May 1, 2015

What are the alternatives?

Comment on ‘On the irrelevance of general equilibrium theory’


You [Ezra Davar] ask ‘Is Input-Output Analysis of Leontief a nonentity?’

As far as it is used as a mathematical device it is not, as far as it abused to illustrate the Walrasian equilibrium of all markets it is. For a formal proof see (2013).

You say ‘So, our task to change them [the assumptions of general equilibrium] by much more realistic assumptions.’

It is not so much a matter of assumptions. Each theory is based on axioms, so we have to move from the obsolete orthodox axiom set to a heterodox axiom set. This is what a paradigm shift is all about. Playing with realistic/unrealistic assumptions keeps economists busy without ever leading to worthwhile results.

You ask ‘What is an alternative?’

I agree with you, Keynes's approach is not an alternative to Walras's. It too suffers from severe methodological deficits. For a formal proof see (2011).

The alternative has already been pointed out by Joan Robinson: Scrap the lot and start again!*

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN
Working Paper Series, 1966438: 1–20. URL
Kakarot-Handtke, E. (2013). Walras’s Law of Markets as Special Case of the
General Period Core Theorem. SSRN Working Paper Series, 2222123: 1–12. URL

* For the new formal start with structural axioms and the behavioral propensity function see here