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Walras and Pareto on the meaning of the solution concept in General Equilibrium Theory

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  • Franco DONZELLI

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Abstract

The notion of solution plays a crucial role in the conceptual system of Léon Walras, the founder of General Equilibrium Theory (GET). In this paper, after introducing the two solution concepts employed by Walras in the development of his version of GET, respectively called the “theoretical” and the “practical” solution, we discuss the problems such peculiar conception gives rise to, as well as the attempts Walras makes to dodge them. In particular, after showing how Walras tries to connect his two solution concepts by means of the well-known tâtonnement construct, we explain why Walras’s attempts turn out to be defective and elucidate the negative effects that this deficiency exerts on his overall theoretical system, as expressed in the various editions of the Eléments d’économie politique pure. Then we examine the stance taken by Vilfredo Pareto, Walras’s immediate successor and co-founder of GET, as regards the issue of the solvability of general equilibrium models. After explaining why Pareto substantially neglects Walras’s tâtonnement construct and, as a consequence, the “practical” solution concept as well, we discuss the dramatic evolution of Pareto’s ideas about the computability of economic equilibrium, over the period ranging from the publication of the Cours d’économie politique to the appearance of the Manuel d’économie politique, showing how his mature positions on this issue, as can be found expressed in the Manuel and later writings, significantly affect some later interpretations of the scope and significance of GET, such as Hayek’s

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Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2006-31.

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Date of creation: 23 Oct 2006
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Handle: RePEc:mil:wpdepa:2006-31

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Keywords: Walras; Pareto; solution; tatonnement; equilibrium existence; equilibrium computability;

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  1. Scarf, Herbert E., 1993. "The computation of equilibrium prices: An exposition," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 21, pages 1007-1061 Elsevier.
  2. F. Donzelli, 1997. "Pareto's Mechanical Dream," Departmental Working Papers 1997-07, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
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