Roger A. McCain These notes are suggested by some recent discussions of the economic theory of persistent slumps, such as the Great Depression of the 1930's and the European unemployment of the 1980's and 1990's. The Post-Walrasian view has several distinctive insights. In real market systems, equilibrium is not unique. Instead, there may be multiple equilibria, and some of these equilibria may be better than others.
Persistent slumps occur when, for some reason, the economy falls into an inferior equilibrium.
Economics requires multiple levels of analysis, and institutions and institutional change have to be as much a part of the theory as markets and market changes. Institutions are not simply limitations on markets, but evolve to solve problems that arise at the lower, market, level of analysis. Among the problems to be solved, coordination of market activity is a very important one. Problems for market equilibria, including multiple equilibria, are especially likely where market relationships involve trust or bargaining relationships. These notes will attempt to give a game-theoretic framework for such a theory at about the level of simplicity of the introductory text.