Léon Walras

Marie-Esprit-Léon Walras (French: [valʁas];^[1] December 16, 1834 – January 5, 1910) was a French mathematical economist. He formulated the marginal theory of value (independently of William Stanley Jevons and Carl Menger) and pioneered the development of general equilibrium theory.

Life and career

Théorie mathématique de la richesse sociale, 1883

Walras was the son of French economist Auguste Walras. His father was a school administrator and not a professional economist, yet his economic thinking had a profound effect on his son. He found the value of goods by setting their scarcity relative to human wants.

Walras enrolled in the Paris École des Mines de Paris - MINES ParisTech,^[2] but grew tired of engineering. He also tried careers as a bank manager, journalist, romantic novelist and a clerk at a railway company before turning to economics.^[2] Walras received an appointment as the professor of political economy at the University of Lausanne.

Walras also inherited his father's interest in social reform. Much like the Fabians, Walras called for the nationalization of land, believing that land's value would always increase and that rents from that land would be sufficient to support the nation without taxes.

Another of Walras' influences was Augustin Cournot, a former schoolmate of his father. Through Cournot, Walras came under the influence of French Rationalism and was introduced to the use of mathematics in economics.

Professor of Political Economy at the University of Lausanne,^[2] Switzerland, Walras is credited for having founded what subsequently became known, under direction of his Italian disciple, the economist and sociologist Vilfredo Pareto, as the Lausanne school of economics.^[3]

Because for a long time most of Walras' publications were only available in French, only a relatively small section of the economics profession really became familiar with his work. This changed in the 1950s, largely due to the work of William Jaffé, the translator of Walras' main works, and the editor of his Complete Correspondence (1965). Walras' work was also too mathematically complex for many contemporary readers of his time. On the other hand, it has a great insight into the market process under idealized conditions so it has been far more read in the modern era.

Marginalist theory

Although Walras came to be regarded as one of the three leaders of the marginalist revolution,^[4] he was not familiar with the two other leading figures of marginalism, William Stanley Jevons and Carl Menger, and developed his theories independently.

General equilibrium theory

In 1874 and 1877 Walras published Elements of Pure Economics, a work that led him to be considered the father of the general equilibrium theory. The problem that Walras set out to solve was one presented by Cournot, that even though it could be demonstrated that prices would equate supply and demand to clear individual markets, it was unclear that an equilibrium existed for all markets simultaneously.

Walras constructed his basic theory of general equilibrium by beginning with simple equations and then increasing the complexity in the next equations. He began with a two-person bartering system, then moved on to the derivation of downward-sloping consumer demands. Next he moved on to exchanges involving multiple parties, and finally ended with credit and money.

Walras created a system of simultaneous equations in an attempt to solve Cournot's problem "(which supposedly Walras at first thought was complete merely because the number of equations equalled the number of unknowns)"^[5]

The crucial step in the argument was Walras' Law which states that any particular market must be in equilibrium, if all other markets in an economy are also in equilibrium. Walras' Law hinges on the mathematical notion that excess market demands (or, inversely, excess market supplies) must sum to zero. This means that, in an economy with n markets, it is sufficient to solve n-1 simultaneous equations for market clearing. Taking one good as the numéraire in terms of which prices are specified, the economy has n-1 prices that can be determined by the equation, so an equilibrium should exist. Although Walras set out the framework for thinking about the existence of equilibrium clearly and precisely his attempt to demonstrate existence by counting the number of equations and variables was severely flawed: it is easy to see that not all pairs of equations in two variables have solutions. A more rigorous version of the argument was developed independently by Lionel McKenzie and the pair Kenneth Arrow and Gérard Debreu in the 1950s.

Amorality of Utility & Value

Léon Walras provides an amoral definition of economic utility:

I state that things are useful as soon as they may serve whatever usage, as soon as they match whatever need and allow its fulfillment. Thus, there is here no point to deal with 'nuances' by way of which one classes, in the language of everyday conversation, utility beside what is pleasant and between the necessary and the superfluous. Necessary, useful, pleasant and superfluous, all of this is, for us, more or less useful. There is here as well no need to take into account the morality or immorality of the need that the useful things matches and permits to fulfill. Whether a substance is searched for by a doctor to heal an ill person, or by a assassin to poison his family, this is an important question from other points of view, albeit totally indifferent from ours. The substance is useful, for us, in both cases, and may well be more useful in the second case than in the first one.

In Walras's theory of value, value is thus totally independent of the common meaning of value or utility. Production or increase of "value", in fact monetary amounts as for instance measured in profit or GNP, is independent of notions like a just or fair society or a better world. This is a fundament of modern "neoliberalism" or neoclassical economics.

