General EquiliSbrium Theory

Leon Walras was descended from a Dutch journeyman tailor who migrated to the south of France in 1749. His father was a classmate of Antoine Augustin Cournot in Paris and, like Cournot, was a school administrator. He designed a general system of analytical principles for economic theory. Walras tackled the complex problem of the interdependence of all sectors of the economy and represented this complexity in a system of simultaneous equations.

The young Walras learned from Cournot the meaning of functional relations between variables. However, concerns about the limits of Cournot's demand curve for a single good led Walras to seek a wider framework within which to express the demand for a good as a function not only of its own price, but of a host of prices of related goods. This was the point of departure for his general equilibrium model of an economy.

Most economic writers before Walras followed the lead of Alfred Marshall and employed a convention in dealing with particular markets called partial equilibrium analysis. This convention calls for ignoring some determinants of demand and supply in order to concentrate on the more direct causes of equilibrium price and quantity. Walras departed from this practice by recognizing the interdependencies that exist between markets because the process of price determination occurs in all markets simultaneously. To isolate one market for study without regard to the others was no more appropriate, in Walras's view, than studying the position of the earth in the solar system without regard to other planets. His architectonics, consequently, was an elaborate but highly abstract system of mathematical equations that painstakingly detailed the economic conditions for simultaneous equilibrium in every economic market.