Augusto Graziani on the walrasian capital formation model

Abstract

In the Sixties of the last century there was in Italy a re-kindling of interest for Walrasian theory. Several economists wrote on it, expounding opposing opinions. This partly reflected the hectic ideological climate of that decade, and Graziani could not but be influenced by it. Yet his book Equilibrio generale ed equilibrio macroeconomico testifies to his deep intellectual curiosity and searching attitude. The key problem was the consistency of the Walrasian capital formation model. The dominant opinion was that of over-determinacy. Graziani opted for under-determinacy. He provided two arguments, the first of which was based on a misinterpretation of Walras’ Law, the second, an ingenious one, would have led, if properly completed, to determinacy. His criticisms of over-determinacy are penetrating and constructive: he suggested a promising dynamic over-determinacy thesis which integrates the markets for newly produced and for second hand capital goods.