Reception

In 1941 George Stigler^[6] wrote about Walras: "There is no general history of economic thought in English which devotes more than passing reference to his work. … This sort of empty fame in English-speaking countries is of course attributable in large part to Walras' use of his mother tongue, French, and his depressing array of mathematical formulas." What ever caused the u-turn of Walras' consideration in the US, the influx of German-speaking scientists – the German version of the Éléments is of 1881 – after Hitler's rule was the initial start. To Schumpeter:^[7] Walras is … greatest of all economists. His system of economic equilibrium, uniting, as it does, the quality of ‘revolutionary" creativeness with the quality of classic synthesis, is the only work by an economist that will stand comparison with the achievements of theoretical physics.

Major works of Léon Walras

• Francis Saveur, 1858.
• "De la propriété intellectuelle", 1859, Journal des économistes.
• L'économie politique et la justice; Examen critique et réfutation des doctrines économiques de M. P.J. Proudhon précédes d'une introduction à l'étude de la question sociale, 1860.
• "Paradoxes économiques I", 1860, Journal des économistes.
• "Théorie critique de l'impôt", 1861.
• De l'impôt dans le Canton de Vaud, 1861.
• Les associations populaires de consommation, de production et de crédit, 1865.
• "La bourse et le crédit", 1867, Paris Guide.
• Recherche de l'idéal social, 1868.
• "Principe d'une théorie mathématique de l'échange", 1874, Journal des économistes.
• Éléments d'économie politique pure, ou théorie de la richesse sociale (Elements of Pure Economics, or the theory of social wealth, transl. W. Jaffé), 1874. (1899, 4th ed.; 1926, rev ed., 1954, Engl. transl.)
• "Correspondance entre M. Jevons, professeur a Manchester, et M. Walras, professeur a Lausanne", 1874, Journal des économistes.
• "Un nuovo ramo della matematica. Dell' applicazione delle matematiche all' economia politica", 1876, Giornale degli economisti.
• Théorie mathématique de la richesse sociale, 1883.
• "Notice autobiographique de Léon Walras", 1893.
• Études d'économie sociale; Théorie de la répartition de la richesse sociale, 1896.
• Études d'économie politique appliquée; Théorie de la production de la richesse sociale, 1898.
• "Théorie du crédit", 1898, Revue d'économie politique.
• "Sur les équations de la circulation", 1899, Giornale degli economisti
• "Cournot et l'Économique Mathématique", 1905, Gazette de Lausanne.
• "La Paix par la Justice Sociale et le Libre Échange", 1907, Questions Pratiques de Legislation Ouvrière.
• L'état et le chemin de fer.
• "Leone Walras, Autobiografia", 1908, Giornale degli Economisti.
• "Un initiateur en économie politique, A.A. Walras", 1908, La Revue du Mois.
• "Économique et méchanique", 1909, Bulletin de la Societe Vaudoise de Sciences Naturelles
• Correspondence of Léon Walras and related papers (ed. by William Jaffé, 3 vols.), 1965.

See also

• Walras' law
• Walrasian auction
• General equilibrium
• Cost the limit of price
• Progressive theory of capital

Notes

^ « Je dis que les choses sont utiles dès qu'elles peuvent servir à un usage quelconque, dès qu'elles répondent à un besoin quelconque et en permettent la satisfaction. Ainsi, il n'y a pas à s'occuper ici des nuances par lesquelles on classe, dans le langage de la conversation courante, l'utilité à côté de l'agréable entre le nécessaire et le superflu. Nécessaire, utile, agréable et superflu, tout cela, pour nous, est plus ou moins utile. Il n'y a pas davantage à tenir compte ici de la moralité ou de l'immoralité du besoin auquel répond la chose utile et qu'elle permet de satisfaire. Qu'une substance soit recherchée par un médecin pour guérir un malade ou pour un assassin pour empoisonner sa famille, c'est une question très importante à d'autres points de vue, mais tout à fait indifférente au nôtre. La substance est utile, pour nous, dans les deux cas, et peut l'être plus dans le second que dans le premier. » Elements d'économie pure, ou théorie de la richesse sociale, 1874

References

• Jaffé, William, and Donald A. Walker (ed.) (1983). Essays on Walras. Cambridge University Press.
• Morishima, Michio (1977). Walras' economics : a pure theory of capital and money. Cambridge University Press.
• Medema S.G. & Samuels W.J. (2003). "The history of economic thought: a reader" Routledge, London and New York.

External links

Wikiquote has quotations related to: Léon Walras

• Biography and major works
• Leon Walras (1834–1910). The Concise Encyclopedia of Economics. Library of Economics and Liberty (2nd ed.) (Liberty Fund). 2008.