A Simple Critical Introduction to Temporary General Equilibrium Theory

During the last forty years, general equilibrium theorists have been especially concerned with the analysis of economies in which forward markets for commodities are limited in number or nonexistent and trade takes place sequentially over time. Many distinguished scholars approached the study of such economies in the 1970s from the perspective of temporary equilibrium theory, which focuses on the behaviour of agents in a given period, stresses the dependence of agents’ choices on their subjective expectations of future prices and discusses the existence of general equilibrium on current markets. Research in the field of temporary equilibrium theory was abandoned in the subsequent decade, however, and the work carried out in this area has since fallen into oblivion. The purpose of this paper is to provide an accessible exposition of temporary equilibrium theory and highlight the shortcomings that led to its abandonment in the conviction that basic knowledge of this area of research can prove conducive to correct appraisal of the current situation in general equilibrium analysis.