Quantity adjustment theory as a basis of evolutionary economics

We address the basic framework of quantity adjustment theory and its significance in evolutionary economics. Quantity adjustment theory explores the mechanism of the short-term process by which capitalist firms adjust their production and raw material orders according to the demand for their products under constant prices. It finds the key features of capitalist product markets in demand constraints on production and sales competition among buyers, firms’ demand-satisfying supply behavior with buffer inventory holding, quantity adjustment process as its interactions, and continuous demand satisfaction with the permanent existence of surplus resources on the sellers’ side. As a loop composed of these features, capitalism is a production system that satisfies the needs and wants already or to be expressed through product markets. The model analysis of the quantity adjustment process indicates that individual demand-satisfying supply behaviors and their interactions result in overall buyer demand satisfaction. Stable and smooth process progression is secured by sellers’ moderate averaging in demand forecast formation based on past demands and by maintaining moderate ratios of buffer inventories to the forecasted demand. Under these conditions, firms can adapt their production to gradual changes in final demand without the duration or propagation of shortage. Quantity adjustment theory clarifies the mechanism sustaining the stationary circulation of the capitalist economy and reformulates the effective demand principle on its basis. It provides new insight into the functions of money and prices by elucidating the conditions for money to be swiftly exchangeable with any product and for prices to have the stability necessary to function as the efficiency criterion. While placing buyers of products in a dominant position in the short run, these conditions provide firms with motivations and favorable material conditions for demand-oriented innovations in the long run.