Léon Walras, Irving Fisher and the Cowles Approach to General Equilibrium Analysis

Abstract

This paper explores the relationship of Walras’s work to a particularly influential tradition of general equilibrium, that associated with the Cowles Commission for Research in Economics in Colorado in the 1930s and at the University of Chicago from 1939 to 1955, and its successor, the Cowles Foundation, at Yale University from 1955. Irving Fisher introduced general equilibrium analysis into North America with his 1891 Yale dissertation Mathematical Investigations in the Theory of Value and Prices (published 1892) and was responsible in 1892 for the first English translation of a monograph by Walras. Fisher was only able to obtain copies of books by Walras and Edgeworth when his thesis was almost ready for submission, discovering that he had independently reinvented a general equilibrium approach already developed by others, but went beyond Walras in constructing a hydraulic mechanism to simulate computation of general equilibrium and, before Pareto, in using indifference curves. Fisher was closely involved with Alfred Cowles in the Cowles Commission, the Econometric Society and Econometrica in the 1930s, promoting formal mathematical and statistical methods in economics, including drawing attention to the contributions of Walras, Edgeworth and Pareto. The first substantial, systematic work on general equilibrium at the Cowles Commission was in international trade, by Theodore Yntema, research director of the Cowles Commission from 1939 to 1942 and author of A Mathematical Reformulation of the General Theory of International Trade (1932) and by Yntema’s student, Jacob Mosak, author of General Equilibrium Theory in International Trade (1944). A subsequent, much better-known body of work on existence of general equilibrium at Cowles was by Kenneth Arrow and Gerard Debreu (initially independently but leading to a major joint publication) and by Lionel McKenzie, all three associated with the Cowles Commission in Chicago in the early 1950s. After Cowles moved to Yale, the focus of general equilibrium research at the Cowles Foundation was Herbert Scarf’s pioneering work on computable general equilibrium (which he linked to Fisher’s earlier attempt, first presenting his approach in his contribution to Ten Economic Studies in the Tradition of Irving Fisher, 1967). Fisher and then the Cowles Commission were the channel through which Walrasian general equilibrium analysis entered North American economics. This paper is part of a larger history of the Cowles Commission and Foundation, commissioned by the Cowles Foundation.