Handbook on the History of Economic Analysis

pages 281 to 294

Lausanne School

In the current sense of the term and strictly speaking, the name École de Lausanne (Lausanne School), which dates back to the early twentieth century, refers to three econ- omists’ contributions to (pure) economics: Léon Walras, who was the founder of it and held the first chair in economics at the University of Lausanne, his successor Vilfredo Pareto and, incidentally, Pasquale Boninsegni.

In the last quarter of the nineteenth century, economists who wanted to get together a group of authors anxious to widely use mathematics in economic reasoning dubbed themselves the École mathématique (Mathematical School). A number of economists used to be called that way, namely, Antoine-Augustin Cournot, William Stanley Jevons and Irving Fisher. The name École de Lausanne first occurred in French in the subtitle to the Petit traité d’économie politique mathématique (Small Treatise on Mathematical Political Economy), written by a mathematician – Hermann Laurent – in 1902, which presented a simplified version of the general economic equilibrium. The first occurrence in English might be said to date back to 1909: Edgeworth’s announcement in the Economic Journal of the ceremony in honor of Léon Walras, his “fifty-year Jubilee”. The École de Lausanne is thus characterized by its innovative and systematic use of mathematical language in the study of economic phenomena and its consideration of the interdependencies between markets, through its formulation of the general economic equilibrium. It had first bite at the mathematical determina- tion of equilibrium prices, that is, prices that provide equality between supply and demand simultaneously in a competitive economy composed of a large number of markets.

The influence of the École de Lausanne on twentieth-century economics is much more important than the strict development of the neo-Walrasian general equilibrium theory. It is essential in the formation of econometrics and, more broadly, has been regarded as a key paradigm since the second half of the twentieth century.

 

The Chair of Political Economy in Lausanne

 

In accordance with the new 1861 Constitution, the Canton of Vaud Parliament voted in 1869 to reform the Academy of Lausanne, and gave it the legal standing necessary to its development. Eighteen chairs were established, including in political economy, located in the Law Faculty – also a common practice in French universities. The Cantonal Minister of Education and architect of the reform, the radical Louis Ruchonnet, offered the position to Marie-Esprit-Léon Walras, at that time an employee keeping the books in a Paris bank. He had met him in Lausanne in 1860, at the Congrès international de l’impôt (International Congress on taxation), and had since kept in touch. Unlike the majority of participants to the congress who agreed on levying a single tax on income and capital, Ruchonnet had enjoyed the clear and precise communication delivered by a very young Walras, condemning the principle of proportional taxation and advocating collective land-ownership.

Owing to the Franco-Prussian war, the organization of test lessons proved impos- sible and the appointment of the first professor at the chair of political economy in Lausanne was made on the sole basis of his research work. Walras was unable to boast any academic title but he had a very clear scientific project, which was sup- ported by Ruchonnet, and he was appointed as an extraordinary professor on 12 November 1870, by four votes to three. The following year, he was promoted to full professorship and on 20 October 1871 he was officially installed in the chair of politi- cal economy by Louis Ruchonnet himself. That is how the École de Lausanne got started.

 

The founder: Léon Walras

Upon his installation, Walras asked for his position’s brief to be amended so as to make it consistent with the scientific project he had developed in the early 1860s and pursued all his life: “discovering the natural laws of value and of wealth, together with the moral laws governing the fairest distribution within the most abundant production” (Walras 1863: 159). The faculty accepted, but the structure and content of his teaching did not stabilize until the fall of 1875. Throughout his career, during the winter term, Walras delivered a four-hour weekly course in pure economics, and in the summer semester he would teach a five-hour class in applied economics and social economics, alternating them every other year.

Upon his arrival in Lausanne, besides preparing his teachings (whose trace is to be found in his Cours, Walras worked hard on the first volume of his triptych, the Éléments d’économie politique pure (Elements of Pure Economics), whose first issue consisted of three sections released in 1874. The second instalment of the Éléments was released in 1877 and contributed two extra chapters to the construction of the general economic equilibrium: next to the exchange of several commodities for one another and the circu- lation of money, Walras added the equations of production and those of capitalization. However, Walras was not satisfied with the resulting architecture and unconvinced by his own theory of money. Indeed, issues related to circulation and credit figure promi- nently in his subsequent research in pure economics, and beyond. Since the Éléments were completed, Walras focused his work on applied economics (where the problems of money and credit remain central) and social economics, with his studies on the “Réalisation de l’idéal social” (Realization of the Social Ideal) via land repurchase by the state and the abolition of taxation.

