., autos) the buyer orders goods for production and delivery at a later date.2 The existence of a well-organized, freely competitive forward market would permit, of course, the entrepreneur to operate as if he were a price taker in the traditional neoclassical sense. He could observe the forward price and compare it with his short-period flow-supply price schedule to determine his short-period production decision. If the forward price

shows a profit on his costs of production, then he [the entrepreneur] can go full steam ahead, selling his product forward and running no risk. If, on the other hand, this price does not cover his costs (even after allowing for what he loses by temporarily laying up his plant), then it cannot pay him to produce at all3 [ 10, pp. 142-31 .

In the real world, of course, newly produced goods are normally sold via forward contracts; but forward markets for most of the products of industry are neither freefy competitive nor well-organized, nor are forward prices always public information. Consequently, although the out-

1 . By definition, the price that buyers are offering to pay for forward delivery can never exceed the flow-supply price since the latter is the money price required to call forth the exertion necessary to produce any given amount of the commodity for any given delivery date.

2. This does not deny that some recently produced durable goods may be sold out of “shelf inventory.” Nevertheless, if the supplier of the shelf-inventory goods operates as an on-going con- cern, the cost of ordering replacement for the inventory sold will be the short-period flow-supply price, and this will determine the offer price of the supplier of shelf-inventory goods. Hence, Mar- shallian short-run flow-supply prices and quantities will be associated with the flow of GNP at all stages of production in the nonintegrated chain. (The problem of shelf-inventories is dealt with in more detail in the second half of this paper).

3. Even if the entrepreneur did not accept a forward contract, he could use the current forward price as the best estimate of the spot price that would prevail on the delivery date.

DAVIDSON: DISEQUILIBRIUM MARKET ADJUSTMENT 149

puts of producers are typically sold via forward contracts, the price may be agreed upon by negotiation, or via sealed bids, or simply set by sellers and announced as available to all buyers with or without quantity re- strictions. In these cases, entrepreneurs have to make flow-supply offers before knowing anything certain about buyer response^.^

The costs underlying the short-period flow-supply schedule are partly a function of the length of the period between the beginning of production and the delivery of output [ 11. Thus, if the forward price is associated with a future date when the flow-supply can be delivered, it must be equal to the price at which the market demand price equals the flow-supply price. There are only two major cases when the forward price may not equal the flow-supply price: ( 1 ) when the future date is so close to the present date that technology prevents any flow-supply from coming forth (in the extreme, the good has a zero elasticity of production), or (2) when there is such redundancy of existing stocks that there is no in- centive for entrepreneurs t o commit themselves to produce any new goods during the period (i.e., the demand price is less than the shut-down point for the industry). The first situation can be eliminated by treating it under the spot market analysis, the second can be treated in the analysis of contango market situations where no production occurs. Hence, for the purpose of this argument, if we limit ourselves to discussing changes in demand in which production is occurring we can treat the forward price as synonymous with the short-period flow-supply price.

In order for well-organized spot and forward markets to exist for a commodity, it must have certain characteristics, namely: (1) the good must be an article of general demand; (2) the commodity must be capable of standardization; (3) there must be a high degree of substitutability between old and new items; (4) the existing stock must be relatively large compared to short-period production flows; ( 5 ) the good must be durable; and ( 6 ) it must be valuable in proportion to bulk [cf 8, p. 201. Further- more, continuity of markets in an uncertain world requires (7) the existence of a financial institution that “makes” the market by acting, when necessary, as a residual buyer or seller.

Obviously different goods may have these features in different degrees. As long as production takes time, item (5) is a necessary condition for the

4. The ability to bunch process orders with the existence of negotiated contracts and non- publicized prices will further encourage the use of short-run marginal cost in determining somc offer prices. Thus phenomena such as Secret price discrimination has always been considered important by economists interested in “industrial organization” but usually has been ignored by economic theorists who abstract from the institutional setting of markets.


existence of a spot market, while the other factors are important in determining how well organized or perfect the existing spot and/or forward markets will be. The degree of organization of spot and forward markets for each good will depend on the extent to which these characteristics are possessed by the good in question. Thus some raw material or working capital goods, because they are durable and readily standardized, have well-organized spot and forward markets. Second-hand fixed capital and most consumer durables, by their very nature, become destandardized as they age and so, although conceptually spot markets for all durables must exist, spot markets for such second-hand goods are likely to be poorly organized or even notional. Nevertheless, for expositional purposes at this stage, it will be useful to discuss spot markets for durables as if all such markets were well-organized.

