Art Okun’s Lectures

Supply and Demand

Art Okun in his posthumous book Prices and Quantities, namely, that
in the vast majority of cases (which means in practically all cases
except for certain staple products of agriculture and mining) the
sellers are price-makers and quantity-takers, and not, as Walrasian
equilibrium theory supposes, price takers and quantity makers. This
means that prices are cost-determined. Demand has no influence on
prices, except of course by an indirect route in that demand
determines the quantities produced, and changes in the latter may
have an influence on unit costs.

The stock-Adjustment Principle

A perfectly decentralized abstract system can operate without price

signals, through the operation of the stock-adjustment principle. The
main assumption is that each producing unit is guided by the desire
to maintain a certain normal output stock and a normal input stock.
These norms are themselves related to the unit’s sales and to its own
production. When sales increase stock diminish; this leads to an
increase in output with view of replacing stocks. If increase in sales is
permanent then increase in production will also be permanent
accompanied by a larger temporary increase until the desired
relationship of stocks to sales is grained. Kornai calls this the
“vegetative control” of economic processes, referring to the analogy of
the special role played by the vegetative nervous system in the
function of higher organisms. The role of stocks as was mentioned in
my first lecture could be replaced by the role of order books….

Demand-Constrained and Resource-constrained Economies