In 1889, the second edition of Éléments was released, where the general economic equilibrium was presented in a logic of increasing complexity (an exchange economy with two goods and later several ones, an economy with production, an economy with capitalization and credit, and an economy with money) and whose last volume presents a section related to “considerations on the consequences of economic progress”. This structure, whose justification regarding the general economic equilibrium was educa- tional, was never modified. Not surprisingly, in terms of content, the most important contribution of this second edition is the theory of money, revised and expanded through the addition of two chapters on bimetallism.

In 1890, the Academy eventually became the University of Lausanne. Two years later, Walras requested early retirement for health reasons and his succession was therefore open. He first proposed the chair to Ladislaus von Bortkiewicz, who turned it down as he hoped to succeed Professor Yuly Edwardovich Yanson in Saint Petersburg. Following this refusal, Walras turned to Vilfredo Pareto, whom he had met the year before through Maffeo Pantaleoni.

 

The reference scientist: Vilfredo Pareto

The Italian engineer (but a French native speaker), accepted willingly and in 1893 promptly delivered courses as an extraordinary professor, before he was appointed full professor the following year. His teachings were immediately greeted with great success and his research contributed decisively to the school’s reputation.

A brilliant teacher, Pareto made the difference from his so illustrious predecessor, because the latter was a poor teacher. From his earliest lessons, Pareto, while paying homage to the Master, took a personal approach whose inspiration was to look more to Hermann Heinrich Gossen and the English economists. Admittedly, by appropriat- ing the concept of ‘rareté’ and dubbing the “Walras equation”, Pareto demonstrated his desire for some continuity, but probably more for diplomatic than scientific reasons.

Pareto’s analytical inputs to the Walrasian general equilibrium were many: a new concept of utility and of production, the notions of optimum and the modernization of mathematics. Regarding the latter, Pareto provided, throughout his contribu- tions (marked mainly by the Cours and completed by the Manuel), a mathematicized version of the general equilibrium, which established itself as the standard for modern microeconomics. Pareto also renewed the concept of utility – which he preferred to call “ophelimity” – and rid the construction of the general equilibrium of the difficulties linked to its measurability. With his exclusive use of an ordinal ranking of different com- binations of goods, modern microeconomics was born. In his production theory, Pareto reactivated the research programme on variable coefficients but in a framework of a non-circular production process (though this may not be called real progress). Finally, Pareto developed a key concept in the history of welfare theories. Based (loosely) on Walras’s theorem of maximum satisfaction, Pareto developed his optimum concept, and what is now appropriately called – in the wake of Kenneth J. Arrow and Gérard Debreu – the first fundamental theorem of welfare economics: any general equilibrium is an optimum situation where increasing ophelimity in favour of some can only be achieved at the expense of the others’ ophelimity.

For his part, Walras intended, though he had retired, to issue new publications and even the systematic treatise on political and social economy he had planned at the begin- ning of his career – the famous “triptych”. However, owing to his poor health, Walras eventually had to abandon this project, deemed beyond his strength, but he did not give up on his deep conviction of the need to complement pure economics by applied and social economics. That is why, instead of the triptych, he published, along with the third edition of the Éléments (1896), two collections of articles: Études d’économie sociale (Studies in Social Economics, 1896) and Études d’économie politique appliquée (Studies in Applied Economics, 1898), each containing a major original text: respectively, the “Theory of property” and “An outline of an economic and social doctrine”.

