Towards a Disequilibrium Theory of Long-run Profits: Shumpeterian Perspective

In the traditional economic theory, whether classical or neoclassical, the long-run state of the economy is an equilibrium state in which all profits in excess of normal rate vanish completely. If there is a theory of long-run profits, it is a theory about the determination of the normal rate of profit. This paper challenges this long-held tradition in economics. It introduces a series of new evolutionary models which are capable of studying the evolutionary process of an industry's technology as a dynamic interplay among many a firm's growth, imitation and innovation activities. It demonstrates that the economy will never dissipate positive profits even in the long-run, because what it will approach over a long passage of time is not a classical or neoclassical equilibrium of uniform technology but a statistical equilibrium of technological disequilibria which reproduces a relative dispersion of efficiencies in a statistically balanced form. As Joseph Schumpeter once remarked, "surplus values may be impossible in perfect equilibrium, but can be ever present because that equilibrium is never allowed to establish itself." The paper also shows that our evolutionary models behave like a well-behaved neoclassical growth model if we ignore all the complexity of the evolutionary processes working at the microscopic level and only look at the macroscopic performance. It thus provides a critique of the growth accounting technique which decomposes the overall growth process into a movement along an aggregate production function and an autonomous shift of that function.