May 12, 2013

Equilibrium and Limitations of Society and Technology

There are several problems with the concept of equilibrium. In the first place, it has never been found to occur: any theory, in order to be considered valid, must hold up in the real world. Unfortunately, if this has ever happened, it rapidly shifts. The economy is in a constant state of flux, and true equilibrium will never happen. Sometimes markets get close, but they never actually get there. Furthermore, the state of equilibrium is not even desirable in the first place. Equilibrium is by definition a state of stasis, in which no progress is made because society has reached the hypothetical limit of advance. In this situation, there would be “perfect competition” which really means hundreds of different firms all offering the exact same product.

However, all improvements in human history have historically been necessitated by some sort of limitation that sparks a change in the way markets or society is structured, or results in the development of a new technology. True equilibrium would result in humanity as a whole stuck at the hunter-gatherer level: the atlatl would be the height of cutting-edge technology. But because of constant, relatively rapid advancements in technology, equilibrium is impossible to create or maintain. Furthermore, the necessity of government inherently precludes equilibrium, because it is essentially wasteful. On net, true, the advantages of the peace resulting from a well-structured government outweigh the inevitable chaos that would result if it did not exist, but it is in the nature of government to expand and interfere wherever it can. Bubbles such as the housing bubble and subprime mortgages inherently preclude equilibrium.

By advancing in order to overcome deficits in the current level of technology and/or social organization, the general standard of living improves and both the quantity and quality of products increase. Creation of agrarian societies led to greater quantities of food then had otherwise been available. Division of labor allowed for true capitalism in which markets arose and a greater amount of products were traded. Industrial farming allowed society to break the formerly inescapable Malthusian cycle of population expansion and famine. In short, equilibrium is a pipe dream, and we should not seek it out even if it were possible. By constantly improving, we create volatile periods in which markets must adjust, resulting in brief times of economic pain (the ever-increasing mechanization of modern society comes to mind), but it is ultimately worth it in the standard of living and variety of products that we enjoy.

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