Introduction

One of the principal unfilled holes in microeconomic theory is of deep importance. We have a satisfactory theory of equilibrium in perfect competition; despite great and admirable labor by many leading theorists, we have no similarly satisfactory theory of how equilibrium is reached. Such adjustment models as have been proposed and studied generally are less than satisfactory, for they rest on assumptions (often plausible ones) about the way in which prices behave in different markets taken as a whole, rather than on a model of individual behavior. Thus, as is well known, the tâtonnement process involves the assumption that the rate of change of price is proportional to excess demand, and even the non-tâtonnement processes that have been studied incorporate a similar price adjustment mechanism while allowing trade to take place out of equilibrium. Yet, as Koopmans has pointed out, it is far from clear whose behavior is described by that price adjustment process in markets where there is in fact no auctioneer to conduct it.

The problem can be described in a related but different way. In a perfectly competitive market, all participants take price as given and believe that they cannot affect it; yet when that market is in disequilibrium, the price is supposed to move. The Invisible Hand is a little too invisible in this, the center of its activities.