Industrial Dynamics: Why Connections Matter

Abstract

2Modelling time In Value and Capital, Hicks (1948, p. 115) defined ‘Economic dynamics [as] those parts [of theory] where every quantity must be dated’. Subsequent theoretical development has shown that this is not a sufficient criterion. In the Arrow-Debreu system not only must every quantity be dated, it must also be indexed by location and state of the world; yet in a model that conforms to these specifications there is no room for dynamics, but a single equilibrium which extends over all dates, locations and contingencies. There is no arrow of time: later dates influence earlier allocations in precisely the same way as earlier dates influence later allocations; there is no sense in which one thing can lead into another. Indeed, within such a model there is no scope for decisions: an equilibrium allocation is deduced directly from the basic data, which includes a complete set of preferences but requires no algorithms of choice. The individual is of measure zero, not only because the effects of a single person’s preferences and endowments has no perceptible effect but because no individual is allowed to take any initiative. Everything that could possibly happen must be incorporated in the specification of one or more states of the world, either

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