Neoclassical General Equilibrium Theory Research Articles

Ronald H. Coase, Friedrich A. Hayek, and the Institutional Structure of Production and Exchange

AbstractThe essay investigates the parallels and connections between Friedrich A. Hayek and Ronald H. Coase. It emphasizes the shared context at the London School of Economics (LSE) in the 1930s within which both authors reacted, in particular the role of the so-called LSE tradition on opportunity cost. We focus attention on the same pattern of institutional reaction to the formal similarity proposition of neoclassical general equilibrium theory exposed in both authors. In “The Nature of the Firm” (1937a), Coase’s pioneer transaction cost argument was decisively constructed and shaped by the controversy around the possibility of rational economic calculation under socialism. This debate was crucial to Hayek’s fundamental reformulation of neoclassical equilibrium analysis in terms of a social coordination problem in “Economics and Knowledge” (1937). In a parallel manner, although focused on the microstructure of production, Coase (1937a) was reacting to the standard general equilibrium theory and its postulates. Traditional microeconomic theory could not explain the decisions to make within the firm or to buy in the market, nor the many hybrid organizational arrangements that lie between the centralized firm and the decentralized market process. In “The Problem of Social Cost” (1960), Coase develops his argument advanced in 1937 to the welfare corollaries of the general equilibrium framework encapsulated in the first and second welfare theorems. In this case, the connection was made through the influential ideas of his long-LSE friend, Abba P. Lerner. Finally, the essay explores Hayek’s instrumental role in the intellectual and institutional foundations of the Law and Economics movement at the University of Chicago.

Entrepreneurship and Equilibrium

Neoclassic economic theory regards equilibrium, whether general or partial, as a crucially important foundation of the dismal science[1]. In the view of mainstream economists, the general equilibrium framework not only an investigation of the economy in terms of its perfect qualities, but also is suitable as an end or goal of action. The Austrian school, in contrast, sees equilibrium (or the evenly rotating economy - ERE) merely as a tendency for economic activities to move us in that direction, but it is never attained. Praxeological economics has thus concentrated not on equilibrium, but on the process by which the market moves toward it. Since the process of shifting resources to meet these ends cannot be achieved spontaneously, entrepreneurship plays a key role. In Mises and Rothbard’s view, entrepreneurship involves uncertainty bearing which beyond the alertness emphasized by Hayek and Kirzner; on the other hand, unlike Lachmann looks the economy as a kaleidoscope and rejects the ERE, Mises and Rothbard regard the ERE as an indispensable way to understand the economy.
 
 [1] As Frank H. Hahn said “Whatever economics is used or thought about, equilibrium is a central organizing concept.” (Hahn 1984: 43). Many economists and philosophers of science consider mathematical neoclassical general equilibrium theory as one of the peak achievements of economics (Rosenberg, 1992). Tieben (2012) stated that policy-makers and theorists of all schools of economics all use some form of equilibrium theory to develop their ideas and support their main theoretical and political claims. Lawson (2005) indicated that the equilibrium concept is a major cause of controversy between different schools of economic thought. A.W. Bob Coats even deems it the case that “economics has been dominated throughout its history by a single paradigm – the theory of economic equilibrium via the market mechanism.” (Coats 1969: 292).

Entrepreneurship

In this paper, we reconsider the various states of rest within Austrian market process theory. While this theory certainly embodies a superior representation of market processes to the neoclassical general equilibrium theory, it falls short of producing a holistic theory of human action. The analysis left out those human actions that produce changes to the so-called ‘final state of rest,’ which have so far been taken as exogenous to the market process. These exogenous shocks include knowledge generation and preference shifting. However, I argue that these can and ought to be understood as market phenomena, and so belong within the scope of praxeological analysis. To capture these types of human action, I propose that a new and truly ‘final’ state of rest be introduced, which we term the ‘nirvana state of rest.’ This new state represents a ‘true’ final state, in which human action ceases because all needs, and thus all motivation to act, are completely and perpetually assuaged. Introducing this state into the analysis, we can break free from myopic analyses of mere present states of knowledge and values to observe and explain general tendencies in market processes, prices, and entrepreneurship. I also show how quarrels within Austrian circles might be resolved through this expanded, macroscopic lens.

