General Economic Equilibrium and Geography

Up to now, the solutions to theoretical problems have been based on assumptions about the constancy of a number of the phenomena involved. Production was located given its proximity to a market and the supply of transport. Residences were located with respect to a given work-place and transport system. The best transport network was determined for a given disposition of activities and demand for transport. The question naturally arises whether we can dispense with this partial approach and make some statements about the operation of the economy’s geography when everything is allowed to vary simultaneously. It is an item of the economist’s creed that everything is related to everything else. The economy is seen as a fully connected whole in which a multiplicity of individual decisions to consume and produce goods are coordinated by an in-built mechanism of social control. An external impulse perturbing the quiet of the arrangement in one place will be spread throughout via the interlocking relations of buyers and sellers. The final configuration of prices and quantities, after all the needs and resources of society have been balanced, will be a new, general equilibrium. Over the last century Adam Smith’s figurative ‘invisible hand’ has been transformed into mathematical statements of the balance arising between the material desires of men and the limited means at their disposal. The solution of a set of simultaneous equations can be interpreted as the conditions under which an economy achieves a steady state.