I'm a little confused on what separates the definitions between plain state of rest, general equilibrium, and final state of rest. On page 116 of MES, Rothbard defines the equilibrium price as "where supply equals demand." This definition is consistent with the typical neoclassical equilibrium that is commonly portrayed by S/D graphs, i.e, the price defined by the intersection between the two curves that sellers come to through the elimination of shortages and surpluses (this is also how Rothbard describes the formation of equilibrium price).
On page 143, Rothbard describes the plain state of rest when "a market tends to "clear itself" quickly by establishing its equilibrium price, after which a certain number of exchanges take place, leading toward what has been termed the plain state of rest-the condition after the various exchanges have taken place." In this context I thought this sounds pretty similiar to the equilibrium price he described above, especially because of the fact that he includes equilibrium price in his definition. In addition, as he described earlier on page 142, I thought that the plain state of rest was the time when "the relatively most capable possessors own the stock, and the market for this good has come to a close....the market has ended, and there is no longer an active "ruling market price" for either good because there is no longer any motive for exchange." So basically I thought that the plain state of rest was the general equilibrium price that resulted when the supply and demand right now equaled each other.
He then goes on to describe the final state of rest on the same page as "certain long-run equilibria in accordance with the demand schedule and the effect on the size of stock produced", which I thought embodied the final price that would result from the intersection of supply and demand if all data ever relevant to the market would be known.
For example, if we somehow knew that in a farmers market where someone was trying to sell 20 oranges, the intersection of supply and demand for oranges was $5 (meaning the equilibrium price was $5), then if the farmer correctly estimated demand and priced his 20 oranges at 5 dollars, then after the 20 oranges were traded, a plain state of rest and equilibrium occured. No one demands any more of the farmer's oranges, the farmer has not supplied any more oranges, and there is "no longer an active "ruling market price"" for the oranges. The final state of rest in the market however, would be the equilibirum price of the farmer's oranges if all future data were known in the market.
However Salerno, in this lecture http://mises.org/media/2538 starting around 40:45 describes the plain state of rest as the state that exists after every exchange. He even goes on to describe his own plain state of rest, which occurs after he bought every marginal unit of every good he wanted at Wal mart. This definition differs from mine in the sense that it isn't the equilibirum price (Rothbard's description of supply equaling demand), but rather is a term to describe the aftermath of every exchange. So, for example, if I go to a pizza store and buy a slice of pizza for $2, after I buy that marginal unit of pizza a plain state of rest occurs regardless of whether or not the market was cleared (meaning true equilibrium had not been attained).
My question is, does the plain state of rest, the final state of rest, or neither describe the equilibrium price Rothbard describes and what is so commonly associated with neoclassicalism?
Thanks.
Thanks for replying.
I think that technically the PSR can be both definitions. I think the confusing part that threw me off is that when Mises/Rothbard talk about equilibrium pricing, they talk about an auctioneer setting where shortages/surpluses are perfectly visible and the price will always converge at equilibrium. When discussing supply and demand in chapter 2, Rothbard doesn't really talk about exchanges that take place outside of equilibrium except in the context of speculation (saying that S/D will converge quickly to equilibrium). The same thing occurs in Mises' auctioneer setting where every buyer can see every seller and the bids occur simultaneously, So, in their basic examples, no exchanges occur outside of equilibrium (meaning no PSRs occur) and that the only exchanges occur at QS=QD (and so then the PSR occurs along with a WSR). Rothbard only talks about exchanges taking place outside of equilibrium at erroneous/ephemeral speculation prices, and Klein quotes him by saying he describes these PSRs as "provisional resting points". They don't really define the PSR as that because they don't really discuss exchanges taking place outside of equilibrium.
It seems that if a PSR was QS=QD, then the Austrians would be double defining things by also describing it as a WSR.
This is a very interesting discussion. I do appreciate you starting this thread, because I would not have thought about the subject otherwise.
I will need to re-read Mises and Rothbard on what they may had said about exchanges outside the market clearing equilbrium (supply is equal to demand). If you don't mind, I'd like to leave this thread idle, until I can return back to the topic later on.
No problem.
And I'll tinker with my account soon to make it accept messages.