Pure Mind, Applied Vision, and Social Conscience: Revisiting the Economics of Léon Walras
Saturday, Jan. 5, 2019 12:30 PM - 2:15 PM
- Chair: Marianne Johnson, University of Wisconsin-Oshkosh
Walras's Theories of Exchange and Production Equilibrium in the 1870s and Beyond
AbstractDuring the Winter 1871-72, in preparation of a series of conferences to be soon after delivered in Geneva, Walras jotted down some extended Notes where several new concepts and constructs that would characterize the subsequent developments of general equilibrium theory can be found. Yet, such novel ideas often appear to be mixed up with traditional conceptions inherited from earlier schools of economic thought, especially from J.S. Mill's Principles. What is altogether missing in these Notes is the principle of optimizing behavior, which, in fact, came to Walras's mind only in the Fall 1872. Then, with Paul Piccard's help, Walras was eventually able to establish an analytical link between utility maximization and the demand functions of consumers-traders, in the context of a pure-exchange, two-commodity economy.
All the theoretical advances made by Walras over the highly productive period 1872-1877 can be viewed as attempts to revise his preexisting theory in the light of the Fall 1872 discovery. Yet, the peculiar way in which Walras came to learn how to use the new approach, together with the persistence of received ideas, often incompatible with a generalized assumption of optimizing behavior and its implications, can be shown to have conditioned and constrained Walras's endeavors. In this paper we critically assess the exchange and production equilibrium models put forward over the 1870s, explaining how their inconsistencies and shortcomings, of which Walras will try to get rid by incessantly revising his theory for the rest of his scientific life, up to 1900 and beyond, can be traced back to the mixed origins of Walras's general equilibrium approach.
JEL subject classification: B13; B31; D01; D41; D51
Keywords: Walras; equilibrium; exchange; production; optimizing behavior
Following Walras Down a Road Which Pareto Did Not Share
AbstractThough the direction economics, and particularly theoretical economics, took in the 20th century was to a great extent due to Walras’s influence, this was not so much due to his actual analysis, but rather a reflection of his vision. He believed that economics was on the road to becoming a science like physics. Poincaré whose approbation, as a distinguished mathematician, was eagerly sought by Walras, pointed out the difficulties, but unfortunately for economics his observations fell on deaf ears. We followed Walras by insisting on the rigor of our analysis, but not on the realism of our assumptions. Walras’s vision of equilibrium became the benchmark for modern economic theory and led us to the Arrow-Debreu model which is characterised by its lack of institutional features, and the lack of any proof of stability under adjustment, as later to be shown by Sonnenschein, Mantel and Debreu. In the end, the road in pure theory that Walras set us on petered out. In Walras’s writings, individuals interacted through some price mechanism. In modern “Walrasian” macroeconomic models, individuals do not interact at all, since they are subsumed into a representative individual. This has taken economics off the Walrasian track. But, even more interesting, Pareto, Walras’s successor in Lausanne in the last part of his career argued that the basic model which we inherited from Walras, based on individuals who satisfy certain axioms of “rationality” was doomed to failure because individuals’ behaviour consists of taking “non-rational” decisions and then rationalizing them.
The Modernity of Walras
AbstractThe prominent position that Schumpeter attributed to Walras has become less and less controversial with the development of modern theory. We have also learned, however, that the elementary brick of the Walrasian reflection—its stylized market—is too simplistic and that the adjustment processes (tâtonnement) leading to equilibrium are not only unrealistic, but also problematic. However, for exploring further the territories of pure economics, the Walrasian theory, with its Arrow- Debreu avatar, will remain a kind of “base camp”. Moving away from the base camp provides access to different territories, which are connected in a complex way: market power, asymmetric information, incomplete markets, time horizon…. But, if the context is modified, Walras’s questions concerning the interactions between markets, remain open. This suggests the relevance of a post-Walrasian program, aimed at revisiting the logic of the prices interactions. This program has two dimensions. First, prices of goods sold on the markets are quoted by actors, in a way that depends on the specificities of the agents’ interactions (for example on the form of competition as it happens in new Keynesian models). Also, factors (such as labor) are distinguished from goods, and given a specific treatment. Second, and this is the new challenge, expectations are not axiomatically taken as rational, but the plausibility of the Rational Expectations Hypothesis is assessed, for example along the lines of the “eductive” learning or the “evolutive” learning logic.
- B1 - History of Economic Thought through 1925
- B2 - History of Economic Thought since 1925