In his Treatise on Money, Keynes recognized that spot and forward markets (Marshallian market-period and short-period markets) existed simultaneously. Moreover, Keynes noted that an excess of the spot price over forward price (backwardation) is necessary for production to occur. In the Treatise, changes in demand would lead to immediate changes in prices in spot markets and to simultaneous changes in supply quantities and flow-supply prices in forward markets. Given the gestation period of production, the magnitudes of the changes in forward market prices and quantities depend on the short-run elasticity of supply [e.g., 10, pp. 140 ff.] . In the simplification of Keynes’ system that became The General Theory only flow-supply prices and quantities of capital goods and aggregate output were emphasized [ 11, pp. 23-4, 135-9, 292-3061 as Keynes attempted to focus attention on the production and pricing of new goods and services. Hence, in The General Theory, Keynes ignored spot markets for consumption goods and highlighted forward markets in which the flow of output and price adjust simultaneously. Moreover, if short-period flow-supply was very elastic, most of the adjustment to an increase in demand would occur via production flows and little via flow-price changes. Since few economists have paid serious attention to Keynes’ Treatise, it is no wonder that many have been misled into believing that the Keynesian Revolution involved the reversing of “The Marshallian ranking of price- und quantity-adjustment speeds” [ 12, p. 521 [also see 7, p. 9341. Al- though nothing could be further from the truth, any attempt at a complete exegesis of Keynes’ theory of markets at this stage would require a lengthier exposition than can be given here. Instead the following para- graphs suggest how a change in demand affecting spot and forward markets could be explained by any student-as Keynes was-of Marshall.

5. The spot market for financial assets, on the other hand, should be well-organized.

DAVIDSON: DISEQUILIBRIUM MARKET ADJUSTMENT 1 5 1

For expositional clarity, I adopt the Bushaw-Clower geometric ap- paratus of adding stocks and flows in a Marshallian demand and supply quadrant [4, pp. 20-21 [ 5 ] . In Figure la, D represents the initial Mar- shallian demand schedule (including Wicksteedian reservation demand) for a durable good, while the vertical line S represents the stock of the good inherited from the past. If this good is not reproducible (e.g., Old Masters) then the resulting spot price ps would allocate the stock without remain- der among demanders. If the good is reproducible, the stock can be augmented by a flow of output if buyers are willing to promise t o pay the flow-supply price and wait the gestation period for delivery. The curve s (Fig. 1 b) represents the industry’s Marshallian flow-supply scheduie, i.e., it shows alternative production offerings at alternative flow-supply prices. If producers are short-run profit maximizers, then pm is the lowest point on the average variable cost schedule and represents the minimum flow- supply price.

Price

PS

Price

pm

Price

pm

Puanti ty Q1 Figure la

Figure lb Quantity

Price 1 S

Figure 2

The total market situation for a good can be obtained by laterally sum- ming the stock- and flow-supply schedules to obtain S+s in Figure 2. Superimposing the demand schedule D onto this figure indicates that the spot price, ps, exceeds the forward or flow-supply price, pf, as some buyers are willing to pay a premium for immediate delivery rather than wait the gestation period for a new unit to be produced.6 This situation (where

6. If the good in question is not durable, then the stock supply schedule is coincidental with the ordinate axis and only a forward flow-supply market exists. If the good is not reproducible (i.e., its elasticity of production is zero), then only a spot market exists, or if forward markets are developed, the forward prices will, in a world of uncertainty, represent speculation as to future spot prices for goods where flow-supply considerations cannot affect the outcome.


ps>pf) is known as backwardation and production of Q2-Qr units will be forthcoming at the delivery date.

To trace the impact of an increase in demand let us hypothesize a shift in demand’ to D’. It is obvious that in the spot market there will (by definition) be no increase in quantity; rather the spot (or asset) price for the durable will rise promptly to ps‘. In the (production) forward market the increase in demand will involve an immediate increase in the rate of acceptance of contracts for forward delivery causing an immediate increase in hiring and production flow, a change in the flow-supply (or forward) price to pf‘, and a building up of work-in-progress goods unit by the delivery date final output has risen from (Q2-Ql ) to (Q3-Ql ). How much increase in the flow of output and how much increase in the forward price is induced by the hypothesized increase in demand will depend on the elasticity of the Marshallian flow-supply schedule.

