sses, and (b) the assumption of stability. Acceptance of (b) is the essence of the correspondence principle, but how are we to determine (a)?
Consider, for example, the following alternative expressions for dynamical systems:
To each of these systems there will correspond a different set of stability conditions. System (1) is a version of that used by Samuelson to prove that the Hicks conditions are neither necessary nor sufficient for stability. Yet, as he himself noted, more complete generalizations such as (2) and (3) can be developed with different consequences for comparative statics. There is, therefore, an element of arbitrariness in the specification of dynamic systems in the absence of empirical information and there may on these grounds be a pragmatic justification for Hicks' method of developing " stability conditions " that are "timeless." The Samuelson criterion is completely general and is an appropriate methodological approach, but for purposes of yielding practical results generality often implies emptiness.
The purpose of this chapter is to show that the Hicksian stability analysis is a useful contribution to the integration of statical and dynamical theory. First, we shall show that the perfect and imperfect stability conditions do correspond to the dynamic stability conditions of some dynamic processes, irrespective of the pattern of signs of the price-matrix. Second, we shall argue that, despite their usefulness in the form Hicks presented them, the perfect stability conditions are not completely general, since they do not yield the information obtained by extending his method to the commodity "adopted" as the standard commodity. Third, we shall show that generalized conditions can be obtained by interpreting his device of holding subsets of prices constant with respect to the standard commodity as an arbitrary method of forming various composite commodity groupings. Further, we shall show that dynamic systems that fail to satisfy the generalized conditions will be unstable at some speeds of adjustment when a different commodity is adopted as the standard commodity in the dynamic system. And finally, we shall discuss the usefulness of the generalized Hicks conditions in devising dynamical rules for the hyperstability of " policy systems."8 The illustrative examples are all taken from the theory of foreign exchange markets, but the results, of course, apply to any generalized system.
Our first task is to show that the Hicks conditions do, in a sense, correspond to the conditions of convergence of some dynamic systems. Let us take as an example a problem in devaluation theory. We can describe a closed static equilibrium system of n + 1 currencies with prices (exchange rates) expressed in terms of currency 0, denoted by p1, . . . pn, as follows:
where Bi is the balance of payments of the ith country. In equilibrium each Bi = 0, while near the equilibrium we can write the system (4) as follows:
after expanding Bi in a Taylor series and omitting nonlinear terms.
Now let us suppose that the exchange rate of one country, say the rth country, appreciates in proportion to its balance of payments surplus according to the law
while all other exchange rates adjust instantaneously to equilibrium. The solution of the differential system (6) is
and Deltarr is the cofactor (principal minor) of the element in its rth row and rth column.
For the dynamic process implied in (7) to be stable it is necessary and sufficient that Delta / Deltarr < 0. But this condition is precisely (for the analogous problem in the Walrasian system) the Hicksian condition of imperfect stability for the rth currency; and when the method is applied to each currency (in succession, not simultaneously), we have the complete Hicksian conditions of imperfect stability:
A similar analysis can help to show the usefulness of the Hicks conditions of perfect stability. Suppose that one exchange rate, say pi, is held constant (relative to the numéraire). This amounts to dropping the ith row and column from Delta, so that if the original experiment were 