Arrow-Debreu and the classical and neoclassical economics
This article challenges the notion that the modern general equilibrium theory of Arrow-Debreu is a rigorous formulation of neoclassical economics and that, by contrast, Sraffian and Marxian economics are not compatible with it. It shows that the standard Arrow-Debreu assumptions regarding the production sets and profit maximization are sufficient to determine equilibrium prices, which then do not depend on consumers’ preferences. Arrow-Debreu equilibrium prices are similar to Marxian labor values since they are proportional to labor time and factor prices are variables that determine the distribution of income but not commodity prices. Instead of being related to the quantity of capital, profits are also proportional to the quantity of labor, causing capital to have different prices at the same point in time and at the same market, which is hardly compatible with the hypothesis of free competition. If the notion of equilibrium prices is modified as to make capital to be rewarded at the same rate in all sectors of the economy, the hypothesis of decreasing returns to scale ensures that competitive prices are an increasing function of demand and, as a consequence, they can be viewed as a product of the interaction between supply and demand. However, in any case there is no inverse relationship between the quantity of capital and its rate of rewards, as requires the neoclassical law of diminishing returns.
|Date of creation:||Dec 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Fax: +55 31 3201-3657
Web page: http://www.cedeplar.ufmg.br
More information through EDIRC
|Order Information:|| Postal: Cedeplar-FACE-UFMG Av. Antonio Carlos, 6627 Belo Horizonte, MG 31270-901 Brazil|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Garegnani, Pierangelo, 1983. "The Classical Theory of Wages and the Role of Demand Schedules in the Determination of Relative Prices," American Economic Review, American Economic Association, vol. 73(2), pages 309-13, May.
- Hahn, Frank, 1982. "The Neo-Ricardians," Cambridge Journal of Economics, Oxford University Press, vol. 6(4), pages 353-74, December.
When requesting a correction, please mention this item's handle: RePEc:cdp:texdis:td241. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gustavo Britto)
If references are entirely missing, you can add them using this form.