ME  Vol.5 No.5 , May 2014
Walras and Contemporary Financial-Economic Crisis
Author(s) Ezra Davar*
ABSTRACT

This paper shows that one of crucial causes of contemporary financial-economic crisis is an abandonment of the classic and Walras’s theories, in particular the monetary theory. Therefore, it discusses three fundamental differences between Walras’s and modern economists’ approaches: 1) the relationship between theory and reality; 2) the use of mathematics in economic theory; and 3) the monetary theory. The paper demonstrates that the modern approach is even incompatible with hypothetical economics because of unrealistic assumptions, for example, there is only one type of money—fiat money; whilst Walras’s approach applies well to its era’s reality.


Cite this paper
Davar, E. (2014) Walras and Contemporary Financial-Economic Crisis. Modern Economy, 5, 635-656. doi: 10.4236/me.2014.55060.
References
[1]   Davar, E. (1994) The Renewal of Classical General Equilibrium Theory and Complete Input-Output System Models. Avebury, Aldershot, Brookfield USA, Hong Kong, Singapore, Sydney.

[2]   Walras, L. (1954) Elements of Pure Economics. Translated by Jaffe, W., Allen and Unwin, London.

[3]   Arrow, K.J. and Hahn, F.H. (1971) General Competitive Analysis. Holden-Day, Inc., San Francisco.

[4]   Debreu, G. (1959) Theory of Value. Wiley, New York.

[5]   Schumpeter, J.A. (1954) History of Economic Analysis. Oxford University Press, New York.

[6]   Marget, A.W. (1931) Leon Walras and the “Cash-Balance Approach” to the Problem of the Value of Money. Journal of Political Economy, 39, 569-600.
http://dx.doi.org/10.1086/254248

[7]   Marget, A.W. (1935) The Monetary Aspects of the Walrasian System. Journal of Political Economy, 43, 145-186.
http://dx.doi.org/10.1086/254753

[8]   Hicks, J.R. (1983) “Leon Walras”, Econometrica, and in Classics and Moderns. Basil Blackwell, Oxford.

[9]   Hicks, J.R. (1967) Critical Essays in Monetary Theory. Clarendon Press, Oxford.

[10]   Woodford, M. (2003) Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton University Press, Princeton.

[11]   Magill, M. and Quinzii, M. (1992) Real Effects of Money in General Equilibrium. Journal of Mathematical Economics, 21, 301-342.
http://dx.doi.org/10.1016/0304-4068(92)90012-V

[12]   Kiyotaki, N. and Wright, R. (1989) On Money as a Medium of Exchange. Journal of Political Economy, 97, 927-954.

[13]   Davar, E. (2013) Input-Output Analysis and Contemporary Economics. LAP Lambert.

[14]   Marshall, A. (1930) The Pure Theory of Domestic Value. The London School of Economics, London.

[15]   Walras, L. (2005) Studies in Applied Economics Theory of the Production of Social Wealth. Translated by van Daal, J., 2 Volumes, Routledge, London.

[16]   Davar, E. (2012) Is “Walras’ Law” Really Walras’s Original Law? World Review of Political Economy, 3, 478-500.
http://dx.doi.org/10.13169/worlrevipoliecon.3.4.0478

[17]   Davar, E. (2011) Flaws of Modern Economic Theory: The Origins of the Contemporary Financial-Economic Crisis. Modern Economics, 2, 25-30.

[18]   Davar, E. (2013) Government Spending and Economic Growth. The Finance and Business, 2, 4-19.

[19]   Davar, E. (2014) How Flaws in the General Theory Render It Irrelevant to the Real World. Modern Economy, 5, 93-104.
http://dx.doi.org/10.4236/me.2014.51011

[20]   Baumol, W.J. and Goldfeld, S.M. (1968) Precursors in Mathematical Economics: An Anthology. London School of Economics, London.

[21]   Jaffé, W. (1968) Walras’s Economics as Other See It. In: Walker, D.A., Ed., William Jaffe’s Essays on Walras, Cambridge University Press, New York.

