An Integration of Walrasian General Equilibrium, Ricardian Distribution, and Neoclassical Growth Theories

Abstract

This chapter generalizes the Walrasian theory. The traditional theory is for a stationary economic system. Walras introduced saving and capital accumulation in his general equilibrium theory. But his treatments of capital accumulation are not proper, especially in the light of modern neoclassical growth theory. Ricardo’s On the Principles of Political Economy and Taxation of 1817 makes a valuable contribution to economics. Applying the law of diminishing returns in agriculture, he makes important development of the theory of rent. His study shows how wages, interest rate, and rent can be determined within a compact theory. This chapter integrates Walrasian general equilibrium, Ricardian distribution, and neoclassical growth theories as an extension of the basic model proposed in Chap. 2. The chapter also introduces exogenous shocks to the general equilibrium and demonstrates how various business cycles are generated by different exogenous changes. The appendix generalizes the model in cases of multiple capital and consumer goods.