A Reflection on Postwar Neoclassical Economics: The Shift from General Equilibrium Theory to the New Microeconomic Theories

The theoretical focus of neoclassical economics experienced a significant change in the 1970s–1980s. General equilibrium theory lost its dominant position in theoretical economic studies, with its role of setting the research agenda taken over by what this article calls the “new microeconomic theories,” principally decision theory, game theory, and mechanism design. Mainstream economists, post-Keynesians, and historians of economic thought each give a different explanation of the hows and whys of that change, but all miss some critical methodological implications. That change, as this article discusses, shows that neoclassical economics has turned from “grand theory” toward “small models” with empirically delimited utility and that the ideology of marketism lacks a valid scientific foundation. This interpretation can help illuminate the deeper dynamics of the postwar development of neoclassical economics and provide insights for a new political economy that can come to grips with political-economic practices that cannot be fully grasped by the neoclassical tradition.

Econophysics and the Entropic Foundations of Economics

This paper examines relations between econophysics and the law of entropy as foundations of economic phenomena. Ontological entropy, where actual thermodynamic processes are involved in the flow of energy from the Sun through the biosphere and economy, is distinguished from metaphorical entropy, where similar mathematics used for modeling entropy is employed to model economic phenomena. Areas considered include general equilibrium theory, growth theory, business cycles, ecological economics, urban–regional economics, income and wealth distribution, and financial market dynamics. The power-law distributions studied by econophysicists can reflect anti-entropic forces is emphasized to show how entropic and anti-entropic forces can interact to drive economic dynamics, such as in the interaction between business cycles, financial markets, and income distributions.

Entrepreneurship and Equilibrium

Neoclassic economic theory regards equilibrium, whether general or partial, as a crucially important foundation of the dismal science[1]. In the view of mainstream economists, the general equilibrium framework not only an investigation of the economy in terms of its perfect qualities, but also is suitable as an end or goal of action. The Austrian school, in contrast, sees equilibrium (or the evenly rotating economy - ERE) merely as a tendency for economic activities to move us in that direction, but it is never attained. Praxeological economics has thus concentrated not on equilibrium, but on the process by which the market moves toward it. Since the process of shifting resources to meet these ends cannot be achieved spontaneously, entrepreneurship plays a key role. In Mises and Rothbard’s view, entrepreneurship involves uncertainty bearing which beyond the alertness emphasized by Hayek and Kirzner; on the other hand, unlike Lachmann looks the economy as a kaleidoscope and rejects the ERE, Mises and Rothbard regard the ERE as an indispensable way to understand the economy. [1] As Frank H. Hahn said “Whatever economics is used or thought about, equilibrium is a central organizing concept.” (Hahn 1984: 43). Many economists and philosophers of science consider mathematical neoclassical general equilibrium theory as one of the peak achievements of economics (Rosenberg, 1992). Tieben (2012) stated that policy-makers and theorists of all schools of economics all use some form of equilibrium theory to develop their ideas and support their main theoretical and political claims. Lawson (2005) indicated that the equilibrium concept is a major cause of controversy between different schools of economic thought. A.W. Bob Coats even deems it the case that “economics has been dominated throughout its history by a single paradigm – the theory of economic equilibrium via the market mechanism.” (Coats 1969: 292).

Have China's exports improved the export technology level of the other BRICS countries? An empirical analysis based on data from SITC

PurposeThe purpose of this paper is to analyze whether China's exports can effectively improve the global competitiveness of other BRICS countries' exports from the perspective of intra-BRICS export trade.Design/methodology/approachThis paper extends the multinational trade model and analyzes the mechanism of the technological upgrading effect from the perspective of dynamic general equilibrium theory. In addition, this paper uses the export panel data of 217 products with three-digit SITC codes from China to other BRICS member countries from 2000 to 2016 and constructs a dynamic empirical model for parameter estimation.FindingsThe results show that China's exports to other BRICS member countries can effectively promote the technological improvement of other BRICS member countries' export products. In particular, the formal establishment of the BRICS organization in 2010 has significantly improved the efficiency of China's export technology optimization.Originality/valueIn the background of the prevalence of anti-globalization and the proliferation of protectionism, this paper proves that the deepening of trade cooperation between other BRICS members with China can help optimize their own international trade competitiveness and allow China's development dividend to benefit more countries and people.

Directed Search and Competitive Search Equilibrium: A Guided Tour

This essay surveys the literature on directed search and competitive search equilibrium, covering theory and a variety of applications. These models share features with traditional search theory, but also differ in important ways. They share features with general equilibrium theory, but with explicit frictions. Equilibria are often efficient, mainly because markets price goods plus the time required to get them. The approach is tractable and arguably realistic. Results are presented for finite and continuum economies. Private information and sorting with heterogeneity are analyzed. While emphasizing issues and applications, we also provide several hard-to-find technical results. (JEL D50, D83)

Elucidating the intellectual origin of Walras's General Equilibrium Theory

Léon Walras was a French economist who pioneered the development of general equilibrium theory in a mathematical form. Walras' work has inspired economic theory over the last century but, as with any historical publication, the understanding of it is not without its challenges. Professor Kayoko Misaki, based within the Faculty of Economics at Shiga University in Japan, is working to elucidate the intellectual origin of Walras's general equilibrium theory by using the original texts within which he conceived his ideas.

A Child of the Interwar Period

Robert Triffin was born in 1911 in Flobecq, Belgium. It was a turbulent period. At the age of 24, the young Triffin had already lived through World War I, monetary and financial turmoil after the war, the Great Depression, the 1935 Belgian franc devaluation, and the rise of fascism. In this chapter, the early period of Triffin’s life is discussed. It focuses on his undergraduate studies at Louvain University, his doctoral studies at Harvard, and his early academic career. During these years, like many people of his generation, Triffin became a profound pacifist. Moreover, as an economist, he became convinced that the market economy was fundamentally unstable. Special attention is paid to his two major publications during these years: an article on the 1935 devaluation of the Belgian franc (Triffin made the calculations) and his PhD on monopolistic competition and general equilibrium theory.