Value & Capital, CHAPTER IX, Section 4

This section begins to describe how Alfred Marshall's framework for analyzing the dynamic model of a simple one-good economy can be generalized to study "a whole economic system."  Hicks explains that it is not worthwhile to retain Marshall's "tripartite division" of the model into Temporary Equilibrium on the first "Day," "Short Period" equilibrium, and "Long Period" equilibrium.  He bases his choice not to retain the tripartite classification on questions about the actual tendency toward stable equilibrium, as well as concerns about the length of time that adjustments to equilibrium could require.  He states his intent, instead, "to keep the truth it embodies (the time taken in adjustment) clearly in mind."

Hicks chooses to work in terms of a "week" (chosen, somewhat arbitrarily, for illustration and also "to distinguish it from Marshall's Day").  He assumes it to be "that period of time during which variations in prices can be neglected."  For illustration Hicks supposes "that there is only one day (say Monday) when markets are open, so that it is only on Mondays that contracts can be made."  Contracts can be fulfilled during the week (goods can be delivered, payments made, etc.) but any new contracts would have to wait until the following Monday to be drawn up (as would any revisions to existing contracts). In this scenario the prices set on Monday will "rule throughout the week, and they will govern the disposition of resources during the week."

During the week, when markets are not open, there is no opportunity for prices to change, hence they will remain constant.  But Hicks goes on to argue that changes in price are also "negligible" on Mondays "when the market is open and dealers have to fix market prices by higgling and bargaining, trial and error.  This implies that the market (indeed, all markets) proceeds quickly and smoothly to a position of temporary equilibrium -- in Marshall's sense.  Marshall gave certain grounds for supposing this to be a reasonable assumption under the conditions of his model;  I shall examine in the note at the end of this chapter how far these grounds are available to us."

For the sake of the present discussion, Hicks asks the reader to accept his assumption of "an easy passage to equilibrium" as being similar to other common assumptions in economic reasoning (he cites the specific example of assuming "that every one knows the current prices in all those markets which concern him").  He will explore the properties that follow from his assumptions in subsequent sections.