The Validity of Walras’ Law in a Monetary Exchange Economy: Money, Prices and the Integration of Monetary and Value Theory

Narciso Túñez Area ()

Iberian Journal of the History of Economic Thought, 2015, vol. 2, issue 2, 101-114

Abstract: Walras’ Law is one of the most important tenets of Neo-liberal economics. It is supposed to be a Tautological Identity according to which disequilibrium in market economies has a compensatory nature. Hence, disequilibrium in any market would imply an opposite imbalance somewhere else in the system. However, in monetary systems commodities do not buy commodities, i.e. they are not substitutes of money. When budget constraints take into account the realization problem associated with the violation of the Classical Gross Substitution Axiom, disequilibrium turns out to be non-compensatory. This paper shows that Walras’ Law does not always hold.

Keywords: Walras’ Law; Gross Substitution Axiom; Budget constraints; Realization problem; Compensatory disequilibrium.; Ley de Walras; Axioma de Sustitución Bruta; Restricciones presupuestarias; Problema de la realización; Desequilibrio compensatorio. (search for similar items in EconPapers)
JEL-codes: B12 B13 B22 D50 E5 (search for similar items in EconPapers)
Date: 2015
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Dpto. Historia e Instituciones Económicas I. Facultad de CC. Económicas y Empresariales, Universidad Complutense de Madrid. Campus de Somosaguas. E-28223 Pozuelo de Alarcón (Madrid)

DOI: 10.5209/rev_IJHE.2015.v2.n2.52053

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