The Economics Book

120

T

here has long been

something appealing

for economists about the

idea that the economy may behave

with the same mathematical

predictability of scientific laws

such as Newton’s laws of motion.

Newton’s laws reduce the whole

complex, teeming, physical

universe to three simple, reliable

mathematical relationships.

Is it possible to find similar

relationships in the complex,

changing world of markets?

In 1851, a British professor

named Francis Edgeworth

published Mathematical Psychics,

an early mathematical work

on economics. He realized that

economics deals with relationships

between variables, which means

that it can be translated into

equations. Edgeworth thought

about economic benefits in

utilitarian terms. In other words

believing that outcomes could

be measured in terms of units of

happiness, or pleasure.

Other economists were

also intrigued by the idea of

a mathematical approach. In

Germany the economist Johann

von Thünen developed equations

for a fair working wage and the

most profitable use of land. In

France Léon Walras, an academic

who would later be described as

“the greatest of all economists,”

was trying to discover a complete

mathematical, scientific framework

for the entire discipline. Walras

was ardent in his conviction

that it was possible to discover

economic laws that would make

economics a “pure moral science”

(describing human behavior) that

went hand in hand with the “pure

natural science” of Newton. His

Léon Walras Marie Esprit Léon Walras was

born in Normandy, France, in

1834. As a young man he was
      captivated by bohemian Paris, but
      his father persuaded him that one
      of the romantic tasks of the future
      was to make economics a science.
      Walras was convinced—though he
      maintained his bohemian life
      until, destitute, he went to
      Lausanne as economics professor
      in 1870. It was there he developed
      his theory of general equilibrium.
      Walras believed that the
      organization of society was a
      matter of “art” outside the
      scientific realm of economics.

He had a strong sense of social

justice and campaigned for land

nationalization as a prelude to

equal land distribution. In 1892,

he retired to the town of Clarens

overlooking Lake Geneva, where

he fished and thought about

economics until he died in 1910.

Key works

1874 Elements of Pure

Economics

1896 Studies in Social

Economics

1898 Studies in Applied

Economics

ECONOMIC EQUILIBRIUM

IN CONTEXT

FOCUS

Markets and firms

KEY THINKER

Léon Walras (1834 –1910)

BEFORE

1851 Francis Edgeworth

publishes a mathematical

assessment of economics in

Mathematical Psychics.

AFTER

1906 Vilfredo Pareto develops

a new theory of equilibrium

that takes account of the

compatibility of individual

incentives and constraints.

1930s John Hicks, Oskar

Lange, Maurice Allais, Paul

A. Samuelson, and others

continue to develop the theory

of general equilibrium.

1954 Kenneth Arrow and

Gérard Debreu provide a

mathematical proof of

general equilibrium.

Léon Walras argued that the sum of

all the excess demand in an economy

equals zero. In an economy with just

apples and cherries, excess demand for

apples means excess supply of cherries.