Meanwhile, Pareto published his Cours d’économie politique professé à l’Université de Lausanne (Political Economy Course Delivered at the University of Lausanne, 1896–97), and, on resuming the teachings in applied economics and social economics when he had to meet the faculty’s new educational requirement, he replaced them with a course entitled “Socialist Systems” and another, “Principles of Sociology”. Moreover, Pareto also rejected Walras’s social economics because, he claimed, it is “metaphysical”, which was completely incompatible with his own logico-experimental method. Not that Pareto was uninterested in applied or social considerations, but he did it differently. No doubt inspired by his experience – Pareto had long managed a forge in Italy, where he was able to actually experiment the variation in production coefficients and the effects of policies hostile to free trade – Pareto anchored his understanding of human actions in empirical facts. He therefore deemed that the theory of general equilibrium could only provide a first, rough, approximation of this understanding. In attempting to systematize this position, including for his sociology course, Pareto developed his distinction between logical and non-logical actions, a foundational one for his great second approximation. He built up his own sociological terminology, consisting of “residues” (passions, the soul of society) and “derivations” (names people give to vindicate their actions after the fact, a “varnish of logic”). On these grounds, he developed his analysis of income distribution and his theory of the circulation of elites. Pareto had some bearing on sociology at that time, but the discipline had already picked out other figureheads such as Max Weber and Emile Durkheim.

When Pareto came into some inherited money, he considered, as early as in 1898, giving up teaching to dedicate himself to research, and, after much dithering and long negotiations with the university, he obtained permission in 1900 to henceforth give only one weekly one-hour lesson. Vittorio Racca, his assistant since 1898, was appointed as “substitute” teacher. The same year, Walras published the fourth edition of Éléments, which includes a major innovation, “tâtonnement sur bons” (tâtonnement on written pledges).

Pareto did not completely retire from academic policy and played an important role in the promulgation of the 12 February 1902 Law, which established the diplomas of Bachelor of Science and Doctorate in social sciences awarded by the Faculty of Law but managed by a new institution: the École des sciences sociales et politiques (School of Social and Political Sciences), which was then established.

 

Twilight: Pasquale Boninsegni

In November 1903, after a rather unclear incident, Pareto requested that his new protégé, Pasquale Boninsegni, should replace Racca, which the faculty accepted. Four years later, Boninsegni was appointed as an extraordinary professor, but he had to wait almost 20 years, until 1926, to eventually access the full professorship. Boninsegni’s scientific con- tribution to the École de Lausanne is not very original: he published three articles in the Giornale degli Economisti before his appointment, and a dozen in journals deemed less prestigious thereafter. Indeed, Boninsegni’s academic activity focused on teaching and on the dissemination of Pareto’s economic theory. In his eyes, Pareto can be credited with abandoning metaphysical research into value and its causes, to focus solely on facts, that is, how men act to procure the goods they want. Boninsegni advocated the impor- tance of mathematization and the study of concrete social phenomena, but disagreed on Pareto’s (liberal) involvement; but it did not prevent him – while President of the School of Social and Political Sciences and holder of the political economy and sociology chair – from overtly affirming his commitment to Mussolini’s fascist stands. It is also at his instigation and through dubious manoeuvring that, in 1937, the university granted an honorary doctorate to Benito Mussolini.

Finally, from the perspective of a rational reconstruction of economic analysis, Pareto’s work, Manuale di economia politica con una introduzione alla scienza sociale (Manual of Political Economy with an Introduction to Social Science, 1906), is the École

de Lausanne’s last major contribution to modern economic theory, while marking Pareto’s transfer to sociology with the Trattato di sociologia generale (1916).

 

The “Nouvelle École de Lausanne”: Firmin Oulès

In 1939, on Boninsegni’s retirement, two successors were appointed: for teaching eco- nomics and statistics, the Law Faculty gave preference to the French Firmin Oulès over Stanislao Scalfati, an Italian; and for teaching general sociology, the School of Social and Political Sciences chose Jean Piaget, who had already been teaching general psychology there for three years. First as an Extraordinary Professor, Piaget accessed full professorship in 1945, but left Lausanne in the early 1950s and, while keeping the chair he held in Geneva, delivered lessons in genetic psychology at the Sorbonne until 1963. In 1947, Firmin Oulès was appointed full professor of political and financial economics, as well as of history of economic thought, and remained in Lausanne until his retirement in 1974. After Boninsegni’s long parenthesis, Oulès sought to revive economic research in Lausanne, with the works of Walras and Pareto as springboards for further findings. On the one hand, he drastically criticized the use of mathematical language and logic, which he called “L. Walras and Pareto’s evil genius”; on the other, he developed the concepts of interdependence and general economic equilibrium, which he saw as the École de Lausanne’s essential and specific features. Above all, the Nouvelle École de Lausanne (New Lausanne School) highlighted the Walrasian idea of enlightening economic policy with scientific theory. Walras was then understood as “the founder of scientific economic policy” and the New School became firmly com- mitted to economic topical issues. Yet, it was still rather confidential and it died out after Oulès retired.

