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Walras or Pareto: Who is to Blame for the State of Modern Economic Theory?

ABSTRACT Walras and Pareto are considered founders of the Ecole de Lausanne. However, their points of view on economics as a science were at considerable variance and their appreciation of each other was limited. On the path from Adam Smith’s Invisible Hand to Arrow and Debreu’s proof of the existence of equilibrium, Walras is thought of as having formulated the general equilibrium model and Pareto as having improved upon and advanced theory and economics down the path that Walras had envisaged. The purpose of this article is to suggest that this is too simple a picture, that the road to an adequate explanation of the Invisible Hand petered out and Pareto’s contribution was instrumental in its demise. Paradoxically, the almost technical generalization of the Walrasian model that Pareto developed locked pure economic theory and modern macroeconomics, which has based itself on that theory, into a dead end. Both their different scientific visions and their antagonistic personal relationship meant that, while their interests coincided for a period, they could hardly be regarded as having a common project and thus the Ecole de Lausanne is a misnomer.