Economic equilibrium

Classical economists such as Adam Smith maintained that the free market would tend towards economic equilibrium through the price mechanism[?].

This view came under attack from two opposite viewpoints. Socialists, especially Marxists claimed that equilibrium would not come about through the free market as it was chronically unfair and so would always be in disequilibrium. Equilibrium could only be found through central planning.

On the other hand the Austrian School maintained that in the short term there would never be any equilibrium as everyone was always trying to take advantage of the pricing system and so there was always some dynamism in the system. The free market's strength was not fixing a general equilibrium but in organising resources to meet individual desires and discovering the best methods to carry the economy forward.

See Also

• Economic Calculation Debate