Critique of neoclassical economic theory

Abstract

This paper contains a critical examination of the main features and results of the general equilibrium theory (get). We review get.s failure in its attempt to demonstrate global stability for the general case of a n-commodity market connected through a price system. This is a well known result based on the works of Arrow, Block, Hurwicz and Scarf; but it is now also a well established fact after the Sonnenschein-Mantel-Debreu theorem. The paper also covers the case of price formation in trading models (non-tâtonnement) where uniqueness of equilibrium is lost. The presence of the walrasian auctioneer and the difficulties inherent to the introduction of money are also examined. The essay also shows how get fails to demonstrate the existence of a general competitive equilibrium with a fixed point theorem because the mappings that are used in this effort lack the economic interpretation commonly attributed to them. Finally, the essay also highlights some of the implications of this negative scorecard for neoclassical macroeconomic theory and its reductionist project with rational expectations and representative agents to provide "micro-foundations" to macroeconomic analysis.