Gary Becker gave an interview published last year that I only saw recently, through a link from the Marginal Revolution blog. In it, he remarks (page 83, 11 pages into the interview) that “Economists from the Austrian school hate equilibrium analysis in some sense, but I never understood their criticism.” He the interviewer then go on to discuss the usefulness of equilibrium analysis.
Equilibrium and other key concepts in economics are metaphors, as one of Becker’s former University of Chicago colleagues, Diedre (formerly Donald) McCloskey, has stressed. The question is how far we can fruitfully stretch the metaphor. As one of my graduate school classmates said, if the milkman skips his morning delivery, does that throw a general equilibrium out of kilter? Just before he criticizes the Austrians, Becker seems to make a similar point when he says, “You do not need to use the concept of a complete equilibrium.” Whether he knows it or not, Becker shares some of the Austrian unease about equilibrium.
In a complete general equilibrium, there is, among other things, no need for money. That we have money, and that the details of how the monetary system works can create problems that ripple throughout the economy (discussed on this blog, among other places), is one reason that Austrians think mainstream economists stretch the metaphor much too far. The Austrian focus on the market process is a competing metaphor, admittedly not as successful among academic economists, but one whose implicit message is that understanding the process is more important than achieving the goal of equilibrium, which Austrians view as impossible to identify with certainty because the knowledge involved is distributed across billions of minds.
By the way, Becker wrote a 1956 paper discussing a kind of free banking. He briefly updated his views half a century later. Here is a discussion by another economist, Ludwig van den Hauwe; to see Becker’s paper itself, apparently you will have to go to the library. It was not published at the time and as far as I know did not appear in print until the 3-volume set, Free Banking, that Larry White edited in 1993, published by Edward Elgar.
ADDENDUM: Here is a column in which a physicist offers a jaundiced view of the use economists make of equilibrium.