Equilibrium, interest and money: three essays in the history of economic theory

Michael Syron Lawlor

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: The dissertation consists of three essays that utilize the historical record to shed light on contemporary theoretical problems. Essay I compares the most developed views of the equilibrium of physical systems, General Systems Theory, with the standard Walrasian concept of equilibrium used in economics. The contrast shows the Walrasian system to exhibit a contradiction. From the General Systems standpoint, it confuses the requirements of an open and a closed system. Drawing on Hayek's work, this confusion is traced to the lack of a good social-level homeostatic mechanism, and is shown to result from the traditional "auctioneer" device;Essay II shows the usefulness of Keynes' own-rates theory of interest in giving analytical focus to his complex views on "the essential properties of interest and money." Viewing the own-rates concept as an attack on the Wicksellian real interest rate tradition, the essay offers a solution to two puzzles. First, it provides a rehabilitation of the traditional neglect of Keynes' emphasis on monetary matters in the standard approaches to macroeconomics. Secondly, the attention to the development of the own-rates framework sheds suspicion on modern attempts to interpret Keynes as a Wicksellian disequilibrium monetary theorist. Instead, Keynes is shown to be an equilibrium theorist of a different color;Finally, the last essay compares the notions of equilibrium involved in three views of prices, money, and interest. In reviewing the Sraffa-Hayek debate, we get a clear view of the traditional long-period approach to monetary theory as a disturbing cause. Then, by tracing Hayek's defense of his position to his confusion over the methodological role of money and interest in value theory, we find a whole new concept of monetary equilibrium--the Walrasian method of "intertemporal equilibrium." Then Keynes, Sraffa and Hayek are compared via their conceptions of equilibrium own-rates. It is concluded that Keynes' conception, lying somewhere intermediate between the Sraffian long-period and the Walrasian intertemporal case, offers one method of providing the social level homeostatic mechanism that the Walrasian conception was shown to lack in Essay I.

Date: 1986-01-01
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