from Lars Syll
General equilibrium is fundamental to economics on a more normative level as well. A story about Adam Smith, the invisible hand, and the merits of markets pervades introductory textbooks, classroom teaching, and contemporary political discourse. The intellectual foundation of this story rests on general equilibrium, not on the latest mathematical excursions. If the foundation of everyone’s favourite economics story is now known to be unsound — and according to some, uninteresting as well — then the profession owes the world a bit of an explanation.
Almost a century and a half after Léon Walras founded general equilibrium theory, economists still have not been able to show that markets lead economies to equilibria.
We do know that — under very restrictive assumptions — equilibria do exist, are unique and are Pareto-efficient.
But after reading Frank Ackerman’s article — or Franklin M. Fisher’s The stability of general equilibrium…
View original post 331 more words