Monday, September 5, 2011
On General Equilibrium (GE)
Nice post (and rare, since this kind of topic is often not dealt with) on GE by Alejandro Nadal at TripleCrisis. In my view, the problem is less that equilibrium per se does not exist, as Nadal seems to suggest, but the particular notion of equilibrium that has come dominate economics after Arrow-Debreu and the Capital Debates. I highly recommend the paper by Fabio Petri (here) for those interested on the subject.
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What I keep coming back to is, how useful has all the formalization really been to the profession? It doesn't seem like the marginalist for all their math proofs are any better than Smith, Ricardo and Marx at understanding the economy (in many respects it seems that neo-classical economists posses a worse understanding).
ReplyDeleteI don't disagree that formalization has been sterile, to a great extent. Heilbronner famously said that formalization brought rigor to economics, but also rigor mortis. However, the problem is that the formalization has not been even sufficient to show that supply and demand (markets in a narrow sense) can determine long period normal prices. On the other hand, Sraffian analysis has shown that within the classical (surplus) paradigm there is a coherent and logical solution for long term prices.
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