[22]   Hicks, J.R. (1939-1946) Value and Capital. 2nd Edition, Clarendon Press, Oxford.

[23]   Dorfman, R., Samuelson, A.P. and Solow, R.M. (1958) Linear Programming and Economic Analysis. McGraw-Hill Book Company, Inc., New York.

[24]   Morishima, M. (1977) Walras’ Economics: A Pure Theory of Capital and Money. Cambridge University Press, New York.

[25]   Blaug, M. (1997) Ugly Currents in Modern Economics. Policy Options.

[26]   Leijonhufvud, A. (2008) Moving on: Where to? In: Forstater, M. and Wray, L.R., Eds., Keynes for the Twenty-First Century, Palgrave Macmillan, Basingstoke.

[27]   Van Daal, J. and Jolink, A. (1993) The Equilibrium Economics of Leon Walras. Routledge, New York.
http://dx.doi.org/10.4324/9780203401460

[28]   Cassel, G. (1967) The Theory of Social Economy. Augustus M. Kelley Publishers, New York.

[29]   Schlesinger, K. (1968) On the Production Equations of Economic Value Theory. Baumol and Goldfeld.

[30]   Wald, A. (1968) On the Unique-Negative Solvability of New Production Equations. Baumol and Goldfeld.

[31]   van Daal, J. and Walker, D.A. (1990) The Problem of Aggregation in Walras’s General Equilibrium Theory. History of Political Economy, 22, 489-505.
http://dx.doi.org/10.1215/00182702-22-3-489

[32]   Walker, D. (1996) Walras’s Market Models. Cambridge University Press, Cambridge.
http://dx.doi.org/10.1017/CBO9780511664502

[33]   Walker, D.A. (2006) Walrasian Economics. Cambridge University Press, New York.
http://dx.doi.org/10.1017/CBO9780511510748

[34]   Samuelson, P.A. (1947) Foundations of Economic Analysis. Harvard University Press, Cambridge.

[35]   Mas-Colell, A., Whinston, M.D. and Green, J.R. (1995) Microeconomic Theory. Oxford University Press, New York.

[36]   Ingrao, B. and Israel, G. (1990) The Invisible Hand Economic Equilibrium in the History of Science. MIT Press, Cambridge.

[37]   Shoven, J.B. and Whalley, J. (1993) Applying General Equilibrium. Cambridge University Press, New York.

[38]   Rosenberg, A. (1993) If Economics Isn’t Science, What Is It? In: The Philosophy and Methodology of Economics III, Edward Elgar, Aldershot.

[39]   Arrow, K.J. (1989) Von Neumann and the Existence Theorem for General Equilibrium. In: Dore, M., Chakravarty, S. and Goodwin, R., Eds., John von Neumann and Modern Economics, Clarendon Press, Oxford.

[40]   Pareto, V. (1971) Manual of Political Economy. Translated by Schwier, A.S., Macmillan, London.

[41]   Allen, R.D. (1960) Mathematical Economics. MacMillan, London.

[42]   Dierker, H. and Grodal, B. (1986) Non-Existence of Cournot-Walras Equilibrium in a General Equilibrium Model with Two Oligopolists. In: Hildenbrand, W. and Mas-Colell, A., Eds., Contributions to Mathematical Economics, North-Holland, Amsterdam, 167-186.

[43]   Lange, O. and Taylor, F.M. (1938) On the Economic Theory of Socialism. In: Lippincott, B.E., Ed., The University of Minnesota Press, Minnesota.

[44]   Lange, O. (1942) Say’s Law: A Restatement and Criticism. In: Lange, O., et al., Eds., Studies in Mathematical Economics and Econometrics, Cambridge University Press, Cambridge, 49-68.

[45]   Patinkin, D. (1989) Money, Interest, and Prices. 2nd Edition, Massachusetts Abridged, MIT Press, Cambridge.

[46]   Walras, L. (2005) Studies in Applied Economics Theory of the Production of Social Wealth. European Journal of Political Economy, 22, 1016-1019.

[47]   Davar, E. (2008) Review of Walrasian Economics. European Journal of Political Economy, 24, 713-715.

