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Wassily Leontief and Léon Walras: the Production as a Circular Flow

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  • Akhabbar, Amanar
  • Lallement, Jérôme

Abstract

Leontief’s input-output models are usually viewed as simplified classical (neo-Ricardian) models. However, this interpretation hides two opposed views. On the one hand, the common interpretation, based on Koopmans and Samuelson’s works, considers the so-called “models of Leontief” as simplified Ricardian models, in the sense of Samuelson, which are shown to be special cases of general equilibrium theory. In their framework, general equilibrium theory might be interpreted as a generalized model of Leontief and, reversely, models of Leontief are simplified Walrasian general equilibrium models. According to this theoretical tradition, classical theory and Walrasian general equilibrium theory are intimately linked and Classical economics is an “archaic” general equilibrium theory. On the other hand, neo-Ricardians view models of Leontief as simplified classical models that are incompatible with Walras’ general equilibrium theory. Our paper examines in details the last argument: the incompatibility argument. Such a work will require to examine in details the definition of vague categories as "Walrasian", "Classical" and so forth. We show that incompatibility between models of Leontief and Walras’ general equilibrium theory is ultimately based on Sraffa’s worldview: “The connection of [my] work with the theories of the old classical economists has been alluded to in the preface... It is of course in Quesnay’s Tableau Economique that is found the original picture of the system of production and consumption as a circular process, and it stands in striking contrast to the view presented by modern theory of a one-way avenue that leads from ‘Factors of production’ to ‘Consumption goods’.” (Sraffa, 1960) Neo-Ricardian’s opposition between classical economics and Walrasian theory is based on the representation of production: classical economics refers to circular flow while Marginalist theory refers to a one-way avenue production process. As it makes a sharp distinction between the two theoretical traditions, we call this criterion "Sraffa’s Guillotine". Based on Leontief’s PhD dissertation (1928) and his early input-output model (1937), the main result of our inquiry is that this criterion is powerless to distinguish Leontief’s representation of production as a circular flow and Walras one. Indeed, while Leontief based his models on Marx’ reproduction scheme, his representation of production is the same than Walras’ complete one, in striking contrast with neo-Ricardian critical apparatus. Hence we argue in favor of a pluralist interpretation of the models of Leontief: both Classical and Walrasians.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30207.

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Date of creation: 01 Dec 2010
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Handle: RePEc:pra:mprapa:30207

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Keywords: Walras; Sraffa; Leontief; input-output analysis; Marx; production; non substitution theorem; general equilibrium theory;

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  1. Shoven, John B & Whalley, John, 1984. "Applied General-Equilibrium Models of Taxation and International Trade: An Introduction and Survey," Journal of Economic Literature, American Economic Association, vol. 22(3), pages 1007-51, September.
  2. Heinz Kurz & Neri Salvadori, 2006. "Input-Output Analysis from a Wider Perspective: a Comparison of the Early Works of Leontief and Sraffa," Economic Systems Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 18(4), pages 373-390.
  3. Robinson, Joan, 1971. "The Measure of Capital: The End of the Controversy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 81(323), pages 597-602, September.
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  6. Heinz Kurz & Neri Salvadori, 2000. "'Classical' Roots of Input-Output Analysis: A Short Account of its Long Prehistory," Economic Systems Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(2), pages 153-179.
  7. Bidard,Christian, 2004. "Prices, Reproduction, Scarcity," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521472838.
  8. Lionel W. McKenzie, 2005. "Classical General Equilibrium Theory," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262633302, December.
  9. William Baumol & Thijs ten Raa, 2009. "Wassily Leontief: In appreciation," The European Journal of the History of Economic Thought, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(3), pages 511-522.
  10. Robert J. Leonard, 1993. "Reason, Ethics and Rigour: Morgenstern, Menger, and Mathematical Economics, 1928 - 1944," Cahiers de recherche du Département des sciences économiques, UQAM, Université du Québec à Montréal, Département des sciences économiques 9403, Université du Québec à Montréal, Département des sciences économiques.
  11. Robert J. Leonard, 1993. "From Von Neumann to Nash: Economics, Game Theory and Social Process," Cahiers de recherche du Département des sciences économiques, UQAM, Université du Québec à Montréal, Département des sciences économiques 9313, Université du Québec à Montréal, Département des sciences économiques.
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