However, the Chair of Political Economy in the Faculty of Law lived on, occupied since 1967 by François Schaller, who used to teach political economy and the history of economic doctrines. In 1986, Pascal Bridel succeeded him and became the latest holder of the famous chair, because the new 2004 University Act profoundly changed its organi- zation and removed all chairs.

 

Well Beyond Lausanne

 

Despite the twilight of the École de Lausanne after Pareto, direct heirs do exist and the general equilibrium exercised considerable influence on developments in economic theory in the twentieth century, well beyond Lausanne. This undeniable influence, though modest at the beginning, is the visible tip of the École de Lausanne. Although we are unable to account for it here, it should not obscure the fascination that the concept of equilibrium has exerted in subtle ways on many disciplines.

 

Heirs

A few individuals have enjoyed close proximity with the École de Lausanne founders, which make them their direct heirs.

Take Léon Winiarski, for example, a Polish sociologist and disgruntled Marxist, who was fascinated by the application of the mathematical method in political economy, and especially by the general economic equilibrium. He defended a doctoral thesis on Russian finance at the University of Lausanne (1894), with Pareto as Examiner. As he shared much of the Walrasian social ideal, Winiarski attempted to disseminate the new theory, through his teaching activity at the University of Geneva, his multilingual publicist undertaking, and especially via his social mechanics (Winiarski 1967), which is a vast, unfinished attempt to extend the general economic equilibrium to a general equilibrium applied to all fields of social life.

The Russian statistician and economist of Polish descent Ladislaus Bortkiewicz could be counted in the 1890s as one of the direct heirs of this École de Lausanne, to such an extent that, as noted earlier, Walras thought he could make him his succes- sor. However, his involvement in the construction of the general equilibrium boiled down to technical problems, which Bortkiewicz seemed to be more interested in than in the analysis of the general framework. What he would later remember about it was primarily the mathematical notion of interdependence of economic variables, which he used in other contexts without keeping the framework of the general equi- librium. Finally, Bortkiewicz’s most lasting contribution to the École de Lausanne’s legacy may well be his role as a knowledge broker – in Berlin, where he had settled – between Lausanne and Russia, where a whole school of mathematical economists (Vladimir Karpovich Dmitriev, Evgeny Evgenievich Slutsky, Nikolay Nikolaevich Shaposhnikov and Leonid Naumovich Yurovsky) was influenced by the Walras and Pareto theories, from the early twentieth century until the mid-1920s, while partici- pating early on in a neo-Ricardian revival. Soviet mathematician economists (Leonid Vital’evich Kantorovich, Vasily Serge’evich Nemchinov and Viktor Valentinovich Novozhilov) became their heirs, but reference to the École de Lausanne was lost in the mean time.

Two of Vilfredo Pareto’s doctoral students worked on the theory of general equi- librium. Pierre Boven, one of the master’s faithful disciples, wrote an early history of the intellectual heritage of the École de Lausanne, in his thesis entitled “Les applica- tions mathématiques à l’économie politique” (“Mathematical applications to political economy”, 1912). Boven authored the French translation of Pareto’s Trattato di sociolo- gia generale (1917–19, translated as The Mind and Society), and also Roberto Murray’s (1920) volume, and later became Attorney General of the Canton of Vaud, and although he was repeatedly approached to deliver courses in sociology, Pareto’s sole local student departed from his master’s original concerns. Much less faithful to the master, Basile Samsonoff developed the theory of rent in the spirit of the École de Lausanne, that is, as the difference between two successive general equilibriums. Little attention was paid to his thesis, “Esquisse d’une théorie générale de la rente” (“An outline of a general theory of rent”, 1912). Samsonoff joined the Russian mathematician economists, but his family’s staunch military tradition decided otherwise for him: he died on the battlefield during the First World War. Even if Marie Kolabinska’s sociology thesis on La circula- tion des élites en France (The Circulation of Elites in France, 1912) is included, Pareto was not the source of intense emulation in Lausanne.

