The Working of Competition

It has become clear that the effect of unemployment on wages can only be explained if we allow very fully for two general circumstances which do not receive much attention in equilibrium theory—the time and trouble required in making economic adjustments, and the fact of foresight. Even in equilibrium theory the importance of these things is not quite negligible; but their significance is immensely enhanced when we come to deal with “economic dynamics” —the theory of change. It is by considering them that dynamic analysis can best begin, to whatever part of the economic field that dynamic analysis is to be applied. Naturally they are the most convenient means of approach to the dynamic enquiry which is necessary to complement an equilibrium theory of wages.