Theory of Value: Final Thoughts...

I have just finished reading the final chapter on uncertainty in Debreu's Theory of Value.  This final chapter which is very short, simply introduces the idea of contingent commodities and then sketches how the theorems and proofs in previous chapters go through in this more general case.

Instead of sharing my thoughts about contingent commodities, I thought I would post some of my over all thoughts about the book and about general equilibrium more generally...

After reading this book I feel like I have a much improved understanding of both the mathematics and the economics of general equilibrium theory.  For an aspiring academic economist, this is clearly a good thing.  Unfortunately, I do not feel like I have a better understanding of how real-world  economies generally behave.   This is clearly not a good thing. 

After reading, say Minsky's Stabilizing and Unstable Economy, I felt that I was better equipped to talk about issues of serious importance in modern, capitalist economies.  I do not feel that way after reading Theory of Value.  General equilibrium, in my view at least, is not supposed to describe real-world economies but instead serves as a kind of null model for how an idealized economy should behave.  Thus perhaps comparing Theory of Value and Stabilizing and Unstable Economy is not very fair. 

However, even as a null model of the economy, I think general equilibrium falls short.  Any null model of the economy, in my opinion, must allow for the possibility that individual optimization decisions are influenced by the decisions of other individuals in the economy.  In the real world, economic behavior is a very social activity and preferences and individual decisions are heavily influenced by others actions and beliefs.  In the real world, there is also lots of trades.  Perhaps even lots of "false trades" (by false trades I mean trades at non-equilibrium prices).  In GE no one trades until the equilibrium price vector has been calculated, and then they only trade once. 

Once one allows for the possibility that a single agent's decisions can impact the decisions (and/or influence the preferences) of other agents, then micro-dynamics may no longer average-out in the aggregate.  Once one allows for "false trades" each false trade alters the wealth distribution amongst the agents in the economy which then shifts the equilibrium to which the economy would have converged.  In this world "equilibrium" is a moving target.

None of the above critiques of GE are original, and I had encountered all of them prior to reading Theory of Value.  Despite my criticisms, I am still very glad that I read the book and would recommend it to anyone who plans on pursuing an academic career in economics...