 

The legacy

It is essentially outside Lausanne, by way of letters, that Walras as well as Pareto main- tained or even gave rise to, in the case of the founder, a network of correspondents inter- ested in their works. However, the dissemination of the École de Lausanne’s theories was achieved in different Italy was the country offering the most open and benevolent reception to writings by Walras. There developed a network of correspondents interested in his work. Pareto can be included, although his interest in Walras was neither immediate – despite his friends’ insistence – nor disinterested. Maffeo Pantaleoni, Enrico Barone and Gustavo Del Vecchio were authors who interacted constructively with the École de Lausanne, while others, such as Umberto Ricci, Enrico Leone, Luigi Amoroso, Guido Sensini and Stanislao Scalfati, often simply disseminated Pareto’s work, without actually contribut- ing to the development of the general equilibrium theory. In Spain, several attempts to introduce the general equilibrium were made. Among them can be included Antonio Flores de Lemus’s, who learned about the Walrasian general equilibrium under Lexis and Bortkiewicz, and tried to accommodate it to the national context (Astigarraga and Zabalza 2008). In Portugal, António Horta Osório wrote a handbook entitled A Mathematica na economia pura (1911) based on the École de Lausanne, which was translated into French.

In France, the mathematization of political economy raised a problem: Walras was ostracized and the dissemination of the École de Lausanne in the early twentieth century was rather subdued. Some books in French about mathematical political economy were nonetheless released before the Great War: by Emile Bouvier (1901), Hermann Laurent (1902), António Horta Osório (1913), Wladimir Zawadzki (1914) and Jacques Moret in 1915. However, it is mainly through engineering schools that the general equilibrium theory ultimately prevailed subsequently, whereas the university (that is, law schools) remained indifferent – when not averse to it. Take Albert Aupetit, for example, because he failed to be appointed either in 1901 or in 1903, he gave up an academic career; and Étienne Antonelli had to wait until 1919 to get tenure. François Bompaire’s (1931) book enjoyed very limited response and the lessons delivered by Gaëtan Pirou to the École pra- tique des hautes études in 1932–34 (Pirou 1946) long remained the only references to the École de Lausanne. Despite Georges-Henri Bousquet’s efforts (he was part of Pareto’s inner circle) to disseminate the master’s approach, the École de Lausanne has remained on the margins of French universities and developed only through a particular tradition of French engineering schools (Maurice Allais and François Divisia, among others).

In Japan, Tokuzo Fukuda, Kinnosuke Otsuka, Ichiro Nakayama, Takuma Yasui and especially Yasuma Takata mix general equilibrium and sociology, while Michio Morishima and Takashi Negishi’s combinations of general equilibrium and Marxism have proved very successful (Misaki 2006).

In Sweden, Knut Wicksell (1893, 1898) used the general equilibrium equations and the Walras tâtonnement, but his theoretical construction deviated from the latter when it came to thinking about the difference between real and monetary phenomena, where he mobilized Böhm-Bawerk and developed his own ideas. Gustav Cassel (1899), mean- while, achieved the feat of presenting different versions of the Walrasian general equilib- rium with much greater clarity than in the original – and in very few pages as well – but at the cost of great simplification. The general equilibrium as seen by Wicksell and Cassel left its mark through the School of Stockholm and its sequential analyses (Erik Lindahl, Gunnar Myrdal and Bertil Ohlin). However, more importantly, Wicksell and Cassel write in German, and this accounts for their predominant role in the dissemination of the general equilibrium (the same happened when their works were translated into English, but only later on).

 

The two Vienna schools: the Mathematisches Kolloquium and the Kreis

The École de Lausanne made its mark in Vienna in the 1920s and early 1930s. First, under the influence of Karl Menger’s Mathematisches Kolloquium, a number of questions originally formulated by Walras in terms of a “number of equations and unknowns” and “tâtonnements” were transformed, crystallized and prioritized around the equilibrium existence, uniqueness and stability. Participants to the Mathematisches Kolloquium, mostly mathematicians such as Karl Schlesinger, Abraham Wald, Frederik Zeuthen, Hans Neisser and John von Neumann, used an axiomatic approach, and their Hilbertian formalism was applied to the Walrasian general equilibrium, which they were acquainted with thanks to Gustav Cassel’s simplified version. The general eco- nomic equilibrium is thus seen as a system of interdependent economic variables where the issue of whether these variables account for the coordination of individual behav- iour through the price mechanism is very abstract and actually quite removed from the group’s concerns.

