Abstract

PELAEZ GRAMAJO, José Guillermo. Inconsistency of Partial Equilibrium Analysis Into the Theory of Value and its Macroeconomics Consistency. Econ: teor. práct [online]. 2018, n.48, pp.9-38. ISSN 2448-7481.  https://doi.org/10.24275/etypuam/ne/482018/pelaez.

This paper has two aims, to point out that partial equilibrium analysis does not make sense into the theory of value; and to show its utility concerning the macroeconomic analysis. The analysis of one single market, assuming ceteris paribus philosophical clause, is simplistic and misleading, since a change on market price, modifies residual disposable income to finance purchases on the rest of the markets; besides, the existence of substitutability and complementariness, between commodities, also reflect the general interdependence between markets as well as the holistic nature of the economic system: the whole is more than the aggregate of the parts, to elude this fact leads to the trick of the fallacy of composition. Thus, Cournot’s criticism to classical economists becomes a meaningful analysis on relative prices as a result of a market trading process; thus, he introduces silver as numeraire. Nonetheless, the full development regarding the incorporation of money into the theory of value comes from Marx, who introduced currency as commodity money (gold), which has intrinsic value. Sraffa made the seminal criticism to Marshall’s partial equilibrium analysis by means of the two laws of returns (increasing and diminishing), whose effects have profound disturbs on the symmetry of supply and demand that is described into isolated markets. Arrow and Hahn pointed out that the equilibrium analysis cannot be fragmented into separated equilibriums; the existence of one market implies, at least, the existence of an additional market. By assuming the fiction that the economy has two commodities, the graphic analysis of one single market shows the general equilibrium and disequilibrium, since the price of the absent market works as numeraire. Nevertheless, by means of Leontief-Hicks theorem, it is possible the equilibrium analysis within the framework of great economic aggregate tendencies, that has theoretical and empirical relevance and importance for the assessment of the economy.

Keywords : general equilibrium; partial equilibrium; disequilibrium; relative price; substitutability; complementariness; index price; numeraire; microeconomics; macroeconomics; B310; B410; B460; D500.

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