The opening paragraph of this section summarizes what has been covered in the book up to this point. Chapters I-III explore "what determines the equilibrium of the private individual, and how he may be expected to react to changes in prices." Chapters IV and V use the insights from the previous chapters "to elucidate the working of an economic system" consisting only of private individuals and in which the exchange of existing goods and services is the only economic activity. Chapters VI and VII introduce "a new kind of economic unit, the firm" and describe how a firm will conduct itself in the market. At this point the stage is set "to examine the working of an economic system containing both kinds of units, private individuals and firms; so that the price-system does not only regulate exchange, but also regulates production."
Not surprisingly, the author, Sir John Hicks, calls the General Equilibrium of Production "an hypothesis of much wider applicability than the General Equilibrium of Exchange." There are "quite a number" of economic problems where it can be applied safely, although it is possible to misuse it. In fact, Hicks claims that "the misuse of this system is one of the most fruitful sources of error in economic theory." The reasons for this have to do with the areas of the economy that it abstracts away.
The section closes by enumerating the three "main deficiencies" of the system of the General Equilibrium of Production. The first is that it leaves out the possibility of monopoly and imperfect competition. The second is that "it abstracts from the economic activity of the State." The third is that "it abstracts from capital and interest, saving and investment, and all that complex of activities ... earlier ... called 'speculation.'" The book will treat this final deficiency in later chapters.
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