Is it just me, or does Walras' Law disprove underconsumptionist and "deficient aggregate demand" theories of business cycles? If the sum of all excess demand and excess supply is zero, then there can be no excess aggregate supply. Instead, this would imply that business cycles are the result of markets coming out of sync, with excess supply in some markets and excess demand in others. This would seem to support the Austrian theory of the business cycle. Here is the Australian economist Steven Kates expounding Say's Law in relation to business cycles (which is the basis of Walras' Law, I believe):
Thoughts?
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Yes but Walras' law is absurd. When Keynesians attack Say's law, they're really attacking Walras' law (which is a strawman of Say's law). Walras' world had perfect information and instantaneous price adjustments.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Esuric:Yes but Walras' law is absurd. When Keynesians attack Say's law, they're really attacking Walras' law (which is a strawman of Say's law). Walras' world had perfect information and instantaneous price adjustments.
Is that something you're just saying or do you know for a fact that Walras claimed that markets adjust instantaneously?
krazy kaju:Is that something you're just saying or......
No it's just something I randomly made up in an attempt to sound smart.
Did I ever mention how great you are at civil discourse? In any case, if you didn't catch the hint, I was asking for quotes from Walras, or at least what made you think that Walras believed that all markets instantaneously reached and maintained equilibrium prices.
krazy kaju: or at least what made you think that Walras believed that all markets instantaneously reached and maintained equilibrium prices.
School. But in Walras' model, the all knowing auctioneer (Tatonnement), sets the correct prices before the fact, before any actual exchange takes place, assuring general equilibrium. All market actions are instantaneously and simultaneously realized. This is why the Austrians, unlike mainstream neoclassical's, say that the market is a process, and why they reject comparative statics. It's also why Keynes is seen as a revolutionary (price rigidity).
"General equilibrium studies the inter relationship between different markets. It is a situation where the plans of all the agents in all the markets are simultaneously realized." -http://www.transtutors.com/economics-homework-help/microeconomics/general-equilibrium.aspx
Right, I know of that, but wasn't that just a model, even if it was a model that we both disagree with? I mean Milton Friedman didn't actually believe that people solved complex mathematical equations before making everyday decisions.
The way I see it, Walras' law (excess supply + excess demand = 0) expands on Say's law (supply constitutes demand). Just like Say's law wasn't really an invention of Say, Walras' law wasn't an invention of Walras, but of other economists who took Say's law to new heights.