Ramanan — What Is Equilibrium?

The new paper by Gennaro Zezza and Michalis Nikiforos for the Levy Institute, surveying the literature on stock-flow consistent models has a discussion on the concept of equilibrium:

In neoclassical economics the concept of equilibrium is based on Say's law, which implies that in the long run there are no market gluts since free markets adapt to changing conditions through the operation of the law of supply and demand. This means that all markets tend to clear in the long run, including not only capital and consumer goods markets, but also labor markets and financial markets.

Gluts and shortages are temporary deviations in specific markets that are removed by the law of supply and demand. Therefore, a general glut can only result from an exogenous shock, and left to itself the market as whole will tend to general equilibrium "in the long run" as efficiently as possible.

Heterodox economists can be broadly defined as those rejecting the key fundamentals of the neoclassical approach, the assumption of rational utility maximization and general equilibrium.

Gennaro Zezza and Michalis Nikiforos set forth the SFC approach, and Ramanan summarizes it.

The Case for Concerted Action

What Is Equilibrium?
V. Ramanan