Yet, to follow the École de Lausanne via Vienna, it is necessary, besides this history, to focus on a second avenue with surprising ramifications. As brilliantly shown by Marchionatti (2009), another Viennese circle was interested in the general equilibrium: Moritz Schlick’s Kreis. Very different from the Mathematisches Kolloquium, the Kreis was essentially the birthplace of neo-positivism. In this circle, Pareto’s writings were known and read and his programme for epistemological revision of political economy had a direct echo in “The scientific conception of the world”, written in 1929 by Hans Hahn, Otto Neurath and Rudolf Carnap. A critical analysis of the foundations of political economy, the abandonment of all “metaphysical” residual elements, a similar verificationist paradigm – Pareto’s logico-experimental method indeed agrees well with the empirical-logical method – together with the project of a unified science, these are all points of contact between Pareto and the Kreis.

 

In the USA

Both the École de Lausanne’s Viennese legacies ran in parallel over the twentieth century, and sometimes intersected, particularly in the United States and at the Cowles Commission especially. The Kreis’s posterity expressed itself there in the early development of econometrics and its neo-positivist concerns, and the legacy of the Mathematisches Kolloquium gave rise to the neo-Walrasian programme with leanings towards Bourbaki (Debreu). In the beginning, the general equilibrium became a type of applied economics and was operationalized. Pareto’s work was called upon in the emer- gence of the movement for econometrics and in the development of the input–output approach as well as linear programming. The influence of the Kreis’s neo-positivist Vienna seems dominant in this case and, for that matter, the latter’s programme is explicitly associated with the rise of econometrics. Cowles Commission members (and affiliates), such as Tjalling Koopmans, Wassily Leontief, George Dantzig and Jacob Marschak, took part in the empirical vision of the general equilibrium, while departing from à la National Bureau of Economic Research (NBER) empiricism, as evidenced by the controversy over “measurement without theory”. However, because members of the Mathematische Kolloquium such as von Neumann and Wald, emigrated to the United States, the Cowles Commission became a meeting place between the two Viennese schools, fostering the development of the neo-Walrasian programme.

In 1954, Arrow and Debreu identified the conditions of existence of the general equi- librium. This demonstration, plus Lionel McKenzie’s in 1959, as well as the one on the uniqueness of the equilibrium, raised hopes that were soon qualified by doubts about its stability (Scarf 1960) and finally challenged by Hugo Sonnenschein’s (1972), Rolf Mantel’s (1974) and Debreu’s (1974) results. The general equilibrium as a research pro- gramme suffered a breakpoint then, which did not prevent it from keeping up its status of a preferred way to look at reality in a number of contemporary theories. Above all, the applied aspect of the general equilibrium outweighs axiomatic issues in computable general equilibrium models, whose numerical algorithms are rather indifferent to the equilibrium theoretical lack of stability.

Harvard is the other landmark of American participation in the legacy of the École de Lausanne’s general equilibrium. On one hand, within the Harvard Pareto circle, members had read the Treatise of general sociology and discussed the concept of general equilibrium from very different perspectives. On the other hand, Harvard hosted in the 1930s a number of European economists familiar with the general equilibrium, such as Joseph Schumpeter and Wassily Leontief. It was in this context that an occasional member of the Harvard Pareto circle, Paul Anthony Samuelson, wrote a doctoral thesis whose publication in 1947, entitled Foundations of Economic Analysis, became the canonical form of mathematical economics.

 

The LSE

Besides Vienna, another European source enriched the heritage of the École de Lausanne’s general equilibrium: the English response, localized at the London School of Economics and Political Science (LSE) against the domination of Cambridge, which stole the show over the École de Lausanne. Indeed, the general equilibrium was then mobilized against Alfred Marshall’s hegemony, regarding the partial equilibrium approach and Arthur Cecil Pigou’s as regards welfare economics. John Hicks, Roy Allen and Lionel Robbins’s works, and especially the publication of Value and Capital (Hicks 1939), made Pareto’s general equilibrium – together with his ordinalism – known to a wider English audience.

