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(1834-1910)
Leon Walras
 
: American Economic Review, Mar94, Vol. 84 Issue 1, p342, 11p
Burgenmeier, B.
THE MISPERCEPTION OF WALRAS
Leon Walras (1834-1910) is unanimously recognized as one of the founding fathers of the neoclassical model. He shares this status with Stanley Jevons (1871) and Carl Menger (1883), who independently also introduced the concept of marginal utility in order to explain price formation in markets. It is furthermore recognized (O. Nitsch, 1990), though not always remembered, that Walras also contributed to socioeconomics (Walras, 1896a) in the sense that he took into account independent variables not only from economics, but also from other social sciences. He had in mind a trilogy which was intended to cover pure theory, empirical application, and their socioeconomic grounding. Only the pure-theory part (1874-1877) was developed, and this is the source of Walras's fame today. The other two parts are only available as fragments mainly consisting of articles written throughout his professional life. Joseph Schumpeter considered "all three volumes . . . the richest books of our science" (Schumpeter, 1952 p. 77), and the socioeconomic reference is present even in Walras's pure theory. This fact is not well accepted within the economic profession today. The New Palgrave (1987 p. 860) devotes only a few lines to what are called Walras's "normative convictions," which are presented as "carefully segregated . . . from his economic theories." The International Encyclopedia of the Social Sciences (1968 p. 451) merely mentions his Etudes d'Economie Sociale without summarizing its contents or linking it to his Elements d'Economie Politique Pure.
Therefore, in mainstream economics Walras is portrayed as a neoclassical, mathematical economist, but in fact he was interested in economics in a broader sense which is not much discussed today. The need for such an approach was fully understood in Walras's time, as shown by a commentary on Elements d'Economie Politique Pure by Paul Valery (1896 p. 574) who noticed the radical change in economic analysis introduced by Walras, but mentioned what he called "formal objections" (my translation). He added that "unfortunately, they concern the basic analysis of facts which should precede the mathematical one," an objection with which Walras certainly agreed as he planned to write a trilogy. Valery may also be referring to the battle of methods between Menger and the German historical school which claimed that inductive methods should be encouraged by the economic profession.
Economic theory developed in the opposite direction. The neoclassical model is deductive and avoids empirical testing and hence falsification. Today one sees a new battle of methods (R. Swedberg, 1990) calling for a more inductive approach to economics (e.g., A. Etzioni, 1988). Why is such a battle still necessary? Was Walras misinterpreted?
This paper tries to show that Walras linked his theoretical writings, namely, the famous demonstration of the interdependence of many markets in equilibrium, to socioeconomics, which is therefore not dissociated from pure theory. This point of view is presented in this paper from three interconnected angles. The first focuses on methodological aspects which were always treated by Walras in what we would nowadays call "false" models, in the sense that no single explanation can be applied to economic problems (Martin Feldstein, 1982). The second reveals the social philosophy present in Walras's writings. Orthodox neoclassical analysis, which neglects institutional aspects insofar as society is viewed as the sum of individuals acting rationally, portrays the market and the state as opposites. This was not Walras's intention, but an interpretation by Walrasians who are only interested in the development of the neoclassical paradigm (e.g., M. Morishima, 1977). The third relates Walras's theory of marginal utility to behavioral assumptions about economic man. Marginal-utility theory is often seen as "ideologically neutral in the sense of being without any direct reference to practical questions and compatible with almost any position on social and political issues" (M. Blaug, 1978 p. 317). This argument is mainly discussed in the light of Walras's treatment of taxes, influenced by Hermann-Heinrich Gossen (Walras, 1896b). His concern not only with the importance of institutional changes, but also with a more accurate view of human behavior than that suggested by today's neoclassical economic rationality, is presented in two parts. The first examines the position of socioeconomics within Walras's writings. The second discusses its main themes.
I. Economics as a Social Science
In Lesson 3 of his Elements d'Economie Politique Pure, Walras introduces three major divisions in political and social economy:
(i) theory of value in exchange
(ii) theory of industry
(iii) theory of property.
