The Intrinsic Limits of Modern Economic Theory: The Emperor has No Clothes

Abstract

Assumptions of the uniqueness and stability of general equilibrium in a Walrasian framework have no theoretical justification. This paper argues that the key reason for this is that the Walrasian model treats people as acting independently of one another, especially in their demand behavior. This independence plays an essential role in constructing economies with arbitrary excess demand functions. Thus, making individual behavior dependent or similar may open the way to obtaining meaningful restrictions on aggregate excess demand functions. Copyright 1989 by Royal Economic Society.