The Concept of an Economic System. The pivotal
idea in the next great advance of economic science
to be noticed here is that of an economic system, or
the concept of a general equilibrium relation among
all the main variables—prices and quantities—treated
in economic analysis. This results from combining and
interrelating the several “partial equilibria” typified by
demand and supply, the quantities offered and pur-
chased of a particular good, in relation to its price.
On the analogy of mechanics, mentioned before,
change is explained by an imbalance of forces causing
movement toward a balance. The basic fact is that over
a period of time the quantity of a good sold must equal
the quantity bought; hence if at a moment, buyers (say)
will take more or less than sellers offer, market compe-
tition will raise or lower the price as long as there
is a difference. Utility theory explains why less will
generally be bought at a higher price than at a lower,
and more sold (of an existing supply in the hands of
owners—or in a longer view, more will generally be
produced; but exceptions here require explanation).
The concept of a unitary economic system results
from recognizing that different consumables are mostly
produced by the same fund of resources which an
entrepreneur producing any good acquires by outbid-
ding those who want them for making other goods.
The payments made are his costs of production, while
to those who sell him the productive services they are
income, which they use to buy portions of the joint
social real product, thus performing the function of
distribution. The idea of a system was perhaps first
effectively proposed, in the form of a crude system
of equations, by L. Walras, in his Éléments d'économie
politique pure of 1874 and 1877 (where he also inde-
pendently stated the principle of utility theory).