What one clearly finds here is the idea of a treatise in three interdependent parts. The theory of value in exchange is fully developed, while the theories of industry and property were associated with applied economy and social economy, respectively. "The conditions determined by the theory of property are moral conditions deduced from the premise of justice, while those determined by the theory of industry are economic conditions deduced from the premise of material welfare. In the one case as in the other, we are dealing with social conditions or with guiding principles for the organization of society" (Walras, 1954 p. 379).
One of the foremost experts on Walras's work, William Jaffe, admitted that what he found most attractive about the theory of general equilibrium was its aesthetic aspects (Jaffe, 1956 p. 15). No wonder that he excluded Walras's Etudes d'Economie Sociale from the field of economic science and included it among the humanities. He rendered "economics as physics" a great service (Robert M. Solow [quoted in Swedberg, 1990]) by translating into English only the "Elements d'Economie Politique Pure" (Walras, 1954). His essays on Walras (A.D. Walker, 1983) indicate, however, that it was certainly not his intention to help establish economics on a solely positive basis and leave it to the social sciences to struggle with normative issues. The sharp distinction between the positive and normative aspects of economics merely resulted from the overemphasis by many of Walras's followers on the importance of the theory of general equilibrium in the evolution of economic thought.
Another contemporary expert on Walras's work, Jan van Daal (see e.g., van Daal et al., 1985), though well aware of the socio-economic dimension (A. Jolink and van Daal, 1989), seems to be more fascinated by further mathematical developments than by policy applications. To economists who are engaged in the process of policy-making (Robert H. Nelson, 1987), it is quite obvious that the distinction between normative and positive analysis fails to grasp the fundamental objective of theoretical representations and overlooks the difficulties of economic policy, which must reconcile the positive and normative aspects of economic theory. That is probably the reason why Walras stressed the three main divisions, which characterized his work throughout his professional life. These divisions were presented as early as 1870 in his letter of application for a professorship at the University of Lausanne, addressed to Louis Ruchonnet of the local government authority in charge of that appointment. Socio-economics, he wrote (Jaffe, 1965 p. 211 [letter no. 148, my translation]) should include:
The study of man and his destiny from a psychological-economic and psycho-logical-moral point of view, addressing the problem of concordance of interest with justice;
Definition of the individual and of the state, leading to a discussion of private and general interest, and of private and public services;
Solution of the problems of order by conciliating liberty and authority, and of the problems of justice by conciliating equality and unequality; demonstration of the principle of the equality of conditions as opposed to the inequality of positions" [emphasis in original].
It is striking how socioeconomic this research program is. Referring to justice and equality, Walras stresses that economics always includes value judgments, a point of view which was later forcefully expressed only by economists outside the neoclassical paradigm (e.g., Gunnar Myrdal, 1990). The distinction between the private and general interests, the latter being linked with the state, also shows that Walras had in mind a society that was more than the sum of individuals acting rationally. Individuals are bound to "inequality of positions." That raises the problem of the origin of preferences and the extent to which they are shaped by different positions within society. The socioeconomic proposition seeks to supplement economic theory, which assumes given preferences, by theories of motivation and focuses on the "equality of conditions" which must prevail in order to allow free individual choices. Clearly, Walras sees value judgments as a necessary part of economics, inseparable from it, a point of view which is clearly expressed in the above quotation (e.g., ". . . concordance of interest with justice . . .").
This point is also made by Walras with respect to competition. He explained this in 1885 in a letter to Carl Friedrich Wilhelm Launhardt, a professor of engineering at the Konigliche Technische Hochschule (Royal Technical College) in Hannover, who was also interested in mathematical economics (Jaffe, 1965 p. 50 [letter no. 652, my translation]:
I have stated that free competition leads to maximum effective utility within the limits of the conditions of one price: for example, a relative maximum and not the absolute maximum. If one arranges for goods to be sold expensively to the rich and cheaply to the poor, it is quite clear that the former will be forced to do without what is superfluous and the latter will be enabled to obtain what is necessary, and there will be a large increase in effective utility. It only remains to be seen whether the condition of one price is in fact a condition of justice. This question is no longer within the domain of pure political economy, and I deal with it very carefully in the part of the science concerning the distribution of wealth, in which principles of social morality intervene. All that I can say for the moment, and I think you will agree, is that the aim to be pursued is not the absolute maximum of interest, but the maximum of interest compatible with justice. The fact that you may be more hungry than me would not entitle you to eat my dinner.
