Walras and Marshall on Method

Walras and Marshall on Method

It is instructive to briefly compare Walras with the Marshallian approach. Walras was interested in technique and form. He was looking for the most general mathematical exposition of a model of the economy. Marshall regarded eco­nomic theory as an engine of analysis; it must relate to the real world, or it should be forgotten, or perhaps simply kept at the back of one's mind, to be brought into the analysis when relevant.

There could not have been two more different approaches. As we will see in the chapter on modern microeconomics, Marshallian economics rules in many undergraduate courses, but Walrasian economics has become the mainstream graduate microeconomics. Despite its victory, the problems of the Walrasian approach are significant and leave modern microeconomics vulnerable to much criticism.

Walras on Policy

Walras regarded his pure economics as a tool to be used in formulating economic policy. He regarded himself as a socialist but strenuously objected to the views of Marx and the Utopian socialists such as Saint-Simon. He argued that economic theory had failed to demonstrate rigorously that an optimum allocation of resources takes place under perfect competition. In Lessons 8, 22, 26, and 27 of his Elements, he examined these issues and concluded that "production in a market ruled by free competition . . . will give the greatest possible satisfaction of wants" and that "freedom procures, within certain limits, the maximum of utility.

He therefore advocated that the state attempt, through legislation, to create systems of perfectly competitive markets. At the same time, Walras was not a thoroughgoing proponent of laissez faire: he found many areas in which govern­ment intervention was desirable. He might reasonably be characterized as an advocate of market socialism. He followed Mill in maintaining that land rents represented unearned income and should therefore accrue to the government. With perfectly competitive markets and the abolition of rents as a source of private income, Walras reasoned, the distribution of income would not contain major inequities. In general he tried to take a policy line between the socialists of the left and the hard-line proponents of laissez faire. His attempt to prove that general equilibrium in competitive markets results in a maximum of utility for society has been largely ignored or forgotten by economists. Knut Wicksell (1851-1926) was later to prove that Walras's conclusion would hold only if all individuals had the same utility functions and equal incomes.