Money, Banks and Finance in Economic Thought

Capital, competition and equilibrium. Value and Capital and the foundations of the Neowalrasian approach

Trabucchi Paolo, Roma Tre University
Dvoskin Ariel, CONICET-Universidad Nacional de San Martín

By abandoning the condition of a uniform rate of profit, the Neowalrasian approach has introduced a major fracture in the history of economic thought. And yet this approach was originally presented in the 1930s, and has since been generally perceived, as a simple ‘extension in a dynamic direction’ (Hicks, 1934) of the traditional theory. It appears therefore that a necessary preliminary step in order to take a position on today’s dominant economic theory is to go back to the origins of the Neowalrasian approach and, in particular, to Hicks’ Value and Capital (1939). What we find by so doing is (a) that, contrary to what Hicks himself has claimed, the Neowalrasian theory does not appear to be based on an intended relationship between theoretical variables and observable magnitudes that is significantly different from the one that can be found in traditional economic theory; and (b) that, owing to its treatment of capital, in order to establish that relationship the Neowalrasian theory has to introduce as necessary (albeit not sufficient) conditions assumptions on the functioning of the market which the theory itself feels should only be introduced as expository devices. For this exchange between necessary conditions and expository devices, by itself a considerable obstacle in the way of a clear perception of the nature of the theory, we find evidence starting from the Neowalrasian literature immediately subsequent to Hicks up to the textbook (Mas Colell, Whinston and Green, 1995) that in the last twenty years has been the almost indispensable starting point for advanced studies in economic theory.

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Keywords: Hicksian Week; Equilibrium; Neowalrasian theory; Value and Capital

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