Walras and Pareto on the meaning of the solution concept in General Equilibrium Theory
AbstractThe 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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Bibliographic InfoPaper 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.
Date of creation: 23 Oct 2006
Date of revision:
Walras; Pareto; solution; tatonnement; equilibrium existence; equilibrium computability;
Other versions of this item:
- Franco Donzelli, 2006. "Walras and pareto on the meaning of the solution concept in general equilibrium theory," International Review of Economics, Springer, vol. 53(4), pages 491-530, December.
- B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Stockholm School)
- B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
- B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
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- 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
- Herbert E. Scarf, 1977. "The Computation of Equilibrium Prices: An Exposition," Cowles Foundation Discussion Papers 473, Cowles Foundation for Research in Economics, Yale University.
- 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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