Negishi on Edgeworth on Jevons’s law of indifference, Walras’s equilibrium, and the role of large numbers: a critical assessment
In developing their pure-exchange equilibrium models, Jevons (1871), Walras (1874-77), and Edgeworth (1881) make use of some version of a law, called law of indifference (or principle of uniformity) by Jevons and Edgeworth and often referred to as the law of one price in connection with Walrasian economics. Edgeworth, in particular, shares with Jevons the idea that the law of indifference must be regarded as an equilibrium property; unlike his predecessor, however, he denies the validity of the law in all economies with a finite number of traders: for him, price uniformity can only emerge and a Jevonsian or Walrasian or competitive equilibrium can only be established when the traders’ number grows unboundedly large. About one century later, Negishi (1982) resumes the time-honoured discussion about the law, striving to prove that, contrary to Edgeworth’s original conjecture, a competitive equilibrium can be attained even in small economies, provided that the true driving force underlying Jevons’s law of indifference, namely, its implicit arbitrage mechanism, be allowed to operate and carry its effects through. In this paper, after reconstructing Jevons’s, Walras’s, and Edgeworth’s respective positions, we critically discuss Negishi’s critique of Edgeworth’s stance on Jevons’s law of indifference, Walras’s equilibrium, and the role of large numbers, showing that his central claim is unsubstantiated.
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