Leon Walras and General Equilibrium Theory

 

                Leon Walras (1834 – 1910)

 

Leon Walras was a French economist who played a pivotal role in the development of general equilibrium theory in economics.

Born: 16 th December 1834, Évreux, France

Died: 5th January 1910. Montreux, Switzerland

Parents- Augustus Walras, Louis Aline de Sainte

Nationality: French

School : Lausanne school Marginalism

Walras’s father, the French economist Auguste Walras, encouraged his son to pursue economics with particular emphasis on mathematics. Separately but almost simultaneously with William Stanley Jevons and Carl Menger, Leon Walras developed the idea of marginal utility and is thus considered one of the founders of the “marginal revolution.” But Walras’s biggest contribution was in what is now called general equilibrium theory.

 General equilibrium theory is a fundamental concept in economics that seeks to explain how prices and quantities are determined in a market economy when all markets are considered simultaneously. When we consider about the Leon Walras contribution to general equilibrium theory it include,

·     Walras introduced the concept of a hypothetical auctioneer who adjusts prices until equilibrium is reached in all markets. This idea laid the foundation for understanding how supply and demand interact to determine market prices.

In a Walrasian equilibrium, the quantity supplied in every market matches the quantity demanded at a set of prices. This state represents a balance where no individual or group of agents can gain by altering their behavior, given the existing prices.

Walras used mathematical equations to represent the interactions between consumers and producers in multiple markets. His work was highly mathematical and laid the groundwork for future developments in mathematical economics.

He emphasized the idea of markets "clearing" or reaching a state where there are no excess supplies or demands. This is a key aspect of general equilibrium theory.

   Walrasian equilibrium is often associated with perfect competition, where no single firm or consumer has the power to influence prices. This concept has been influential in microeconomic theory.

But Walras was aware that the mere fact that such a system of equations could be solved mathematically for an equilibrium did not mean that in the real world, it would ever reach that equilibrium so he simulated an artificial market process that would get the system to equilibrium, a process he called “tâtonnement” (French for “groping”). It was a trial-and-error process in which a price was called out and people in the market said how much they were willing to demand or supply at that price. If there was an excess of supply over demand, then the price would be lowered so that less would be supplied and more would be demanded. Thus the prices “grope” toward equilibrium. To keep constant the equilibrium toward which prices were groping, Walras assumed—highly unrealistically—that no actual exchanges were made until equilibrium was reached.

 Overall, Leon Walras's contributions to general equilibrium theory significantly shaped modern economic thought and provided a framework for understanding how markets coordinate the allocation of resources in an economy.

 

Written by – Kumeshi Sasanthika

 

References

        https://www.econlib.org/library/Enc/bios/Walras.html#:~:text=POST%3A,now%20called%20general%20equilibrium%20theory.

 ttps://en.m.wikipedia.org/wiki/L%C3%A9on_Walras