[emphasis in original]
This quotation may be interpreted in the sense that the utility of one person cannot be compared with that of another person without using value judgments (" . . . would not entitle you . . .").
Interpersonal comparisons of welfare are therefore crucial for the understanding of Walrasian economics. This view is already found in the fundamental formulation of marginal utility, which lies at the root of the formation of values. In his Elements of Pure Economics (Walras; 1954 p. 175); Walras pointed out that:
The rich are those whose last wants satisfied are numerous and of slight intensity; and the poor are those whose last wants satisfied are, on the contrary, few and of great intensity.
This quotation may have nothing to do with the comparison of individuals' utility, because it only shows that different people behave differently. Individuals have different endowments, and their utility functions are also different. Nevertheless, the reference to a "relative maximum" of utility, by which Walras may have meant the sum of individual utilities, raises a problem of aggregation. Even if the issue of cardinal or ordinal measurement of individual utilities is not relevant to Walras's theoretical reasoning, it points to the unsolved problems raised by the interpersonal comparison of utility and by the differing intensity of preferences. Contrary to the prevailing modern view, Walras believed that economics cannot be solely treated as a positive science and that social standards of justice are a necessary part of it. There is no objective, scientific criterion whereby the "maximum of interest" is "compatible with justice." Economics is not "like physics" -- it is a social science. This point was obvious to Walras. In 1883, he wrote to Wilhelm Lexis, a professor of statistics and economics at the University of Gottingen (Jaffe, 1965 p. 746 [letter no. 548, my translation, emphasis added]):
. . . it seems to me that you consider me as a supporter of absolute free competition. . . . The opposite is true; it is rather a desire to respond to the ill-founded and unintelligible application of competition by orthodox economists which has led me to the study of free competition in trade and production.
Of course, it must be remembered that orthodox economists in the second half of the 19th century in France formed a very heterogeneous group in which the discipline of economics was not yet established as an autonomous branch of science. Moral philosophy and law still overshadowed economic research which, as a consequence,was strongly biased by value judgments expressed in endless rhetoric about the virtues of competition, imperiled by socialist views about cooperation. In this sense, Walras's work also conflicts with the state of the art at that time, though his Etudes d'Economie Sociale should be understood as a normative counterpart to his pure theory of the functioning of markets under perfect competition. However, it was obvious to him that theoretical demonstration could not prove the market to be superior to other forms of collective decision-making, and must be restricted to models of private demand. Walras did not express this view in his Etudes d'Economie Sociale but in his now famous pure theory:
. . . our proof of the principle of free competition rests [on] the individual consumer's appreciation of the utility of final products and services. Our proof implies a fundamental distinction between individual wants, i.e. private utility which the individual is capable of estimating, and social wants or public utility which is estimated in an entirely different way. Therefore, the principle of free competition, which is applicable to the production of things for private demand, is not applicable to the production of things where public interest is involved."
(Walras, 1954 p. 257)
Walras then asks, "Are there not economists, however, who have fallen into the error of advocating that public services be brought within the fold of free competition by turning these services over to the private industry?" Therefore, Walras was well aware of market failures which he also extended "to the production of things which are within the province of natural and necessary monopolies" and wrote furthermore that "the question of the [original] distribution of services remains open" (1954 p. 257). He explains the "pitfalls into which a science stumbles when treated as literature" (1954 p. 257). He could not imagine that such confusion was not linked to the ideological bias couched in the language of economic models.
Walras deliberately added, "i.e. private utility which the individual is capable of estimating" (Walras, 1954 p. 257 [emphasis added]). Therefore, one is confronted with the argument that people cannot judge for themselves, an argument first formulated by John Stuart Mill in favor of public rather than private education (Mill, 1872 pp. 577-79). If the individual is not capable of discernment, the market cannot be used as a basis for rational collective decision-making.