Thus, it is obvious that in all spot markets there will only be an instantaneous price adjustment to any change in demand, while the magnitude of price and quantity adjustments for the forward markets, which are relevant to the production of goods and hiring of workers, will depend, as always, on the homely and intelligible concept of the elasticity of the short-run supply schedule. If supply elasticities are large, and if the components of the flow-supply price (i.e., money wage rates relative to pro- ductivity, and profit mark-ups) are sticky, adjustments to changes in demand that are made operational via changes in the rate of acceptance of forward contracts will impinge primarily on output and not on prices-a result which is similar to Friedman’s caricature of Keynes’ model [e.g., 6, pp. 209-101. If, on the other hand, the flow-supply schedule is inelas- tic and/or the components of the flow-supply price are very sensitive to changes in demand,* then price rather than final output-flow will show the greatest adjustment. In either case, it is not relative speeds of adjustment of price vs. quantity that are at issue.

It is important t o note that there normally is a significant difference between speed of adjustment and elasticity of short-run supply. According to Allen [ 2 , p. 2 1 I :

7. This shift is equivalent to the one hypothesized by Friedman in his analysis of the Mar- shallian assumption regarding relative speeds of adjustment [7 , p. 9341.

8. Since (a) the money wage contract is the most ubiquitous forward contract in modern economies, and (b) the time-duration of forward money wage contracts normally exceeds the gestation period for the production of most goods, there is a built-in (i.e., contractual) stickiness to the wage cost component of flow-supply schedules. Moreover, as long as wage cost is an important component of short-run flow-supply prices, then flow-supply schedules will also be “sticky.” Hence, the sensitivity of flow-supply prices to changes in demand will depend primarily on the elasticity of short-run supply schedules.


where hi is the speed of response of price, S is supply, D is demand, P is price, and t is time. It follows that

where h2 is speed o f response with respect to output and Q is output. Hence for any initial difference between demand and supply, hi and h2 are measures of speed of response, but unless the short run supply elasticity is either zero or infinite, the relative speed of response is not equal to, or the same as, the elasticity of supply, i.e.,

In sum, a change in demand will induce an instantaneous adjustment in the spot market for pre-existing goods, while forward contract prices and the rate of flow of newly produced goods will adjust simultaneously and immediately even though the actual payment of forward prices associated with a change in final output will not be observed until later-the exact time depending on the gestation period for final output. In this model, as in the real world, orders for durable goods (e.g., machine tools, construction, etc.) are a leading indicator of the flow of output that will be forthcoming and changes in wholesale prices are an indicator of future changes in retail prices.

Shelf Inventories - An Extension of Spot and Forward Market Analysis In the previous analysis, entrepreneurs were associated with production

mainly “to contract.” Hence changes in orders induced changes in production flows and in stocks of works-in-progress goods. Stocks of fin- ished goods or shelf-inventories were ignored. As a stylized fact, this is probably a better representation of the real world than the traditional view that entrepreneurs produce only “to market” i.e., that production is converted to shelf-inventory before any sales commitments are made. (The latter view may be epitomized by Marshall’s “fish market” example; where no orders are taken by sellers until market day. In modern industrial economies, “fish markets” are far from representative.)

Although almost all labor markets and most commodity production transactions are, in practice, conducted primarily on a forward contract basis, there are some markets where producers may be required to make labor and raw material contractual commitments for short-period pro-


duction flows before all planned output has been contracted for by the buyers.’ At first blush, such situations may suggest that the traditional “produce to market” analysis is relevant for the output market but not the input hire market, and thereby encourage the resurrection of the question whether price or quantity adjusts more rapidly to a change in demand.

However, if it is assumed that the producers are interested in main- taining an orderly product market when demand changes then, as in our previous analysis, it can be shown that both price and output of new production adjust simultaneously after a change in demand, while the spot price adjusts immediately.

Let us analyze the demand and supply of beer as a commodity repre- sen tative of sectors where technology requires bunch processing and a given gestation period, while marketing institutions, at least at the retail stage, do not require a forward purchase contract as most sales are made from shelf inventory. Let d,’ (Figure 3a) represent entrepreneural expectations of the demand by consumers during period I , while s1 represents the Marshallian flow supply schedule. Since sales of beer will occur throughout the period, while the newly produced beer will not be available until some time after the beginning of the period, entrepreneurs will normally carry a quantity of shelf-inventory. Thus in Figure 3b, S’ represents the on-hand inventory at the beginning of the period. The demand for inventory by producers at the beginning of the period will be a function of expected sales, and can be represented by I l l ’ . Hence Q, is the beginning of the period inventory volume, whose present value (or spot price) of P, is given by the intersection of S’ and D, ’ . As Kaldor has noted, in orthodox equilibrium theory,

. . . this ‘stock’ demand is ignored . . . production and consumption, or ‘flow’-demand and ‘flow’-supply are necessarily equal in each market [as in Figure 3a] and in the rarified world of Walrasian perfection where markets are continually in equilibrium, the question of how markets respond to ‘disequilibria’ [change] does not arise because all such ‘disequilibria’ are ruled out-all equilibrating adjustments are assumed to be instantaneous, either because change is timeless or because all changes have been perfectly foreseen [9, p. 12471.

