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Abstract

Hicks in The Theory of Wages admits that at a real wage higher than the equilibrium one, only the employed workers have an income; which means that it is possible to have equilibrium on all markets except the sole labour market, in apparent contradiction of Walras’ Law. This assumption, that the income of consumers corresponds to the sole value of their factor supplies that find purchasers, clarifies that the demand curve for labour is in fact the curve that, assuming given endowments of the other factors, traces what the supply of labour would have to be in order to have equilibrium on all markets as the real wage is parametrically varied. The paper argues that this treatment of consumer incomes, evidently considered obvious in the 1930s and in fact adopted without discussion by Keynes (so it can be called the Hicksian-Keynesian assumption), was lost sight of with the Walrasian fashion of the 1940s and ‘50s (Lange, the Patinkin controversy), and with the formalization of the tâtonnement, where at each ‘round’ the balanced budget implies that the income a consumer spends on consumption goods is the value of her/his intended factor supplies independently of whethere these find purchasers. Since obviously income must be obtained before one can spend it, and Keynes had insisted on the importance of this fact, it would have been natural to adopt the Hicksian-Keynesian assumption for the study of the stability of general equilibrium too; but that is not how things went. The paper presents some hypotheses on what can explain the choice of such an unrealistic formalization of disequilibrium consumer incomes in the tâtonnement. Then it points out that the more realistic Hicksian-Keynesian assumption would imply the impossibility of the tâtonnement in intertemporal general equilibria.

tatonnement, intertemporal general equilibrium, investment