Market failures such as this may have many origins, but sociological research points out that what seems to be an act of free will may only reflect social constraints (Swedberg, 1987). Here again, Walras left written evidence suggesting that he was fully aware of this. In 1909, he wrote to Henri Poincare, professor at the Faculty of Science in Paris:
As far as assumptions are concerned, it is of course certain that one must be cautious when moving from abstraction to reality. In reality, there are frictions in the economic mechanism and at the same time men are neither perfectly egotisic nor perfectly clear-sighted. (Jaffe, 1965 p. 167 [letter no. 1498, my translation]).
In another letter written in 1898 to Franklin Henry Giddings, an American sociologist who taught at Columbia University and was editor of the Publications of the American Economic Association from 1891 to 1893, one finds the same concern expressed differently:
All these studies [Etudes d'Economie Sociale and Etudes d'Economie Politique Appliquee] are sociological. Moreover, the study in the first volume under the title in Search of the Social Ideal is nothing other than "principles of sociology" (Jaffe, 1965 p. 674 [letter no. 1238, my translation]), and he added, "You must read it [Etudes d'Economie Sociale] with more attention than any other person because it is an essay very deliberately in ethics precisely as you define it. (Jaffe, 1965 p. 688 [letter no. 1253, my translation, emphasis in the original])
II. Studies in Socioeconomics
In order to ensure ethics a lasting place in economic reasoning, Walras's work cannot be split up into separate parts. Therefore, his pure theory can only be understood in relation to his studies in socio-economics.
A table of contents for these studies was included in 1895 in a letter to Enrico Barone, an Italian military officer and professor of economics with mathematical background in Rome. In an enclosure, Walras presented the following provisional table of contents (Jaffe, 1965 p. 657 [letter no. 1221, my translation]):
Studies in Socioeconomics
Foreword
A. In Search of a Social Ideal
Introduction, Labour (Socialism and liberalism) (A general theory of Society)
Reconciliation and synthesis
B. The issue of property
Theory of ownership
The social question
On intellectual property
C. Achievement of the Social Ideal
Mathematical theory of the price of land and its purchase by the State (Mathematical theory of social wealth)
H. H. Gossen, an unknown economist (Journal des Economistes, April and May 1885)
D. Taxation
Taxation and equity
Taxation in practice
The land register; taxes on land.
This project was completed only to the extent that, under these headings, Walras regrouped articles which he had already published elsewhere.
A. In Search of a Social Ideal
Under this title, one finds six lectures which Walras gave in Paris in 1867-1868, preceded by letters addressed to Edmond Scherer, editor of the journal Le Temps (Walras, 1868). These lectures are also influenced by Walras's introduction to Proud-hon's Political Economy and Justice (Walras, 1860), which led to Walras's doctrine linking theory and justice through policy-making. The initial title, Introduction a l'Etude de la Question Sociale [Introduction to the Study of the Social Question] was dropped in favor of a more utopian one, Recherche de l'Ideal Social [In Search of a Social Ideal]. In his Etudes d'Economie Sociale (Walras, 1869a p. 11 [my translation]), Walras wrote: "As far as theory and practice are concerned, it is accepted that:
perfection, or the absolute, is the essential principle of theory and of science;
imperfection, or the relative, is the essential principle of practice and of art."
Accordingly,
"the idea of social perfectibility, which implies that of a theoretical and scientific social ideal emerging from an understanding of social reality as provided by experience, thereby implies the idea of perfection;
the idea of social perfectibility, which implies that of social reality to which theoretical and scientific social principles are applied, thereby implies the idea of imperfection."
