Léon Walras on Equilibrium - Dictionary of Arguments
Mause I 54
Equilibrium/Neoclassical Theory: The demand for and supply of various goods and the corresponding market equilibrium with equilibrium price and equilibrium quantity can be derived from the behaviour of individual households and companies. However, it is not this partial analysis of individual markets that is of central importance for the evaluation of markets and market equilibria, but rather the total analysis, i.e. the simultaneous consideration of all markets in an economy and the interdependencies between them (general equilibrium theory). The pioneer of total analysis was Léon Walras. (1) In its modern form it was coined by Kenneth J. Arrow and Gerard Debreu (Arrow 1951 (2); Arrow and Debreu 1954 (3)). In a first step, the existence of a general market equilibrium can be proven. The relative prices of all goods are determined exclusively by real economic conditions (e.g. the production technology, resources euipment or demand structure); money only plays a role insofar as the price level (in accordance with quantity theory) depends on the money supply; moreover, it is neutral.
Problem: the conditions necessary for the equilibrium are never fulfilled in reality.
Solution: in theory, the existence of the equilibrium is proven, but not its stability.
1. L. Walras, Eléments d’Economie Politique Pure. Teile I– III (1874), Teile IV– VI (1877). Lausanne 1874/ 1877.
2. K.J. Arrow, An extension of the basic theorems of classical welfare economics. In Proceedings of the second Berkeley symposium on mathematical statistics and probability, Hrsg. J. Neyman, Berkeley 1951
3. K. J. Arrow, G. Debreu Existence of equilibrium for a competitive economy. Econometrica 22: 82– 109._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Eléments d’Economie Politique Pure Lausanne 1874
Politik und Wirtschaft: Ein integratives Kompendium Wiesbaden 2018