Bortkiewicz and Walras
The relationship between Bortkiewicz and Leon Walras was largely unknown until William Jaffe’s edition of the correspondence of Walras (1965). It turned out that Bortkiewicz had written to Walras when he was barely 20 years of age and that the latter had found it rewarding to exchange altogether 56 letters with him, 31 of them written by Walras, in the period between 1887 and 1899.
As a reflection of their discussions and in an attempt to defend Walras against some criticisms put forward by Francis Y. Edgeworth, Bortkiewicz published a review article of the second edition of the Elements (Bortkiewicz 1890). Later followed a short review of Etudes d’economie sociale (Bortkiewicz 1898b). For summary accounts of the debate amongst the three authors, see Marchionatti (2007) and Bridel (2008). The main themes discussed in the “triangular debate” were essentially the following: (1) capital theory and especially the role of production costs in the determination of the prices of new capital goods; (2) the theory of exchange and the concept of competition; and (3) the concept of tatonnement. Walras apparently tried to manipulate the young Russian on his behalf in his controversy with Edgeworth, but Bortkiewicz was far too clever to get tricked by the old man.Bortkiewicz questioned the validity of Walras’s proof of the “theorem of maximum utility of newly produced capital goods proper”, with regard to which Walras contended that the costs of production of the goods played no role. As later discussions demonstrated, Bortkiewicz was right in this regard, but he could not convince Walras.
In his review of the second edition of the Elements, Edgeworth (1889: 435) maintained that Walras went “too far in the way of abstraction when he insists that the ideal entrepreneur should be regarded as ‘making neither gain nor loss’” (original emphasis).
This was in fact a criticism of too narrow a concept of competition Walras was said to have entertained. Bortkiewicz rushed to Walras’s defence by arguing that only the ideal entrepreneur is compatible with Walras’s concept of general equilibrium. Soon afterwards, however, he appears to have got doubts and was willing to admit that there is a difference between competition in industry and in commerce.Edgeworth had also objected to Walras’s construction that “the equations of exchange are of a statical, not a dynamical, character. They define a position of equilibrium, but they afford no information as to the path by which that point is reached” (Edgeworth 1889: 435). Walras, who had prided himself with having elaborated a general analysis of the gravitation to equilibrium, was mistaken. Bortkiewicz in his reply to Edgeworth, which was endorsed by Walras, defended the concept of a “realistic” process of tatonne- ment, but admitted that there might be several methods of arriving at the equations and that Walras’s assumption that there is no trade out of equilibrium might be replaced by one that reflects the actual “practices in markets”. The real problem under discussion was, of course, whether the equilibrium, if it existed, was stable or not. This was crucial, because if it happened to be unstable, what was the use of equilibrium theory?
Later in his economic writings, Bortkiewicz variously referred to Walras’s general equilibrium theory and in one of his latest papers even suggested to incorporate the classical cost of production equations into a Walrasian system (see Bortkiewicz 1921). In this way he sought to integrate the objectivism of the classical authors and Marx, on the one hand, and the subjectivism of the marginalists, on the other, in a single theory. It can however be shown that Walras, up until the fourth edition of the Elements, was (erroneously) of the opinion that his system reflected a long-period equilibrium, characterized by a uniform rate of net profits, and that the proposed equations satisfied the “law of cost of production” (see Kurz and Salvadori 1995: 24-5, 439-41).