Walras's conception of a competitive market economy

Abstract

This chapter is concerned with Walras's conception of the major features of the behavior of a real market economy. He incorporated them into his mature market models and imprinted them on the character of neoclassical economic analysis. Introduction This chapter presents the general characteristics of economic behavior that Walras identified. His objective in the mature phase of his thought was to understand and model the behavior of a freely competitive capitalist market economy. He defined that as one in which there is private ownership of most economic resources and other commodities, and in which commodities of all types and money are exchanged in freely competitive markets. In his Elements and other writings he elaborated on the properties of such an economy, setting forth his message about them in a number of propositions, models and analyses. General features Walras identified three important general features of a market economy. First, he conceived of a market economy as a system in which price competition is strong and widespread but not universal. He recognized that it is absent or very limited in some markets, and developed a theory of monopoly to take account of them. He believed, however, that “free competition is the principal mode of exchange in the real economy, practiced on all markets with more or less precision and therefore with less or more efficiency” (Walras to Ladislaus von Bortkiewicz, February 27, 1891, in 1965, 2, letter 999, pp. 434–35).