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En kritisk vurdering af den generelle ligevaegtsmodel

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  • Erik Harsaae

    (Department of Economics, University of Aarhus, Denmark)

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    Abstract

    The paper was originally written in Danish as part of a planned book which found no publisher. Readers of the present abstract who cannot read Danish may find some quotations given in English in the Danish text, so it may be useful to give references to page numbers in that text in the present abstract. The aim of "A Criticism of the Theory of General Equilibrium" has been to argue that the said Theory is no model of any actual economic process. It simply states a number of mathematical assumptions sufficient to construct a model of a logically possible perfect market, but these assumptions are not only false as a description of actual economic systems, but as argued in the paper could at most be realised in a very small economic system or market. The author has felt so astonished by the views expressed in Joseph Schumpeter's "History of Economic Analysis", and by the views of economic authors such as Paul Samuelson and Robert Solow, and so convinced that they express a lack of real understanding of Keynesian views on the part of these famous economists, that he found it worthwhile to exhibit these weaknesses of so-called "neo-neo-classical economic theory" as strongly as possible. Keynesianism is incompatible with neo-classical theory based on the economic model due to Léon Walras. To demonstrate the truth of this statement the growth models by Roy Harrod representing the Keynesian and by Robert Solow representing the neo-classical point of view are compared and shown to be based on radically different assumptions. Also the IS-LM-model by John Hicks, as supported by Alvin Hansen, is shown to be un- Keynesian. In connection with these issues an attempt is made to replace the concept of equilibrium as defined by temporal stationarity by a concept of logical determination. The title of the text in Danish translates as already mentioned as "A Criticism of the General Equilibrium Model". The logic of this model is sketched on the first page as a distribution of provisions procured by the "breadwinners" of some primitive tribe. Such a distribution may be described by a model mathematically similar to that used by Baumol and Oates in their "The Theory of Environmental Policy" (1975, 1988). But it is irrelevant in the context of actual modern markets, i.e. to Economic Policy. L‚on Walras is usually regarded as the original author of this model in its present form. The enthusiastic evaluation by Schumpeter of this model in his "History of Economic Analysis" (posthumous edition 1954) is illustrated by the quotations on pages 42-43 of the Danish text. I claim that Schumpeter's evaluation is misleading. On pages 44 et seq. the assessment of Keynesianism by Schumpeter in 1936 based on his review of Keynes's "General Theory" is described and also analysed as the expression of a lack of understanding. The positive evaluation of the Keynesian views by the present author has also been the inspiration of his criticism of American economists such as Paul Samuelson and Robert Solow. On pages 55-62 it is shown that Robert Solow's criticism of Roy Harrod's growth model is due to a completely mistaken view of the aim of that model. On pages 66-71 a similar criticism is given of John Hick's ISLM-model and Alvin Hansen's defence of this model in his "A Guide (sic!) to Keynes". It would be very na‹ve to deny that the use in practice of "the Keynesian recipe" in order to solve the problem of "full employment" (in itself a loose concept) is difficult, but Milton Friedman's criticism of "the Phillips Curve" (which is not Keynesian) does not hit the mark, as I think is shown by my arguments on pages 89-94. "Involuntary unemployment" is a real phenomenon, and Friedman's claim that unemployed workers will not seek employment, unless current wages are increased, goes against a fundamental Keynesian assumption. This assumption is based on an institutional fact. But economic assumptions must be based on institutional facts in order to be relevant in the real world. Economic problems are not solved by mathematics, but by the ability to diagnose shortcomings of economic systems and rational measures to abolish them. To determine such measures should be the real aim of economic science as it was to John Maynard Keynes. The concluding text of the paper on pages 94-105 supports the present author's own views by references to books by Nicholas Georgescu-Roegen and a recent book by the German author Karl-Heinz Brodbeck. Interested readers of this Abstract who cannot read Danish may also form some ideas of the contents by perusal of the References concluding the Danish text since most of the literature used is in English or German.

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    Bibliographic Info

    Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2000-9.

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    Length: 107
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    Handle: RePEc:aah:aarhec:2000-9

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    Web page: http://www.econ.au.dk/afn/

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    Keywords: Keynesian economics; general equilibrium; employment; economic growth;

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