[48]   Weintraub, E.R. (1985) General Equilibrium Analysis Studies in Appraisal. Cambridge University Press, Cambridge.

[49]   Schwodiauer, G. and Reidel, D. (1978) Equilibrium and Disequilibrium in Economic Theory. Dordrecht-Holland, Boston.

[50]   Negishi, T. (1989) History of Economic Thought. North-Holland, New-York.

[51]   Smith, A. (1937) The Wealth of Nations. Random House Inc., New York.

[52]   Potier, J.P. (1998) Leon Walras and Applied Science. In: Faccarello, G., Ed., Studies in the History of French Political Economy, Routledge, London.

[53]   Friedman, M. and Schwartz, A.J. (1986) Has Government Any Role in Money? Journal of Monetary Economics, 17, 37-62.
http://dx.doi.org/10.1016/0304-3932(86)90005-X

[54]   Ahiakpor, J.C.W. (2003) Classical Macroeconomics. Routledge, London.

[55]   Chick, V. (1983) Macroeconomics after Keynes, a Reconsideration of the General Theory. The MIT Press, Cambridge.

[56]   Clower, R.W. (1967) A Reconsideration of the Microfoundations of Monetary Theory. Western Economic Journal, 6, 1-8.

[57]   Keynes, J.M. (1960-1936) The General Theory of Employment Interest and Money. Macmillan, London.

[58]   Laidler, D. (1999) The Foundations of Monetary Economics. EE Published.

[59]   Bliss, Ch., et al. (2005) Capital Theory. EE Published.

[60]   Hutchison, T.W. (1962) A Review of Economic Doctrines 1879-1929. The Clarendon Press, Oxford.

[61]   Menard, C. (1990) The Lausanne Tradition: Walras and Pareto. In: Hennings, K. and Samuels, W.J., Eds., Neoclassical Economic Theory, 1870 to 1930, Kluwer Academic Publishers, London, 95-150.
http://dx.doi.org/10.1007/978-94-009-2181-8_4

[62]   Allingham, A. (1973) Quantitative Analysis of Economic Interaction. Ballinger PC, Cambridge.

[63]   Bridel, P. and Huck, E. (2002) Yet Another Look at Léon Walras’s Theory of tatonnement. European Journal of the History of Economic Thought, 9, 513-540.

[64]   Makarov, V.L., Levin, M.J. and Rubinov, A.M. (1995) Mathematical Economic Theory. North-Holland, Elsevier, Amsterdam, New York.

[65]   Backhaus, J. and Maks, H. (2009) From Walras to Pareto. Springer, Berlin.

[66]   ten Raa, T. (2010) Input-Output Economics: Theory and Applications. World Scientific Publishing Co. Pte. Ltd., Singapore.

[67]   Morishima, M.M. (1992) Capital, and Credit: A New Formulation of General Equilibrium Theory. Cambridge University Press, Cambridge.
http://dx.doi.org/10.1017/CBO9780511628467

[68]   Ginsburgh, V. and Keyzer, M. (1997) The Structure of Applied General Equilibrium Models. MIT Press, Cambridge.

[69]   Allais, M. (1992) The Economic Science of Today and Global Disequilibrium. In: Baldassarri, M., McCallum, J. and Mundell, R., Eds., Global Disequilibrium in the World Economy, the Macmillan Press Ltd., London.

[70]   Bridel, P. (1997) Money and General Equilibrium Theory. Edward Elgar, UK, USA.

[71]   Siven, C.H. (2006) Monetary Equilibrium. History of Political Economy, 38, 665-706.
http://dx.doi.org/10.1215/00182702-2006-016

[72]   Weintraub, E.R. (2002) How Economics Became a Mathematical Science. Duke University Press, Durham.
http://dx.doi.org/10.1215/9780822383802

[73]   Debreu, G. (1991) The Mathematization of Economic Theory. The American Economic Review, 81, 1-7.

[74]   Baumol, W. (2007) Entrepreneurship and Innovation: The (Micro) Theory of Price and Profit. File: Entpricetheory-w-apr-4-2007.

 
 
Top