ABSTRACT
The easiest way to capture the essence of the orthodox, neoclassical vision of the structure of the enterprise economy is to call to mind the simple but profound picture of the familiar “circular flow” of incomes and outputs, along with its message of an integrated market-price system. This system links together various output markets of goods and services, links together various markets for resource inputs, and, in finale, gives overall coherence to the whole by coordinating the output side of the system’s flows with the input side. The coherent ordering of the production or factor-input side of the neoclassical schema depends upon this basic principle of rational substitution among resource inputs, specifically between capital and labor as their relative prices change. The neoclassical idea of an interdependent market economy is elegantly expressed through the device of Leon Walras’ general equilibrium model.