The socialist calculation debate, which conferred centre stage to the general equilib- rium theory, also had its operational core at the LSE in 1930 (Friedrich Hayek and Abba Lerner). The debate, launched by the Austrian Ludwig von Mises, called for socialist economists such as Oskar Lange and Boris Brutzkus to react, so as to know whether the general equilibrium was able to capture the essence of a decentralized economy. While this debate helped unearth the Italian Enrico Barone’s Paretian contribution, it is mainly the different perceptions of the general equilibrium by both Vienna schools that were then to be found mobilized, and transposed into a new conceptual framework. Let us suggest by the way that, though the controversy was won by Lange, it may well have had an influence on the concrete planning of Soviet economies.

 

Other histories

Beyond national traditions, the École de Lausanne’s theoretical contributions raised expectations, and became the subject of refinement and debates throughout the past century.

Thus, many economists have also considered the general equilibrium as the stable foundation of a future dynamics theory. Wicksell, Moore and Schumpeter also partici- pated in this effort to revitalize the general equilibrium theory.

In Pareto’s version, with its ordinal concept of utility and its optimum notion, the general equilibrium was mobilized in debates on welfare economics, until Arrow’s impossibility theorem (1951), while the abandoning of produced capital goods operated in the Manuel became, indirectly, the focus point of the debate on capital between the two Cambridges.

Finally, the issue of integrating money to the general equilibrium was raised upon the foundations provided by the Walras theories of money, with a genealogy leading up to Frank Horace Hahn’s conjecture, through Arthur W. Marget and Don Patinkin.

Ultimately, the École de Lausanne’s central legacy might well prove to be its general equilibrium, available in two great intersecting histories: a neo-Walrasian narrative that draws support from Mathematisches Kolloquium; and a Paretian background, drawing from the Kreis. However, the École de Lausanne, but also the general economic equilib- rium, were initially much more than issues focusing on economic variables interdepend- encies and on the mathematization of economics.

 

A Similar Theory, but Two Irreconcilable Philosophies

 

Despite Oulès’s attempt, the École de Lausanne’s influence on economics lies in a general economic equilibrium formulation that is independent and free from institutions and politics. Thus, the initial Walrasian research programme to find a scientific solution to the social question, as well as Pareto’s opening to sociology in a process of successive approximations, got lost along the way. Although both one and the other, each in their own ways, were certain that a scientific approach to the general equilibrium could not be isolated; that the economics is not self-sufficient in itself, the legacy that economics has metabolized has leaned towards an opposite direction: towards a self-sufficient discipli- nary theory. In contrast, though these two authors agree neither on the use of mathemat- ics nor on the epistemological status of the general economic equilibrium, it is a specific use of mathematics and a particular meaning of the general economic equilibrium that has been kept by the discipline as constituting the École de Lausanne’s characteristic features. So, when we change our point of view, leaving the legacy aside to inquire about these two authors’ works, the very definition of the school proves problematic.

 

Regarding the use of mathematics

Walras thought that “the theory of value in exchange is really a branch of mathemat- ics which mathematicians have hitherto neglected and left undeveloped” (Walras 1954: 70). Since the exchange value is a mathematical fact, resorting to mathematics for pure economics purposes is indeed possible and even necessary for science to make progress. Formal language is clearer and more specific; it is indispensable on account of its heu- ristic value, and allows distinguishing true from false with certainty. Indeed, only formal language makes it possible to account for the complexity of the general interdependence of economic equilibrium, whereas natural language strays into apparent tautologies. Through the use of mathematics, it is possible to replace some of economists’ simple dogmatic assertions with rigorous demonstrations and achieve new results. Like all those who advocate applying mathematics to economics, Pareto shared Walras’s views on its formal advantages, but, unlike the latter, he did not believe it could guarantee, beyond mere reasoning consistency, the substantial truth of findings.

 

About the referent of equations of the general economic equilibrium

The point that probably most separates the two Lausanne economists consists in the meaning they attribute to the general economic equilibrium. For Walras, as a pure science (not an applied one), it captures the essence of the phenomenon, in the specific case of the exchange value of social wealth. Pareto thought it represented the uniformi- ties found in choices and laws, arising from the opposition between men’s tastes and obstacles to satisfy them.

