ABSTRACT
Both in The Stationary Economy and in The Growing Economy we have been dealing with an economy in which conditions were such that perfect competition or perfect potential competition was possible. That is to say, we assumed that, if decisions were left to the whim of uncontrolled individuals, no individual decision-maker would be able by his own individual action significantly to affect the prices at which he could buy or sell the goods and services with which he was concerned. We showed that, in the unchanging conditions assumed in The Stationary Economy, any equilibrium reached in such conditions would represent an efficient situation in the sense that it would be impossible to make one citizen better off without making any other citizen worse off. (See Chapter XII of The Stationary Economy.)
In The Growing Economy we introduced three major factors of change into this type of economy, namely population growth, capital accumulation, and technical progress. It was a major theme of that volume that once again, provided that competition was perfect, any equilibrium reached in such conditions would represent an efficient outcome provided that one basic condition could be fulfilled. The efficient outcome would in this case take the form of an efficient time-path of the economy, in the sense that things would so develop through time that it would be impossible to make any one citizen better off at any one point of time without making someone worse off either at that point of time or at some other point of time; and the basic conditions for this result to be achieved was that each individual decision-maker should not only know the current levels, but should also correctly foresee the future course, of all the prices with which he was concerned. (See Chapter XXIII of The Growing Economy.)
Of course, this basic condition can never be exactly, or even perhaps approximately, fulfilled. Uncertainty about future basic conditions (for example, about the future course of technical knowledge) makes it impossible. This was recognized in The Growing Economy, where there was some discussion of the way in
which unavoidable risk and uncertainty might affect decisions (Chapter XXI) and of some ways in which inefficiencies due to uncertainty about the future might be reduced (Chapter XXII). But the central theme and purpose of The Growing Economy was to consider equilibrium growth and efficient time-paths of the economy. The great bulk of the problems which arise when false expectations about future market conditions are formed and when, as a result, disequilibrium growth occurs and the economy threatens to move along an inefficient time-path was severely neglected. It is the purpose of the present volume to consider these issues.
