GENERAL EQUILIBRIUM THEORY

By examining the contributions of two prominent contemporary neoclassical economists, i.e. Lucas and Hahn, the article attempts to shed light on the problematic relationship between neoclassical theory and observation. It is argued that this approach must face the unpleasant dilemma of having to choose between endowing general equilibrium theory with an explanatory role that is marred by its illegitimate notion of capital as a single factor of variable form (Lucas); or alternatively, to consistently treat each capital good as a distinct factor of production, with the bitter implication that the theory must simply renounce to have a correspondence with observation (Hahn).

2015

For more than 100 years economists have tried to describe economics in analogy to physics, more precisely to classical Newtonian mechanics. The development of the Neoclassical General Equilibrium Theory has to be understood as the result of these efforts. But there are many reasons why General Equilibrium Theory is inadequate: 1. No true dynamics. 2. The assumption of the existence of utility functions and the possibility to aggregate them to one “Master” utility function. 3. The impossibility to describe situations as in “Prisoners Dilemma”, where individual optimization does not lead to a collective optimum. This paper aims at overcoming these problems. It illustrates how not only equilibria of economic systems, but also the general dynamics of these systems can be described in close analogy to classical mechanics. To this end, this paper makes the case for an approach based on the concept of constrained dynamics, analyzing the economy from the perspective of “economic forces” and...

SSRN Electronic Journal, 2010

2000

This paper is an attempt at exploring, and criticizing, the underlying ontology of the neoclassical economics, in the context of the general equilibrium theory, to be taken as the methodological "hard core" of this program. The reason for such an attempt is the conviction that the controversies over the "correct" methodology of mainstream economics, concentrating mainly on epistemological issues and accepting a form of "empirical realism," function to justify actual practices of economists themselves, rather than being prescriptive with respect to the correct "scientific" methodology. Such a defensive strategy however, creates in general a lacunae in the debates over methodological issues of economics. Based upon this conviction, it is argued in the paper that the adopted ontology of neoclassical economics, being an ontology of particulars implying methodological individualism, is the main problematic aspect of the whole approach, for it cause...

Journal of Economic Theory, 2012

This introduces the symposium on general equilibrium.

Eastern Economic Journal, 2018

For many economists, general equilibrium theory lies at the heart of modern economics. One of a graduate economics student's rites of passage is learning general equilibrium theory, and developing proofs relating to existence, uniqueness and the welfare implications of the analysis. Classes quickly move beyond such issues, but not before a sense of general equilibrium's fundamental importance has been instilled deep in most student's mind. The perceived importance of general equilibrium theory to modern economics can be seen in Franklin Fisher's article ''The stability of general equilibrium-what do we know and why is it important?'' [Fisher 2011]. In it, he lists four issues in general competitive equilibrium theory: existence, uniqueness, optimality and stability, and argues that we know a good deal about the first three of these questions. Specifically, we know that ''under general conditions, competitive general equilibria do exist; (2) these equilibria are globally unique, however, only in quite special cases; and (3) under very general circumstances, such equilibria are Pareto efficient.'' (Under somewhat less general circumstances, any Pareto efficient allocation can be decentralized as a competitive general equilibrium.) He sees the third property-the welfare property-as the most significant, arguing that the welfare theorems of general equilibrium provide ''rigorous justification for the view that free markets are desirable.'' He concludes that ''It is not an overstatement to say that they are the underpinnings of Western capitalism.'' He writes: ''So elegant and powerful are these results (g.e.'s exploration and proofs of existence, uniqueness, and optimality) that most economists base their conclusions upon them and work in an equilibrium framework-as they do in partial equilibrium analysis.'' Fisher also discusses problems in the foundation that general equilibrium provides for Western capitalism. In his article, he points out that ''the justification for using an equilibrium framework depends on the answer to the question of stability.'' He argues that without a proof of stability, the underpinnings of Western capitalism are lacking. He writes ''But there is a deeper lesson here. In such a model, where agents act on perceived opportunities, there can be no hope of proving theorems of general stability without strong assumptions'' (p. 42). He concludes ''The search for stability at great levels of generality is probably a hopeless one'' (p. 43). Other critics of mainstream economics similarly build on findings in general equilibrium analysis as key to their critiques. For example, critics of mainstream

Australian Economic Papers, 1983

gradnet.de

The aim of the study is to analyse the equilibrium concept in mainstream economic modelling. In rethinking the equilibrium concept, first we will criticise the thought that economic activities and relations can be explained by the "equilibrium" in the models which are build upon axioms to reach a state of equilibrium. Mainstream economic models are based on and structured according to the focus of equilibrium. According to Roegen (1978:35) in the economic theory there is no concept, which is as fundamental as and as important as the equilibrium. state that the central concept of the static analysis is equilibrium. defines the equilibrium concept in economics as a state in which opposing external forces acting on the system cancel each other out, thereby annulling their respective effects on the system. This understanding of equilibrium is rooted in the first law of Newton; so, in the first part of the study we will cover the boundaries of the equilibrium concept in mainstream economics and in classical mechanics. As physics continued to progress, economics continued to absorb its effects. Thus, the development of quantum mechanics also had an impact on economic modelling. After the Second World War there have been many attempts to incorporate quantum mechanics into economics. These attempts, though successful in modelling equilibrium states, owe their success only to the fact that their underlying axioms are designed to lead to equilibrium. Thus, any criticism of economics from an either a classical or quantum-mechanical point of view is bound to fail because economic models are consistent with classical and quantum mechanics. A good basis for an effective criticism of the equilibrium concept in economics, would be Godel's incompleteness theorem. The reason for this is that it is necessary to confront theorems of economics within the framework of mathematical logic in which they are embedded. The first aim of this study is to demonstrate that economic reality cannot be analysed in a meaningful way using conventional equilibrium-oriented models. Our study suggests that the knowledge generated from economic models is a product of epistemologically flawed knowledge-generation systems. This shows that economic theory of this kind in fact falls far short of its claim to universality. Our study covers alternative models, tries to generate a suggestion for a model that fits more to the social reality. For this aim the study will evolve as below:

Revista de Economia Política, 2015

Many economists show certain nonconformity relative to the excessive mathematical formalization of economics. This stems from dissatisfaction with the old debate about the lack of correspondence between mainstream theoretical models and reality. Although we do not propose to settle this debate here, this article seeks to associate the mismatch of mathematized models with the reality of the adoption of the hypothetical-deductive method as reproduced by general equilibrium. We begin by defining the main benefits of the mathematization of economics. Secondly, we address traditional criticism leveled against it. We then focus on more recent criticism from Gillies (2005) and Bresser-Pereira (2008). Finally, we attempt to associate the reproduction of the hypothetical-deductive method with a metatheoretical process triggered by Debreu's general equilibrium theory. In this respect, we appropriate the ideas of Weintraub (2002), Punzo (1991), and mainly Woo (1986) to support our hypothesis.

2002

First MIT Press paperback edition, 2002 ,r 1997 Massachusetts Institute of Technology All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without ...