Is the Market a Test of Truth and Beauty?

Ȁȃ Partʺ: Economics

increasing the number of equilibrium equations also, so that the system

remains determinate.

Cassel justifiably claims that his

equations reveal the true nature of pricing, and the pricing process can-

not be accurately presented in any simpler form. Ļe demand for a prod-

uct represents an attempt to attract certain factors of production to a

particular use. Conflicting with this attempt are similar attempts in the

form of demands for other products. Ļere arises in this way a strug-

gle for the relatively scarce factors of production, which is decided in

the exchange economy by placing uniform prices on the factors, which

prices in turn determine the prices of the products and thus form a

means of effecting the necessary restriction of demand. Ļe demand for

a particular factor of production arising from the continuous demand for

each particular product is totalled for each unit period, to form a total

demand for that factor of production, ... which must, in a state of equi-

librium, equal the given quantity of the factor of production. (ȀȈȂȁ/ȀȈȅȆ,

p.ȀȃȄ)

In this passage and in the equation system it describes, Cassel thus

provides a deep insight into the nature of cost, opportunity cost. He goes

on to point out how his system portrays the interplay of both subjective

and objective factors in price determination. As he says,

All these factors are essential in determining prices. An “objective” or

“subjective” theory of value, in the sense of a theory that would attribute

the settlement of prices to objective or subjective factors alone, is there-

fore absurd; and the whole of the controversy between these theories of

value, which has occupied such a disproportionately large place in eco-

nomic literature, is a pure waste of energy. (p.Ȁȃȅ)

E.H. Phelps Brown presents a general-equilibrium equation system
simple enough to be solved numerically, as it was even when Brown
first published it inȀȈȂȅ, in the days before computers and even before
electronic pocket calculators (though not before mechanical desk calcula-
tors). Nowadays, when computers and calculators remove so much grunt
work, the value of exercises like Brown’s has increased. Much may be
said for working one’s way not only through simplified systems but also
through Walras’sElementsitself, that landmark in the history of economic
thought.
It is easy to say that the points illuminated byGEare “obvious” and
that its pretentious equations are unnecessary. Conceivably so. But are