Editing General equilibrium theory (section)

===Walrasian equilibrium===
The first attempt in [[neoclassical economics]] to model prices for a whole economy was made by [[Léon Walras]]. Walras' ''Elements of Pure Economics'' provides a succession of models, each taking into account more aspects of a real economy (two commodities, many commodities, production, growth, money). Some think Walras was unsuccessful and that the later models in this series are inconsistent.<ref>{{cite book|last=Eatwell|first=John|year=1987|chapter=Walras's Theory of Capital|title=The New Palgrave: A Dictionary of Economics|editor1-last=Eatwell|editor1-first=J.|editor2-last=Milgate|editor2-first=M.|editor3-last=Newman|editor3-first=P.|location=London|publisher=Macmillan|title-link=The New Palgrave: A Dictionary of Economics}}</ref><ref>{{cite journal |last=Jaffe |first=William |year=1953 |title=Walras's Theory of Capital Formation in the Framework of his Theory of General Equilibrium |journal=Économie Appliquée |volume=6 |pages=289–317 }}</ref>

In particular, Walras's model was a long-run model in which prices of capital goods are the same whether they appear as inputs or outputs and in which the same rate of profits is earned in all lines of industry. This is inconsistent with the quantities of capital goods being taken as data. But when Walras introduced capital goods in his later models, he took their quantities as given, in arbitrary ratios. (In contrast, [[Kenneth Arrow]] and [[Gérard Debreu]] continued to take the initial quantities of capital goods as given, but adopted a short run model in which the prices of capital goods vary with time and the own rate of interest varies across capital goods.)

Walras was the first to lay down a research program widely followed by 20th-century economists. In particular, the Walrasian agenda included the investigation of when equilibria are unique and stable— Walras' Lesson 7 shows neither uniqueness, nor stability, nor even existence of an equilibrium is guaranteed. Walras also proposed a dynamic process by which general equilibrium might be reached, that of the [[Walrasian auction|tâtonnement]] or groping process.

The tâtonnement process is a model for investigating stability of equilibria. Prices are announced (perhaps by an "auctioneer"), and agents state how much of each good they would like to offer (supply) or purchase (demand). No transactions and no production take place at disequilibrium prices. Instead, prices are lowered for goods with positive prices and [[excess supply]]. Prices are raised for goods with excess demand. The question for the mathematician is under what conditions such a process will terminate in equilibrium where demand equates to supply for goods with positive prices and demand does not exceed supply for goods with a price of zero. Walras was not able to provide a definitive answer to this question (see Unresolved Problems in General Equilibrium below).