Following Walras's view, one would have to say that neoclassical theory was bound to remain abstract and isolated from social reality. In referring to Walras's work as a whole once again, this neoclassical orientation should be corrected by socioeconomic research. Interdisciplinary research could strike an admittedly difficult balance between the pursuit of perfection and the acceptance of imperfection (Burgenmeier, 1992). In the same fashion, giving his socioeconomic studies the subtitle Theorie de la Repartition de la Richesse Sociale [Theory of the Distribution of Social Wealth], Walras clearly identified the clash between the normative and positive aspects of economics. As is now known (A.M. Feldman, 1983), income distribution remains a normative issue, attempts to introduce an objective criterion in this area having persistently failed.
In the Walrasian view, then, value judgments, in order to "carefully establish our right to decrease or not our maximum for the benefit of other people" (Jaffe 1965 p. 167 [letter no. 1498, my translation]) lie at the root of any economic theory and cannot be separated from it. Value judgments necessarily introduce into economics an ethical yardstick which does not allow materialism to be separated from ethics. The two are interlinked. This interdependence creates a median position between materialism and ethics, which socioeconomics can usefully fill. Walras clearly saw the danger of considering them separately. He wrote (Walras, 1896a p. 74 [my translation, emphasis added]):
Materialism reduces man's destiny to the satisfaction of physical needs and considers human destinies as mutually hostile, whereas spiritualism, while it sees human destiny in the triumph of freedom, considers human destinies independent of one another. . . . [However,] will is not exercised under conditions of total individual freedom, but partly under the influence of social necessities. Human destinies are not absolutely independent, but to some extent dependent on one another. There is a social morality which is distinct from individual morality.
As a consequence, to Walras, society cannot be viewed as the sum of individuals motivated solely by economic rationality. Neither constrained utility maximization nor a retreat into spiritual experience (advocated by a growing number of sects) is an acceptable response to the need to understand human behavior. Society is not just the sum of individual actions but also something more greatly influenced by social necessities such as the need for communal experience.
B. The Issue of Property
This chapter reprints an article which appeared in Revue Socialiste in the same year (1896) as the publication of Walras's Etudes d'Economie Sociale. The central theme here is the public ownership of land (for a detailed description, see L. Bourcier de Carbon [1972]). Walras's interest in that question originated from an idea first suggested by James Mill (1821) and later formulated by Hermann Heinrich Gossen (1854). In his footnote to Walras's 1883 letter to Wilhelm Lexis, Jaffe summarizes Walras's theory as follows (Jaffe, 1965 p. 747 [letter no. 548, my translation, emphasis added]):
Gossen had maintained that it was private ownership of land which stood in the way of the realization of the ideal world which complete freedom of trade could bring about; and he proposed that the State purchase all land at prices that would induce the present landowners to sell it voluntarily, and then rent the land to the highest bidders. As Gossen saw it, the steady trend toward a rise in land-rents would eventually enable the State to recoup the money it would have to borrow to purchase the land. L. Walras, who admired Gossen's scheme, perceived the flaw: the only price that would induce private landowners to sell voluntarily would have to take into account the future rise in land-rents, so that the State could never amortize its debt. What L. Walras proposed was a variant of Gossen's scheme: that the State pay for the land a price based upon the current rate of increase in land-rent, but not upon increases in the rate of increase which he thought were inevitable in the long run in a progressive society.
Clearly, this view contradicts the neoclassical label which the history of economic thought (Blaug, 1978) has put on Walras's work. This part of Walras's socioeconomic studies is disconcerting and was also criticized in his time (A. Naville, 1897). Moreover, in his analysis of the motivations of landowners, he raised the very contemporary questions of time horizons and of expectations made by economic agents. This brought him into discredit. He was accused of being a socialist (H. Dumez, 1985). His thinking appears to have been more subtle: it is a reflection on the role and the function of the state. In his view, government expenditure could be entirely financed by land rent. As land is, by definition, a fixed factor of production, any pressure, whether demographic or economic, will result in an increase in state receipts, enabling the state to increase its expenditures in accordance with the burden placed by the economy on the environment. Today's concern with techniques for the internalization of external effects can be linked to Walras's theory of property. Urban planning and regional economic policies are now used in order to increase environmental protection. State-owned or state-controlled land plays an increasing part in regulating economic pressure on the environment. This raises the question of property rights, on which the market economy is based. Jaffe clearly made this point in commenting on Walras's letter to Lexis. He asked (Jaffe, 1965 p. 747 [letter no. 548, emphasis added, except for the last]):
whether the expectation of an accelerated increase in land-rent was not already included in the normal calculation of the market value of land. If that is so, Walras's scheme, so long as it provided for full indemnification of present owners, would not work any better than Gossen's. Moreover, if the scheme could work at all, it could not be inaugurated in the immediate future, because land-values were actually falling and would continue to fall until new countries were as densely populated as old countries. Lexis thought it interesting, in any case, that L. Walras who was led by his theory of price determination to advocate pure laisser-faire, should have been led, at the same time, by a theory of rising land-rents in a progressive society which he had developed independently of Ricardo, to advocate the abolition of the private ownership of land.