The Deep Meaning of “Market”: Understaning Neoliberal-Market Reasoning

Neoliberal theories share the idea of “the market” i.e. a “higher” instance or an autonomous process which commands people. But this concept includes a deep meaning, namely the picture of a world divided into two parts: a market and its contrary, like “the” state. This picture is similar to the way demagogues think – who hold true a form of thought in which the social world is stereotypically divided into two strictly separate parts: a homogenous in-group, “Us”, which is the target group of political propaganda, and a homogenous out-group. “The market” contra “the state”-view uses a binary code similarly, has a dynamic-actionistic momentum and is empirically unprovable. This can be shown in the writings of Mises and Hayek as in the neoclassical general equilibrium theory. My thesis is that this is the common element of the different theorists gathered in the Mont Pélerin society. The binary code of “the market” has an advantage in debates: it cannot be critized in principle, even in deep crises. Due to its quasi-demagogic deep structure, every mistake must be attributed to the “the” state, and the remedy for every crisis has to be a call for more “market”, as Tea Party representatives argue or the European austerity packages imply.

Neoclassical General Equilibrium Theory as a Source of Powerful Concepts

Neoclassical General Equilibrium Theory as a Source of Powerful Concepts

Openness versus Closedness in Classical and Neoclassical Economics

In contrast to Neoclassical general equilibrium theory, the Classical theory of value is open with respect to both the distribution of income and the composition of output. For this reason, a Sen-inspired theory of capabilities, insofar as it can be used to explain or determine income distribution and output composition, finds a natural home within the Classical theory of value.

On the criticism to the classical method

This article addresses the most common criticisms on the surplus approach''. It shows that the classical method avoids the excess of abstraction of neoclassical general equilibrium theory, which produces models that have no empirical content, and the lack of abstraction of the post-Keynesian school which does not accept equilibrium. Taking reality as a chain of accidental events connected in a dynamic logical process, the neoclassical school conceives market prices as empirical phenomena that nevertheless gravitate around moving equilibrium prices thanks to the adjustment mechanisms. Though this gravitation process should be conceived as an axiom of logic, it can be modeled in such a way as to produce stable results under quite reasonable assumptions. Finally, it shows that the classical concept of competition can be used for explaining profit rate differentials, which are the bases of the theory of oligopoly pricing.

On the Keynesian notion of equilibrium and dynamics

Harrod had always maintained that Keynes's Treatise was much more amenable for dynamic analysis than The General Theory. However, in much of the later work on Keynesian dynamics The General Theory became the foundation. In this paper, I argue that recent developments in neoclassical general equilibrium theory have the effect of undermining the conventional Keynesian conception of dynamics based on The General Theory, and recasting Keynes as a coarse precursor of modern general equilibrium analysis. Opposing this renewed orthodox reinterpretation of Keynes might require a reconsideration of the Treatise as the foundation for an alternative Keynesian dynamics. 1996 Academic Press Limited

Financial fragility: Issues and policy implications

This article addresses the question of how financial institutions, contracting forms, and government financial policies affect the degree of macroeconomic volatility. Models that posit such relationships are sometimes referred to as models of “financial fragility.” These models explore ways in which the financial system can add to the volatility of economic activity by defining sources of financial “shocks” and financial “propagators” of other shocks. Financial shocks are defined as disturbances to the real economy that originate in financial markets. Financial propagation refers to the ways in which financial contracts, markets, and intermediaries can serve to aggravate shocks that originate elsewhere. Economists have not always been receptive to the idea that financial arrangements matter for business cycles. From the standpoint of traditional neoclassical general equilibrium theory, financial arrangements (which include financial contracting, the actions of financial intermediaries, and government policies toward the financial sector) typically are viewed as epiphenomenal—simply as a set of mechanisms for executing ArrowDebreu contingent claims to allocate resources optimally. Mainstream macroeconomists and finance specialists of the 1960s seemed to agree.1 Corporation financial decisions were neutral according to Modigliani and Miller (1958), with the addition of minor caveats to take account of physical bankruptcy costs and tax incentives; and firms all faced identical costs of funds adjusted for systematic risk factors according to the capital asset pricing model. Thus, there was no call to object to the standard IS-LM macroeconomic framework’s assumption that all firms effectively faced the same cost of funds (summarized by “the” interest rate) and that this cost equaled the marginal product of capital.

From Production Prices to Reproduction Prices

This article argues that Marx's transformation procedure has been turned into a nonexistent transformation ‘problem’ by abolishing time, i.e. by implicitly applying the methodology of neo-classical general equilibrium theory. It then depicts the real transformation process from individual into social values both when technological change is abstracted from and when it is explicitly taken into consideration. Finally the article ends with a critique of the thesis according to which value is created in the act of exchange.