Since the accepted equilibrium theory does not explain reaction to un-

9. This situation is likely to arise in those industries where (a) technology does not permit rapid change in production flows, and/or (b) bunch processing involves large cost savings over pro- ducing only for forward contract, and/or (c) market rules, regulatory institutions, or other demand factors do not permit separate forward contractual arrangements with each buyer. Steel bars, airlines, chemicals and hotels are some industries which may exhibit these characteristics.


expected changes in demand (and i t is these changes that are involved in the speed of reaction controversy), different macrotheorists have merely postulated different speeds of reaction in order to buttress their intuitive arguments. Nevertheless, it is possible to analyze market responses to any postulated changes in demand by explicitly taking account of “stock” or “inside demand” (and supply) as well as flow-demand and flow-supply behavior via our spot-forward market analysis. This requires that we laterally add the expected flow-demand (d, ’ ) and flow-supply (s’ ) functions of Figure 3a to the shelf-inventory stock-supply and demand of Figure 3b, to get the total demand (DI ’ +d,’) and total supply (S’ +s‘ ) functions of Figure 3c. This figure can be used to determine the equilibrium situation and then, by hypothesizing a change in demand, market responses can be analyzed.

Figure 3c is constructed on the assumption that the shelf inventory on hand at the beginning of the period was considered by entrepreneurs to be optimal relative to their expectations of sales during the period and therefore they desire to set production (flow-supply) equal to expected

9.a Quantity QD Quantity Figure la Figure 3b

Price

pa

l

quantity QD Qa Figure j c

4 1 ’

consumption (flow-demand) over the period. Thus, according to Figure 3c, entrepreneurs will produce a target volume of Qa-Q, during the period, while offering to sell beer at a price of Pa. If producers correctly antici- pated consumption, then Qa-Q, will be sold during the period (even though each unit of output may have to pass through the shelf-inventory bin), and, assuming unchanged expectations about future period sales,


entrepreneurs will begin period 2 with a desired level of inventory” equal

Suppose, however, the realized flow-demand during period I (d,’ ) was greater than expected consumption (de’) as in Figure 3a, say-because of an unanticipated increase in demand. Hence, in Figure 3c, the realized total demand for beer (Dzl+d,.’) will be greater than expected (D,’ + del). If beer producers schedule a target production volume of Q,-Q, at the beginning of period I , and then offer beer to consumers at a price of Pa (from shelf inventory), and if sales of beer occur stochastically over the period, then it will take some time for producers to gather sufficient information to realize that their target production volume involves an under estimation of flow-demand. Although Q,-Q, will be produced, more than this, say Qb-Qo, will be consumed during the period, while Qb-Q, will be subtracted from normal shelf-inventory as neither price nor production flow is adjusted in this period,l’ although the (notional) spot price (or present value) of the less-than-planned for shelf inventory in- creases as soon as entrepreneurs recognize that demand has increased.

In this situation, the stock supply schedule at the beginning of period 2 will be located to the left of S’ . Consequently as entrepreneurs begin period 2 with lower shelf inventories, the total supply curve for period 2 (i.e., S2+s2) will be displaced leftward even if the Marshallian flow-supply schedule (of Figure 3a) is (by assumption) unchanged. If entrepreneurs perceive the higher sales as a permanent increase in demand (i.e., a shift to the right of the long-run demand curve in Friedman’s terminology [see 7, p. 9341 ), then expected total demand (Dz2+de2) would shift rightwards. If , on the other hand, entrepreneurs perceived higher sales as “accidental” and expect consumption demand in period 2 to be identical with the demand expected in period I , the total demand curve would be the same as in period I . In either case, since total supply had been displaced to the left, the new point of expected effective demand would be further along the flow-supply schedule and hence, at the beginning of period 2, producers would simultaneously increase their production flow and their offer price-the magnitude of output and price change between period I and 2 would be dependent on the elasticity of the short period supply schedule.

to Q,.