Walras was probably aware of this dilemma, as witnessed by the inclusion of his mathematical theory of the price of land and its purchase by the State in his Etudes d'Economie Sociale under the following title.
C. Achievement of the Social Ideal
This theory, first presented in Lausanne in 1880 to the Societe Vaudoise des Sciences Naturelles [Society for the Natural Sciences], prescribes that the annual average growth rate of land-rent in the long run will approach zero. It was translated into German by Ludwig Gebhard von Winterfeld, a Prussian military officer to whom Walras wrote in 1881 (Jaffe, 1965 p. 711 [letter no. 519, my translation, emphasis in original]):
. . . my article on the price of land only established the possibility of the State buying land without paying for it and does not prove anything concerning the utility and the justice of State ownership. . . . I have no difficulty in agreeing that I am somewhat alarmed by my own conclusion, and if I were free, I would confine myself to the analysis of Economie Politique Pure. But i cannot, I [have to give a complete course] . . . a rigorous mathematical theory of price determination under the hypothetical regime of absolute free competition will be only read and seriously discussed on that day when it has been recognized to lead, inter alia, to the theories of rent surplus in a progressive society which is the starting point of its combination with the State purchase of land.
Walras followed his theory on the price of land with an article on "Un Economiste Inconnu [An Unknown Economist]: Her-mann-Heinrich Gossen," first published in 1885 in the Journal des Economistes (Walras, 1896a pp. 351-74). This may also indicate that his theory is a tribute to this German economist who had already formulated a mathematical theory of utility maximization (Gossen, 1854). Walras considered Gossen as his and Jevons's predecessor. As Jaffe's above-mentioned quotation shows, Walras succeeded, although not convincingly, in surpassing Gossen in his theory of the price of land.
D. Taxation
If land rent is the sole source of state revenue, it may also replace taxation. Therefore, it is not surprising that Walras included under this heading three contributions calling for tax reform. In the first of these, he criticized direct income taxes as opposed to taxes on capital (Walras, 1896a pp. 378-86). Written 35 years earlier (Walras, 1861), this article is also partly included in his Elements d'Economie Politique Pure (Walras, 1954 pp. 447-59 [lesson 42]).
In his second contribution, Walras stresses the importance of the land register and the necessity of reorganizing land surveys as a precondition to a tax on land, which he considered as a claim made by the state for public co-ownership of land (Walras, 1861 pp. 387-421). This interpretation considers state intervention as a part of the economy, the integrating factor being of course land owned by the society and not by individuals:
Even the idea that individuals have to contribute to Government expenditure is derived from an excessive individualistic point of view. . . . In the distribution of social wealth, there must be a part made available to the community at the same time as a part made available to [private] ownership. That is what I have foreseen in the theory of property, by assigning land and rent to the State after assigning personal faculties and wages to the individual. (Walras, 1896a p. 434 [my translation]).
Few commentators on Walras's work are aware that the opposition between state and market which is found in many of today's policy recommendations based on the neoclassical model, is in contradiction with Walras's doctrine (e.g., A. Berthoud, 1988). This second contribution, a critical commentary on an article on land taxes and landowners' guarantees written by Gaston Le Couppey (1867), also gave Walras the opportunity to point out the distinction between capital and land.