The basic structure of neoclassical general equilibrium theory

The basic structure of neoclassical general equilibrium theory

CLASSICAL AND NEOCLASSICAL THEORIES OF GENERAL EQUILIBRIUM

Australian Economic PapersVolume 22, Issue 40 p. 180-200 CLASSICAL AND NEOCLASSICAL THEORIES OF GENERAL EQUILIBRIUM (reviewing: Vivian Walsh and Harvey Gram, CLASSICAL AND NEOCLASSICAL THEORIES OF GENERAL EQUILIBRIUM, HISTORICAL ORIGINS AND MATHEMATICAL STRUCTURE, New York, Oxford University Press, 1980, pp. xvi, 426) AVI J. COHEN, AVI J. COHEN York University and University of TorontoSearch for more papers by this authorJON S. COHEN, JON S. COHEN York University and University of TorontoSearch for more papers by this author AVI J. COHEN, AVI J. COHEN York University and University of TorontoSearch for more papers by this authorJON S. COHEN, JON S. COHEN York University and University of TorontoSearch for more papers by this author First published: June 1983 https://doi.org/10.1111/j.1467-8454.1983.tb00417.xCitations: 9AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat Citing Literature Volume22, Issue40June 1983Pages 180-200 RelatedInformation

Book Review: Classical and Neoclassical Theories of General Equilibrium: Historical Origins and Mathematical Structure

Book Review: Classical and Neoclassical Theories of General Equilibrium: Historical Origins and Mathematical Structure

Classical and Neoclassical Theories of General Equilibrium

Classical and Neoclassical Theories of General Equilibrium

Classical and Neoclassical Theories of General Equilibrium (Review Note)

Classical and Neoclassical Theories of General Equilibrium (Review Note)

BOOK REVIEWS

Book Reviews in this Article Rational Techniques in Policy Analysis. The Political Economy of Co‐operation and Participation : A Third Sector. Mergers and Economic Performance. Monetary Policy in Australia. Money, Finance and Development. Concentration in British Industry 1935‐75. Computers and Social Change. Inflation, Income Distribution and X‐Efficiency Theory. Conference in Applied Economic Research. The Foundations of Nigeria's Financial Infrastructure. Dynamic Regression: Theory and Algorithms. Public Expenditures and Social Policy in Australia. Volume II: The First Fraser Years 1976–78. Asset Accumulation and Economic Activity: Reflections on Contemporary Macroeconomic Theory. Classical and Neoclassical Theories of General Equilibrium.

Classical and Neoclassical Theories of General Equilibrium

Classical and Neoclassical Theories of General Equilibrium

Classical and Neoclassical Theories of General Equilibrium: Origins and Mathematical Structure

Classical and Neoclassical Theories of General Equilibrium: Origins and Mathematical Structure

NEO‐CLASSICAL GENERAL EQUILIBRIUM THEORY AND SRAFFA'S PRICE SYSTEM*

Bulletin of Economic ResearchVolume 29, Issue 1 p. 9-21 NEO-CLASSICAL GENERAL EQUILIBRIUM THEORY AND SRAFFA'S PRICE SYSTEM* S. Gronghi, S. Gronghi University of SienaSearch for more papers by this author S. Gronghi, S. Gronghi University of SienaSearch for more papers by this author First published: May 1977 https://doi.org/10.1111/j.1467-8586.1977.tb00405.x * I am indebted to Professor E. Zaghini for suggesting the idea that the condition concerning non-basic commodities in Sraffa's system is made irrelevant by a Walrasian approach, and also for pointing out a mistake I had made in the course of my inquiry. I also would like to thank the British Academy for appointing me to a ‘Wolfson Fellowship’ and thus giving me the opportunity of a stay in Britain when I was able to discuss the article with academic friends and colleagues whom I wish to thank as well. AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Volume29, Issue1May 1977Pages 9-21 RelatedInformation

THE NON‐SUBSTITUTION THEOREM AND INTERNATIONAL TRADE THEORY*

The object of this brief essay is to suggest that recent work in the field of capital theory has an immediate significance for trade theory in a stationary equilibrium setting. Recent capital theory has emphasised the relationships between income distribution and relative commodity prices rather than any particular theory of the determination of distribution and prices. It may therefore provide the basis for studying important aspects of the theory of trade outside a full neo-classical general equilibrium theory and, indeed, outside any other general theory. We are able to see, for example, that even in the absence of specialisation there is no reason to expect a priori that free trade in commodities will ensure uniformity of real wage and interest rates.