Cristobal Young writes:
“General equilibrium theory – the mathematical analysis of a market economy as a whole – has its roots in the late 19th century works of Leon Walras and Vilfredo Pareto… However, the project failed to attract much following and soon faded into dormancy.
“It was the end of the Great Depression, ironically, that saw a tremendous revival of the General Equilibrium (GE)/Welfare economics project. In the US, a loose grouping of devout socialists were busy detailing the elegance of the market equilibrium. The leaders of the GE revival – Oskar Lange, Abba Lerner and Abram Bergson – were cutting-edge mathematical economists and true believers in Soviet-style central planning…
“The GE framework, given sufficient mathematical complexity, is actually a grand narrative on the fragility and implausibility of perfect market equilibrium. Successive mathematical torturing has outlined an extensive list of unlikely conditions required to demonstrate general market efficiency. Mark Blaug has nicely summarized a partial inventory: ‘perfectly rational, omniscient, identical consumers; zero transaction costs; complete markets for all time-stated claims for all conceivable contingent events, no trading at disequilibrium prices; no radical, incalculable uncertainty…; only linearly homogenous production functions; no technical progress requiring capital investment, etc’ (Blaug, 1997, p. 5)…
“For an economic system that failed to satisfy such assumptions, there seemed a need for government intervention. General equilibrium theory provided a sort of checklist for market critics.”
Milton Friedman invoked his famous “assumptions don’t matter” dictum to avoid having to admit that he could not untie the Gordian knot of GE Theory. I harshly criticize this cowardly approach at Axiomatic Economics by Victor Aguilar: Socrates and Hume at Billiards
Instead of attempting to untie it, I cut the Gordian knot of GE Theory by throwing all of Walras’ and Pareto’s assumptions overboard and starting from scratch with my own set of axioms.
And, unlike the Austrians who talk about the axiomatic method without ever clearly stating their axioms, my axioms are concisely stated at the top of the home page of my website: Axiomatic Theory of Economics by Victor Aguilar: Home
“Ludwig Mises knew nothing about mathematicians and denounced them all, making no distinction between axiomatists like Kolmogorov and positivists like his brother. Thus having missed a splendid opportunity to team up with his brother’s rival, Ludwig Mises’ embryonic vision would lie dormant for half a century before the axiomatic method would find its champion in economics,” I write at Axiomatic Economics by Victor Aguilar: Critique of Austrian Economics
Mises failed to defeat socialists like Lange because he was a lousy mathematician. I am not a lousy mathematician. Modern socialists like Scucca may throw GE Theory at my feet (http://www.debatepolitics.com/econom...tment-air.html), but I will not stumble over it – like Alexander at Gordium, I cut through that crap with one decisive stroke.
Blaug, Mark. (1997) “Ugly Currents in Modern Economics” in Policy Options, 18, 3-8.
SSRN-The Politics, Mathematics and Morality of Economics: A Review Essay on Robert Nelson`s Economics as Religion by Cristobal Young