The Neo-classical System

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The Neo-classical System

This is still how many economists perceive reality today in 2015. Or, more precisely, without their quite believing it, it is still what they teach to the young. The major modification came in the Great Depression. Then it was seen and accepted that the equilibrium could exist with a very great deal of unemployment. The equilibrium system was no longer thought to be quite the best in the best of all possible worlds.

John Maynard Keynes was the great hero of our generation. But it's always important to see first what Keynes didn't do. He did not attack the notion of the motivating power of self-interest. And he didn't attack the benign regulatory role of competition and the market In Keynes's writing these ideas, this perception of reality, remained very largely intact.

What he attacked, and very successfully, was the notion that the modem economy finds that equilibrium of which we have just spoken with all, or nearly all, willing worker employed.

He held that it could find its equilibrium just as well with a very large amount of unemployment.

Next - Market Conditions

Equilibrium Between Industries

This equilibrium would also come to exist between industries, for if wages and profits were higher in one industry than another, people and investment would move until competition had equalized return, made it the same everywhere.

The idea of a general economic equilibrium was the specific refinement of Leon Walras, who lived from the 18303 until 1910 and who was the son of another famous economist, Auguste Waltas.

The younger Walras was a Frenchman and a failed mathematician. He went on to study as a mining engineer, then went on up, academically speaking, to economics and became a professor... see: Equilibrium Between Industries

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