Some issues in the economics of stationary states

Professor Pigou's recent volume on The Economics of Stationary States displays the analytical acumen to be expected from its author, but raises serious questions regarding fundamental issues. Thus, following the classical tradition, Pigou regards aversion as a cost, which involves a confusion between means and ends. More important is the apparent absence of any real effort to formulate framework conditions in relation to which specified variables may move toward equilibrium without changing the framework controlling the change; this must be done if the equilibrium method is to yield significant and valid results. Consequences of this omission, again, are most serious in connection with the treatment of interest. In this field, the assumption that the supply of capital would tend toward equilibrium at a fixed interest rate is without foundation; the presumption is rather that change in either direction would be cumulative indefinitely. No historical equilibrium has meaning for an economy of competitive individualism. The notion of equilibrium is valid only with reference to an arbitrary fixation of all the fundamental features of the economic situation, including population in all its economic characteristics, and technology, as well as the supply of capital.