From Walras’s point of view, the general economic equilibrium theory hinges around the establishment of exchange values once stripped of all contingent aspects, but it is also the theory of price determination in a hypothetical system of absolute free com- petition. This is understandable, because that regime, which is a mechanism for price determination, not a market structure, is hypothetical from the historical contingent, but necessary to the extent that it is the only mechanism able to ensure pricing in accordance with human nature. However, political economy cannot go against human nature, just as physics against the law of gravity. Walras believed that prices, when established that way, are true (in its strong sense of their connection to facts per se), though they do not reflect actual market operations, as it is not the theory that is flawed, but reality itself.

The matter of the adequacy of theory to facts is dealt with in diametrically opposed fashion to Walras and Pareto’s; but it cannot be reduced, as does the latter, to the dis- tinction between “normative” and “positive” economics, because Walras asserted that the ideal generated by science is “positive”; it is also even the only possible scientific result. Pareto understood the Walrasian stand, but could not accept it. On the part of the “most nominalist among Nominalists”, Walrasian essentialism is hopelessly meta- physical, whereas true scientific approach can only be inductive. The general economic equilibrium is one of these successive approximations any science resorts to, an imperfect picture of reality, which is always to be compared with experimental facts. Far from the method of “reasoning about words”, Pareto leaves more room for empirical verifica- tion of theories, with no qualms about “modifying or even abandoning any theory that could not be reconciled with experience”, whereas Walras thought science required no verification.

At the ontological level, the gap was even more radical. Pareto considered that, like any scientist, an economist need not even ask this question, while Walras devoted a number of writings to it. However, Pareto inevitably took a stand when defending the existence of a complex reality which science approaches “through theories that prove ever more consistent with it”. A portion of this reality is therefore the referent of the general economic equilibrium. On the contrary, Walras declared that what is at stake with the general economic equilibrium are essences that are only partially actualized in reality, but meant to completely unfold in historical time. Placed in their respective philo- sophical contexts, both general equilibrium theories are reminiscent of the “false friends” found when comparing two languages. Continuity within the École de Lausanne thus lies in the transmission of the sole mathematical tool for the general economic equilibrium, taken from political and social economics in the case of Walras, while being insulated from non-logical actions in Pareto’s. On the contrary, there is no continuity in the referent of proposals constructed from this tool: Pareto focused on the real world while Walras aimed for the ideal world of unrealized essences. In other words, although both authors use a common formal device, their respective contents prove different.

Which School? 

Finally, the meaning commonly attributed to the École de Lausanne results from it being dazzled by mathematization, thus obscuring different incommensurable mean- ings of the general economic equilibrium and thereby giving exclusive priority to Pareto’s version. In addition, the disciplinary rift such a definition of the School implies utterly betrays the spirit of it. The École de Lausanne is built on the scientific project of the triptych; it developed together with the joint analysis of logical and non-logical actions; and the revival in favour of “politics” that occurred at the Nouvelle École de Lausanne unsuccessfully recalled the necessary interdependence between the economic, social and political arenas. Though that school’s protagonists seem to beckon us to embark in that direction, it is paradoxical for historians of economic thought to use the phrase École de Lausanne in a meaning that is rather related to doxography (Rorty 1984).

Roberto Baranzini and François Allisson

Gilbert Faccarello and Heinz D. Kurz - 9781849801119

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via Bibliothèque cantonale et universitaire – Lausanne

See also:

Maurice Allais (I); Kenneth Joseph Arrow (I); Enrico Barone (I); Ladislaus von Bortkiewicz (I); Gustav Cassel (I); Competition (III); Econometrics (III); Gérard Debreu (I); Formalization and mathematical modelling (III); General equilibrium theory (III); John Richard Hicks (I); Oskar Ryszard Lange (I); Robert E. Lucas (I); Michio Morishima (I); Takashi Negishi (I); Maffeo Pantaleoni (I): Vilfredo Pareto (I); Don Patinkin (I); Paul Anthony Samuelson (I); Marie-Esprit-Léon Walras (I); Welfare economics (III); Knut Wicksell (I).

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