Walras on “political and social economics” and method
While awarding Walras the title of “the greatest of all economists” for the general equilibrium theory, Joseph A. Schumpeter deplored the fact that the author gave so much importance to questions of social and applied economics (1954, 827-8).
He described Walras’s research on social justice, on the repurchase of land by the State, and on monetary management as “questionable philosophies”. Throughout the twentieth century, this line of interpretation was widely followed and helped to eclipse the fields of social and applied economics in the literature devoted to Walras. His work was long interpreted exclusively as the starting point of modern general equilibrium theory in the Arrow-Debreu mode. This has no longer been the case for some thirty years with the international renewal of Walrasian studies.In the years 1860-62, Leon Walras built his “political and social economy”, taking as a starting point his father’s distinction between political economy proper or the theory of social wealth, which was to have the status of a natural science, and the theory of property and the distribution of wealth, which was to have the status of a moral science based on natural law. However, as mentioned above, Walras’s “political and social economy” actually comprises three interconnected fields: pure, applied and social economics.
“Pure economics” or the “theory of social wealth” is defined as “in essence, the theory of the determination of prices under a hypothetical regime of perfectly free competition” (1900, Preface to the 4th edition, 11; 1954, 40). Walras asserted that the general fact of exchange value is “natural”, from the point of view of its origins and manifestations. It does not result from the will of the traders but is imposed on them in the market, where “free competition” reigns, just as the law of gravity reigns. This does not mean, however, that men are deprived of any influence on this natural fact.
In pure economics, as in pure mechanics, one must disregard all “frictions”. Walras’s intention was to establish pure economics as an exact science that would join mechanics and astronomy within the “physico-mathematical sciences” whose criterion is “pure truth”. In the Elements, he places it with rational mechanics and astronomy. Indeed, he refers to classical mechanics, represented especially by Isaac Newton’s Mathematical Principles of Natural Philosophy (1687), Joseph- Louis Lagrange’s Mecanique analytique (1788) and Pierre-Simon Laplace’s Meca- nique celeste (1799). In Walras’s view, the analogy, far from representing a mere metaphor, fulfils the function of delimiting the field of study and seeking scientific legitimacy. It is possible to speak of a theoretical analogy rather than a methodological one, with heuristic value.Applied economics is defined as the theory of the production of social wealth, or the organisation of industry in the division of labour. First, it must seek the means of “abundant” and “well-proportioned” production of social wealth. “Free competition” is the “general and superior rule of agricultural, industrial, commercial and financial production of social wealth” (Cours d'economiepolitique appliquee, 1996, 446 and 463). The criterion of applied economics is that of “interest”, of economic efficiency.
Social economics is defined as the theory of the distribution of social wealth among men in society through property and taxes. In order for the distribution of wealth to be “as equitable as possible”, the State must become the owner of all land, according to natural law. Its criterion is that of social justice.
To understand the epistemological status of pure economics in Walras, one must refer to the sources of his conception of science and of his scientific method. Here he was strongly inspired by Etienne Vacherot’s La metaphysique et la science, ou Principes de metaphysique positive (1858).[105] From his reading of this book, Walras developed a theory of knowledge as the basis of a theory of science in general. In the study “Socialisme et liberalisme.
Lettres a M. Ed. Scherer” (1866-67, 15; 2010, 8), he distinguished between the “world of facts and reality”, the subject and field of practice and politics, and the “world of ideas and the ideal”, the subject and field of theory and science. Moreover, in the fourth lesson of Recherche de l'ideal social (1867-68, 97-101), he explains the path leading from the first to the second world. Three degrees of knowledge corresponding to three intellectual faculties (imagination, understanding [entendement] and reason [raison]) are distinguished. Finally, for Walras, science brings together all the “notions and conceptions, of man’s judgments and reasonings made by the understanding and reasoning power” (1867-68, 105; 2010, 80). If reality (the relative) is imperfect, the ideal (the absolute) is “necessarily perfect”. Science must therefore be conceived as the “idealization of reality” and “art” (understood here as the practice of art) is the “achievement of the ideal” (1866-67, 15; 2010, 8).In the Elements, Walras states that:
the mathematical method is not an experimental method; it is the rational method.... the physico-mathematical sciences, like the mathematical sciences properly speaking, do go beyond experience as soon as they have borrowed their type concepts from it. They abstract from these real types ideal types that they define, and on the basis of these definitions they construct a priori the whole framework of their theorems and proofs. They re-enter after into experience not to confirm but to apply their conclusions.... Reality does not confirm these definitions and proofs; it permits only a fruitful application of them.
(1874, 3rd lesson, 53; 2014, 27-8)
So the construction of pure theory does not require empirical verification. On his copy of Cournot’s Principes de la theorie des richesses (1863, 17), Walras noted: “pure economics does not wait for confirmation from experience [l’Economie politique pure n’attend pas des confirmations de l’experience]”.
The return to imperfect reality concerns only the application of the theory. Taking into account this method, the theory is an ideal, not what is usually understood by a hypothetical construction: rather it is a true blueprint [epure vraie], both mental and ideal. In Walras, as in Vacherot, the blueprint makes the world intelligible, just as geometrical figures make reality “geometrical” up to a certain point, and in this perspective, things are the “images of ideas”. But for all that, the Elements d'economie politique pure do not correspond to a fiction, to a realistic Utopia (Jaffe 1980, 345), because the “pure economic truth” is supposed to be constructed from concrete reality. There is, in fact, a “realism” at this level. Moreover, the Elements do not contain any “normative bias”, either in terms of interest or in terms of justice.[106] A “normative bias” in terms of interest does not exist because the book does not aim to demonstrate the superiority of absolutely free competition in terms of economic efficiency, nor does it advocate its widespread implementation in practice. Indeed, it is in the field of applied economics that the areas in which the principle of free competition can be put into practice and the areas of exception are identified. A “normative bias” in terms ofjus- tice does not exist in the Elements either. However, pure economic truth coincides with commutative justice in the exchange (fair equilibrium price), and is otherwise neutral with respect to commutative justice in relation to “equal social conditions”.3.