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Marie Esprit Walras was born on December 16, 1834, in Evreux (Upper Normandy, France) to Auguste (18011866) and Louise-Aline Sainte-Beuve (1811-1893). Despite having no university degree, Leon Walras was offered a professorship at the University of Lausanne on November 12, 1870. He officially occupied the chair of political economy from October 20, 1871 to 1892, when he retired early for health reasons. His political and social economy is best examined through the trilogy of works titled Elements d’economie politique pure (Elements of Pure Economics or the Theory of Social Wealth, 1874-1877, 1889, 1896, 1900), Etudes d’economie sociale (Studies in Social Economics or the Theory of Distribution of Social Wealth, 1896), and Etudes d’economie politique appliquee (Studies in Applied Economics or the Theory of Production of Social Wealth, 1898). Walras died at his home in Clarens (Vaud, Switzerland) on January 5, 1910.
Founder of the School of Lausanne, Walras is one of the economists whose contributions have decisively influenced the development of economic theory. Almost simultaneously with, but independently from, Carl Menger (1840-1921) and Stanley Jevons (1835-1882), Walras introduced the concept of marginal utility (rarete) and took an important step toward the mathematization of economics. In his view, mathematics is not only one of the possible forms of expressing economics but also is the form necessarily required for a rigorous formulation of economic laws.
However, Walras’s most original and important contribution is the analysis of price determination by means of the interactions between the various markets that make up an economy. The modern analysis of the existence, uniqueness, and stability of general equilibrium had been inspired by Walras’s Pure Economics. In the 1950s modern theorists, with the use of advanced mathematics, specified the hypotheses enabling them to rigorously prove the existence of a price system equalizing supply and demand on each market—that is, the existence of a general equilibrium. In this perspective, the Walrasian tatonnement (groping) was interpreted as a process of convergence of prices towards equilibrium, a representation of how markets actually work. Nevertheless, in the early 1970s enthusiasm chilled. It was proven that in a general equilibrium framework aggregate excess demand functions have an arbitrary nature, while specific assumption must be made to obtain uniqueness and stability results. To simplify matters rather drastically, as every change in the price system affects one’s income and purchasing power, the aggregate excess demand functions that result behave capriciously. In others words, income effects prevent the groping process from leading to equilibrium. So, the correspondence between the hypothesis of the homo oeconomicus and the convergence towards equilibrium does not hold, and the tatonnement process cannot be interpreted as the process that allows economic equilibrium to be reached.
Modern developments of general equilibrium have been inspired by Walras’s theory of value in exchange (pure economics), while his theories of production and distribution of social wealth (applied and social economics) have been neglected. But from the perspective of the history of economic thought it is not possible to assert that pure economics is separable from the other two parts of the Walrasian triptych (applied economics and social economics) or that pure economics only is worthy of scientific consideration. Thanks to the publication of Walras’s collected writings (1987-2005), historians of economic thought now rarely discuss Walras’s works referring only to pure economics, even though there is still no consensus on the relationships between these three components of Walras’s political and social economy.
Nevertheless, the actual and fundamental controversy about Walras’s writings involves the meaning of general equilibrium theory and what it is supposed to refer to. Most scholars considered Walras’s general equilibrium theory as an attempt to represent the actual working of nineteenth-century capitalism, even though they disagreed on its heuristic value. For most critics, the general equilibrium theory is simply inadequate for this task, both in Walras’s and in modern versions. Others instead find in Walras’s writing some elements pertinent for the understanding of real markets. Finally, some argue that one can learn more from the differences between model and reality than from their alleged similarities.
However, if one takes Walras’s philosophy of science seriously, a different point of view emerges: general equilibrium does not refer to actual market working or other economic facts but to the social wealth considered in itself. Pure economics does not aim at representing, in a more or less faithful and simplified manner, the contingent reality but rather at grasping the essence of the reality which does not yet completely exist, a reality in its becoming. For Walras, general equilibrium is the perfect, ideal form, towards which economic systems are evolving but are not yet realized. This ideal form is described in Walras’s Elements of Pure Economics, but in his other writings he often referred to the economic and social phenomena that were right before his eyes: one might cite the essays on money and credit, monopolies, and railroads, but also on salaries, tax system, and real estate. These studies are definitely far from being an apology of the market as a self-driven and self-regulating mechanism. Instead, they represent a long list of cases requiring State intervention. The State has to organize the economy in order to approach the ideal form represented by general equilibrium but it is also destined to produce as a monopolist where too much competition kills competition.
Finally, three different Leon Walras have to be considered. The first is a neoclassical icon, the founder of neowalrasian economics, but known by economists at best as the author of Elements of Pure Economics only. The second is the founder of the School of Lausanne and the father of general equilibrium as a formalized invisible hand. The third, unknown to economists and only recently discovered by historians of thought, is a critic not only of the capitalism of his time, but of market economy in itself.
Bibliography:
- Jaffe, William, ed. 1965. Correspondence of Leon Walras and Related Papers. 3 vols. Amsterdam: North Holland.
- Walras, Leon. 1987–2005. Auguste et Leon Walras: OEuvres Economiques Completes. Vols. 5–14, ed. Pierre Dockes, Pierre-Henri Goutte, Claude Hebert, Claude Mouchot, Jean-Pierre Potier, and Jean-Michel Servet. Paris: Economica.
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