Brief Outline of Topics Covered in Lecture 15:
- The Neoclassical School ‑ Marshall Ch. 11 [cont.]
- The Neoclassical School ‑ Walras (pgs. 265-283)
- The Monetarist School - Wicksell and Fisher (class notes)
Leon Walras
Additional Reading
Leon Walras: Walras was the son of French economist Auguste Walras. His father was a school administrator and not a professional economist, yet his economic thinking had a profound effect on his son.
Walras inherited his father's interest in social reform. Much like the Fabians, Walras called for the nationalization of land, believing that land’s value would always increase and that rents from that land would be sufficient to support the nation without taxes.
Another of Walras’ influences was Augustin Cournot, a former schoolmate of his father. Through Cournot, Walras came under the influence of French Rationalism and was introduced to the use of mathematics in economics.
Although Walras came to be regarded as one of the three leaders of the marginalist revolution, he was not familiar with the two other leading figures of marginalism, William Stanley Jevons and Carl Menger, and developed his theories independently.
In 1874 and 1877 Walras published Elements of Pure Economics, a work that led him to be considered the father of the general equilibrium theory. The problem that Walras set out to solve was one presented by Cournot, that even though it could be demonstrated that prices would equate supply and demand to clear individual markets, it was unclear that an equilibrium existed for all markets simultaneously.
Walras created a system of simultaneous equations in an attempt to solve Cournot’s problem. He presented an informal argument for the existence of an equilibrium based on the assumption that an equilibrium exists whenever the number of equations equals the number of unknowns.
The crucial step in the argument was Walras' Law which states that considering any particular market, if all other markets in an economy are in equilibrium, then that specific market must also be in equilibrium. Walras’ Law hinges on the mathematical notion that excess market demands (or, inversely, excess market supplies) must sum to zero. This means that, in an economy with n markets, it is sufficient to solve n-1 simultaneous equations for market clearing. A more rigorous version of the argument was developed by Kenneth Arrow and Gerard Debreu in the 1950s.
Professor at the University of Lausanne, Switzerland, Walras is credited for having founded what subsequently became known, under direction of his Italian disciple, the economist and sociologist Vilfredo Pareto, as the Lausanne school of economics.
Because for a long time most of Walras' publications were only available in French, only a relatively small section of the economics profession really became familiar with his work. This changed in the 1950s, largely due to the work of William Jaffé, the translator of Walras' main works, and the editor of his Complete Correspondence (1965).
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