Introduction

One of the problems with which economists have been concerned throughout the last two centuries is the extent to which economic systems are inherently self regulating. During the eighteenth and nineteenth centuries a body of theoretical analysis was built up which showed that, given a reasonable degree of competition, any changes or disturbances which upset equilibrium in any part of the economic system would set in motion ‘forces tending to restore equilibrium’. It seems to have been widely believed that the existence of these inherent ‘equilibrating forces’ would be suf®cient to ensure satisfactory regulation of the system. It is easily shown, however, that the concept of ‘equilibrating forces’ in economics is formally identical with the concept of ‘negative feedback’ in cybernetics and it is an elementary proposition in cybernetics that too much negative feedback causes instability. The forces which economists have called ‘equilibrating’ may therefore, if they are too strong, be dis-equilibrating and far from ensuring satisfactory regulation they may be the cause of unsatisfactory regulation.

In The General Theory of Employment, Interest and Money, Keynes (1936) attacked the argument that economic systems are inherently self-regulating, on the grounds that certain of the ‘equilibrating forces’, notably those acting through changes in interest rates, would under some conditions be very weak or even completely inoperative. He advocated the adoption of deliberate policies for regulating the level of demand with the object of improving aggregative stability.