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The Concept of Equilibrium in Different Economic TraditionsA Historical Investigation
ISBN978 90 361 0109 7Cover design: Crasborn Graphic Designers bno, Valkenburg a.d. GeulThis book is no.449of the Tinbergen Institute Research Series, established throughcooperation between Thela Thesis and the Tinbergen Institute. A list of books which alreadyappeared in the series can be found in the back.
VRIJE UNIVERSITEITThe Concept of Equilibrium in Different Economic TraditionsA Historical InvestigationACADEMISCH PROEFSCHRIFTter verkrijging van de graad Doctor aande Vrije Universiteit Amsterdam,op gezag van de rector magnificusprof.dr. L.M. Bouter,in het openbaar te verdedigenten overstaan van de promotiecommissievan de faculteit der Economische Wetenschappen en Bedrijfskundeop donderdag 12 maart 2009 om 13.45 uurin de aula van de universiteit,De Boelelaan 1105doorLubertus Anton Wilhelm Tiebengeboren te Wolvega
promotoren:prof.dr. H. Visserprof.dr. M. Blaug
iContentsPreface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .viiChapter 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.1 The aim of this study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.2 A bird’s eye view on the history of equilibrium theory. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21.3 The alleged dominance of the equilibrium concept. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81.4 Controversies about equilibrium theory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91.5 The equilibrium concept in the history of economics. . . . . . . . . . . . . . . . . . . . . . . . . . . . .111.6 History of science and the scope of this study. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Chapter 2 What is equilibrium?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .192.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .192.2 Equilibrium as an end-state versus the process approach. . . . . . . . . . . . . . . . . . . . . . . . . .202.3 Statics and dynamics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .272.4 The vision of equilibrium theory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32Chapter 3 The methodological assessment of economic equilibrium. . . . . . . . . . . . . . . . . . . .373.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .373.2 Does methodology matter for economics?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .393.3 The rhetoric of equilibrium theory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .433.4 Equilibrium theory as a scientific research program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .453.4.1 The methodology of scientific research programs. . . . . . . . . . . . . . . . . . . . . . . . . . . .453.4.2 The Neo-Walrasian Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .473.4.3 Lakatos’s method of “proofs and refutations”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .493.4.4 Empirical appraisal of the NWP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .513.4.5 Mathematics as a unique source of knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .533.4.6 Economic knowledge as a social convention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .543.4.7 A final word on the MSRP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .563.4.8 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .593.5 The diminishing returns of economic science. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .593.5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .593.5.2 Economics is not an empirical science. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .613.5.3 Complexity and intentional psychology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .633.5.4 Economics as Mathematical Politics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .643.6 The inexact and separate science of economics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .653.6.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .653.6.2 Equilibrium theories and equilibrium models. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .663.6.3 Fundamental economic theory and the “laws” of economics. . . . . . . . . . . . . . . . . . .673.6.4 Vision: the inexact and separate science of economics. . . . . . . . . . . . . . . . . . . . . . . .69
ii3.6.5 Strategy: the inexact method a priori. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .713.6.6 Is equilibrium theory an inexact science?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .733.6.7 Dogmatism in economics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .763.6.8 Towards a more eclectic economic science. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .783.7 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79Chapter 4 The origins of economic equilibrium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .854.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .854.2 Economic order and the start of equilibrium theory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .864.3 Sir Dudley North: a pioneer in economic theory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .914.3.1 Scientific method and political objectivity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .914.3.2 Supply and demand as a ‘universal maxime’. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .934.3.3 Equilibrium vision and economic liberalism. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .954.4 Pierre de Boisguilbert: equilibrium as a law of nature. . . . . . . . . . . . . . . . . . . . . . . . . . .984.4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .984.4.2 Welfare and stagnation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .984.4.3 Nature’s order and economic well-being. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Economics, Supply And Demand, Keynesian economics, Austrian School

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