His third and final contribution on tax problems (Walras, 1896 pp. 422-52) was published in the same year in the Revue Socialiste (Walras, 1896b). Taxes appear unjust when compared with the solution of state ownership of land; Walras himself made this clear in his letter to Georges Renaud, the editor of the Revue Socialiste (Jaffe, 1965 [letter no. 1260]). Taxes are unjust in the sense that they are a consequence of the opposition between the state and the market. The state then remains outside the economy and requires a transfer of income from individuals, the aggregate of whom constitutes a society but not a community. If the state is considered as a legitimate part of society, its inclusion in society (which then forms a community) is rewarded by land ownership, but land-rent will be its only source of income.
III. Concluding Remarks
The choice of quotations presented in this article attempts to redress the imbalance in common perceptions of what Walras said. However, parts of the Etudes d'Economie Sociale, namely, those written early in Walras's lifetime (1867-1868), are somewhat confusing. They reflect a rather naive and generous approach to economics governed by justice.
This confusion may also explain why Max Weber (1898) did not quote the Etudes d'Economie Sociale, but only the well-known pure theory, though the first was much closer to his own intentions. However, the explanation may be much more mundane: only two years separated the publication of Etudes d'Economic Sociale (1896a) and Weber's Grundriss zu den Vorlesungen uber Allgemeine (theoretische) Nationalokonomie, and Weber may simply not have been aware of the earlier work. However, another contemporaw of Walras, Adrien Naville, professor of philosophy at the University of Geneva, seems to have fully understood Walras's somewhat confusing ideas. In a letter to Walras (Naville, 1897 p. 6 [my translation]) he wrote, "Your central thesis is the agreement between utility and justice," but he also pointed out (p. 9) that there is not only one scientific task, but two: "Once intelligence has taken notice of reality, reason constructs the ideal." Walras constructed two ideals: market equilibrium under perfect competition and the perfect functioning of the state. Although Naville was skeptical about the second ideal, he nevertheless expressed his relief at the end of his letter (p. 10): "Your Etudes d'Economie Sociale are an eloquent response to the doubts that may arise from the idea of pure political economy. When one speaks of a science of wealth removed from any legal and moral preoccupation, the ill-informed public may believe that one proposes to settle social affairs according to the god Mammon. . . . Those who have read your work will know the true meaning of the doctrine."
It is therefore not surprising that Walras's followers who have not read the whole work are more attracted by deductive than by inductive methods, which are more in accordance with Walras's socioeconomic writings. However, instead of asking what is the most promising method in economics, Walras wrote in a letter addressed to Carl Menger in 1883: "For heaven's sake, stop asking how science can best be done -- do it any way you like, but do it!" (Jaffe, 1965 p. 772 [letter no. 569, my translation]). The issue goes far beyond deduction versus induction indeed. It includes different views of the scope of economics, its methodology, and how the legal-economic nexus is to be modeled. Walras's followers who are only interested in pure theory have encouraged the dissociation between Elements d'Economie Politique Pure and Etudes d'Economie Sociale which became responsible for the damaging distinction between the positive and normative approaches to economics.
Walrasian economics has now in turn come to contribute to the prevailing climate of research, not only in economics but in general. As S. O. Funtowiez and J. R. Ravetz (1990 p. 9) put it:
In the context of this isolation from societal concerns, the ideology of a science that was value-free and ethically neutral could flourish and indeed serve to foster the special sort of excellence of academic science.
By the same token, this ideology prepared the restoration of liberal economic theory. The efficient market has again gained ground as the only objective scientific reference for solving social problems. If an economic policy fails to work, this is attributed to the fact that it was not designed in accordance with market principles. Economists such as William Rappard (1936) and Friedrich von Hayek (1944), often considered as having founded the neo-liberal movement (G. Busino, 1990), are convinced that society is far too complex to be controlled by any kind of state intervention. Ideas of reform, planning, and institutional change should not come from above, but from below, from individuals acting freely. Walras would not have agreed, since for him, pure economic theory is silent on the preconditions for free expression of individual wants. Utility and justice are interlocked.
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