About the referent of equations of the general economic equilibrium

The point that probably most separates the two Lausanne economists consists in the meaning they attribute to the general economic equilibrium. For Walras, as a pure science (not an applied one), it captures the essence of the phenomenon, in the specific case of the exchange value of social wealth.

From Walras’s point of view, the general economic equilibrium theory hinges around the establishment of exchange values once stripped of all contingent aspects, but it is also the theory of price determination in a hypothetical system of absolute free com­petition. This is understandable, because that regime, which is a mechanism for price determination, not a market structure, is hypothetical from the historical contingent, but necessary to the extent that it is the only mechanism able to ensure pricing in accordance with human nature. However, political economy cannot go against human nature, just as physics against the law of gravity. Walras believed that prices, when established that way, are true (in its strong sense of their connection to facts per se), though they do not reflect actual market operations, as it is not the theory that is flawed, but reality itself.

The matter of the adequacy of theory to facts is dealt with in diametrically opposed fashion to Walras and Pareto’s; but it cannot be reduced, as does the latter, to the dis­tinction between “normative” and “positive” economics, because Walras asserted that the ideal generated by science is “positive”; it is also even the only possible scientific result. Pareto understood the Walrasian stand, but could not accept it. On the part of the “most nominalist among Nominalists”, Walrasian essentialism is hopelessly meta­physical, whereas true scientific approach can only be inductive. The general economic equilibrium is one of these successive approximations any science resorts to, an imperfect picture of reality, which is always to be compared with experimental facts.

At the ontological level, the gap was even more radical. Pareto considered that, like any scientist, an economist need not even ask this question, while Walras devoted a number of writings to it. However, Pareto inevitably took a stand when defending the existence of a complex reality which science approaches “through theories that prove ever more consistent with it”. A portion of this reality is therefore the referent of the general economic equilibrium. On the contrary, Walras declared that what is at stake with the general economic equilibrium are essences that are only partially actualized in reality, but meant to completely unfold in historical time. Placed in their respective philo­sophical contexts, both general equilibrium theories are reminiscent of the “false friends” found when comparing two languages. Continuity within the Ecole de Lausanne thus lies in the transmission of the sole mathematical tool for the general economic equilibrium, taken from political and social economics in the case of Walras, while being insulated from non-logical actions in Pareto’s. On the contrary, there is no continuity in the referent of proposals constructed from this tool: Pareto focused on the real world while Walras aimed for the ideal world of unrealized essences. In other words, although both authors use a common formal device, their respective contents prove different.