chapter  7
Non-constant returns, Pareto optimality, and competitive equilibrium
Pages 14

Introductory perspectives Orthodox (neoclassical) economics has an elegant centerpiece: the welfare theorems of general competitive equilibrium, according to which a system of perfect competition among “firms” and “households” – note that there are no social classes at all in this conception – results in a unique and stable equilibrium outcome. This equilibrium, moreover, is optimal in some sense: this is the modern formalization of Adam Smith’s famous “invisible hand,” according to which the private, atomistic, selfinterested actions of individuals leads to the best result from a societywide standpoint.