From a theoretical viewpoint, one might say that the market is in a strange sort of equilibrium; there is some shadowy sort of price at which supply … - Kenneth Arrow

As is by now well known, attempts to form social judgments by aggregating individual expressed preferences always lead to the possibility of paradox.

My own interest first centered on the relations between Pareto efficiency and competitive equilibrium. In particular, there was considerable discussion among economists in the late 1940’s about the inefficiencies resulting from rent control and different proposals for arriving at the efficiency benefits of a free market by one or another transition route. Part of the informal efficiency arguments hinged on the idea that under rent control people were buying the wrong kind of housing, say, excessively large apartments. It struck me that an individual bought only one kind of housing, not several. The individual optima were at corners, and therefore one could not equate marginal rates of substitution by going over to a free market. Yet diagrammatic analysis of simple cases suggested to me that the traditional identification of competitive equilibrium and Pareto efficiency was correct but could not be proved by the local techniques of the differential calculus.

We find that capitalism, like any very complex system, contains within itself contradictory tendencies, but there is no reason to suppose they are fatal, at least in the foreseeable future. We do find implied in these contradictions some social tasks: the completion of the tasks involved in the achievement of macroeconomic stability, the redistribution of income and power to improve the sense of justice in the arrangements of society, by which I mean the inseparable elements of the liberty and equality of individuals, and, perhaps hardest, the increase in the sense of individual and local control over one's destiny in the workplace and the small society. These aims are mutually reinforcing, not competitive.