Because we 'know' that the tfitonnement, in its presentation as a set of simultaneous autonomous differential equations for the multimarket system, will lead globally asymptotically to an equilibrium if Walras' law
holds, if the system is continuously differentiable, and homogeneous in prices and income, and gross substitutability prevails, it is hard to disconnect Allais' argument from later proofs.
But, this event allows us to attack the issue of whether it is possible to produce an alternative to Walras' Law
, which has some similarity in appearance, but which produces much different results in application.
As it is finding in any course note in Economics, Walras' Law
states that a consumer always spends his entire budget, because the individual is tempted rather to consume more than to consume less when it comes to satisfying his own needs:
He also estimated the value of one variable from what is called Walras' Law
The monetary approach insists that "when one market is eliminated from a general equilibrium model by Walras' law
, the behavioral specifications for the included markets must not be such as to imply a specification for the excluded market that would appear unreasonable if it were made explicit.
is an example of a law that is true by definition: the total payments made to factors of production will equal the total value of the goods sold.
Free Banking, the Real-Balance Effect, and Walras' Law
," available at http://papers.
From the budget constraint equations (2), by rearranging terms and summing across consumers, we get the so-called Walras' Law
, that is:
Since there is only one other market, the resource market, it must also clear by Walras' law
Correspondingly, there are two dependent relationships since Walras' law
holds both for the transactions during the period and for the transactions with payments at the end of the period.
A fortiori, Walras' law
will not be satisfied by effective demand.
The only way that Walras' Law
could hold under such an assumption would be for the IS and LB curves to be coincident, implying that the economy has no stable equilibrium [Patinkin, 1965, pp.