chapter  12
On the modernity of Walras
Pages 11

For many theorists of my generation, Walras is a natural grand-father. In my case, four reasons come to my mind, going from the most obvious and general to the less obvious and more specific.

• First, Walras is the main ancestor, the founding father of modern general equilibrium theory, which has been a central piece of the post-war theoretical research. The Walras model has been transfigured into the Arrow-Debreu model. Through this sophisticated rewriting and re-assesment, Walras’s views and intuitions on the mechanics of a decentralized system of markets have been made more precise, more rigorous and on the whole confirmed (I’ll come back on that). But the work has also stressed the general power of the argument, well beyond the specific territories investigated by Walras. The extension to infinite horizon economies2 provides an unavoidable and precious light to any ambitious inter-temporal theory. The extension to uncertainty, a subject of early personal concern,3 has served as one of the basis of modern finance theory. Also, as again argued later, in the second part of the twentieth century, the Walras model has kept or reinforced its central position in the economist’s software. The Walrasian input to the macroeconomic debate,4 after the Second World War, reflects such a central position. The so-called neo classical synthesis was mixing, and supposedly somewhat reconciling, Keynesian and Walrasian ideas. So far as I understand, standard trade theory was framed in a ‘Walrasian’ setting. And in a sense, the modern program of public economics, with its emphasis on public goods and externalities, may be called neo-Walrasian. Even, the general equilibrium models of second best theory, although they do not directly echo the Walrasian understanding of the subject of public action,5 adopt a Walrasian modelling of production, markets and consumers’ decisions etc…

• The second point is closely connected with the first point, and as much obvious. Walras is a most influential precursor of the mathematical modeling of economic situations. With Cournot, Dupuit, and others, he is one of the fathers of what has been sometimes called mathematical economics (which is

now more adequately labeled as formalized economic theory), which the Econometric Society has successfully promoted in the profession. As we know, for the broad majority of theorists but also of economists of my generation, mathematics was a most useful and somewhat compulsory tool for economic analysis.