10. For simplicity we are assuming that entrepreneurs expect consumption demand in period 2, to be the same as in period 1 , so that they will want to start the second period with the same Qo inventory as they had at the beginning of the preceding period. (Other assumptions about the growth-or decline-of expectations of future period sales could be handled by this analysis, but for expositional simplicity, only this simplest case will be discussed.)

11. Following Keynes, thc length of the period is defined as “the shortest interval after which the firm is free to revise its decision as to how much employment to offer. It is, so to speak, the minimum effective unit of economic time” [ 11, p. 47111.

DAVIDSON: DISEQUILIBRIUM MARKET ADJUSTMENT 157

Hence, even in the case where producers are required by technology, marketing institutions, etc., to target production volumes and sell from shelf-inventory rather than enter into forward contracts for output before production begins, rational behavior requires that the offer price and production flow change simultaneously as entrepreneurs adjust to changes in demand.12

Implication for Monetarist Models If monetarists wish to discuss the effects of changes in the money sup-

ply on GNP and the price level associated with any given flow of aggregate production, then they must explicitly discuss how their. models handle the forward (flow-supply) markets for producible goods. They have to indicate clearly how hypothesized changes in demand impinge on major components of flow-supply prices (money wages and profit margins) and on relevant elasticities associated with the flow-supply schedules of producers. l 3

Thus, for example, if Brunner and Meltzer had explicitly used a spot- forward market framework, they would have noted that their model [21 is incomplete andfor defective. As the previously cited Brunner-Meltzer quotation indicates these authors use an arbitrary time unit that is suf- ficiently long to permit spot (or asset) prices to adjust to changes in demand, while assuming little or no adjustment in the output (or forward) markets. This implies that either (1) the time unit is less than the gestation period for output so that production flows are, by assumption, irrelevant, or ( 2 ) buyers can accept contract offers in spot markets, but for some unexplained reason cannot place contractual orders in forward markets for producible goods.

Accordingly, many monetarists are building models that achieve their strange results by utilizing an analytical framework that contains a defective time frame for forward market analysis. It is the failure to deal explicitly with complete spot and forward (flow-supply) markets that has led many modern theorists into a dead-end controversy about relative speeds of adjustment of price and output variables.

12. I t should be obvious to the reader, that the analysis would lead to a similar conclusion if there was a decrease in demand.

13. The relative speed of adjustment controversy does not involve short-run prices of output being more responsive than long-run money wages. Friedman [ 7, p. 207ffl and Leijonhufvud [ 12, p. 521 have stated the difference as solely involving relative speeds of adjustment in the same period and time frame.


REFERENCES

1. A. Alchian, “Cost and Output” in The Allocation o f Resources, M . Abromavitz, et.al.,

2. R. G. D. Allen, Mathematical Economics, London, 1956.

3. E. K. Brunner and A. H. Meltzer, “Money, Debt, and Economic Activity,” Jour. of Pol. Econ.

4. D. Bushaw and R. W. Clower, An Introduction to Mathematical Economics, Homewood, 1957.

5. R. W. Clower, “An Investigation into the Dynamics of Investment,” Amer. Econ. Review,

6. M . Friedman, “A Theoretical Framework for Monetary Analysis,” Jour. o f Pol. Econ.,

7. M . Friedman, “Comments on the Critics,” Jour. of Pol. Econ., Sept./Oct. 1972,80, 906-950. 8. N. Kaldor, “Speculation and Economic Growth,” Rev. of Econ. Stud., 1939 reprinted in

Essays on Economic Stability and Growth, London 1960. All references are to the reprint. 9. N. Kaldor, “The Irrelevance of Equilibrium Economics,” The Econ. Jour., December 1972,

California, 1959.

Sept./Oct. 1972,80,951-77.

March 1954, 44, 64-81.

March/April 1970, 78, 193-238.

82, 1237-55.

10. J. M. Keynes, Treatise on Money, 11, London, 1930. 11. J. M. Keynes, The General Theory ofEmployment, Interest and Money, London, 1936. 12. A. Leijonhufvud, Keynesian Economics and the Economics of Keynes, London, 1968. 13. A. Leijonhufvud, “Keynes’ Employment Function: Comment,” Hist. of Pol. Econ., 1974,

14. D. Patinkin, “Friedman on the Quantity Theory and Keynesian Economics,” Jour. o f Pol. forthcoming.

Econ., Sept./Oct., 80, 883-905.

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DISEQUILIBRIUM MARKET ADJUSTMENT: MARSHALL REVISITED

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