Advertisement

The Competitive Price Mechanism

  • Robert P. GillesEmail author
Chapter

Abstract

Traditionally, economic theory investigates production, consumption and trade under market institutions founded on the Law of One Price: All commodities are traded at a unique global market price. In this chapter we show that in an economy with consumer-producers the Law of One Price implies the dichotomy between production and consumption decisions. Moreover, the Law of One Price is viable in the sense that a general market equilibrium emerges. Assuming IRSpec in productive abilities, there endogenously emerges a social division of labour that is guided by these market prices. Finally, these equilibria are socially optimal and all socially optimal social divisions of labour can be supported as general equilibria under the Law of One Price.

References

  1. Aristotle. 340 BCE. Ethica Nicomachea. 2009 ed. Oxford: Oxford University Press.Google Scholar
  2. —. 350 BCE. The Politics: A Treatise on Government. 1995 ed. Oxford: Oxford University Press.Google Scholar
  3. Arrow, K.J., and G. Debreu. 1954. Existence of Equilibrium for a Competitive Economy. Econometrica 22: 265–290.CrossRefGoogle Scholar
  4. Aumann, R.J. 1964. Markets with a Continuum of Traders. Econometrica 32: 39–50.CrossRefGoogle Scholar
  5. —. 1966. Existence of Competitive Equilibria in Markets with a Continuum of Traders. Econometrica 34: 1–17.CrossRefGoogle Scholar
  6. Bowles, S., and J.-K. Choi. 2013. Coevolution of Farming and Private Property During the Early Holocene. Proceedings of the National Academy of Sciences 110: 8830–8835.CrossRefGoogle Scholar
  7. —. 2016. The Neolithic Agricultural Revolution. SFI Working Paper 2016-09-016, Santa Fe Institute, USA.Google Scholar
  8. Buchanan, J.M., and Y.J. Yoon. 2002. Globalization as Framed by the Two Logics of Trade. Independent Review 6 (3): 399–405.Google Scholar
  9. Cournot, A. 1838. Recherches sur les principes mathématiques de la théorie des richesses. Paris, France: Hachette.Google Scholar
  10. De Simone, A. 1997. Existence of Equilibria in Finitely Additive Nonatomic Coalition Production Economies. Journal of Applied Analysis 3 (2): 249–267.CrossRefGoogle Scholar
  11. Diamantaras, D., and R.P. Gilles. 2004. On the Microeconomics of Specialization. Journal of Economic Behavior and Organization 55: 223–236.CrossRefGoogle Scholar
  12. Edgeworth, F.Y. 1881. Mathematical Psychics: An Essay on the Application of Mathematics to the Moral Sciences. London: C. Kegan Paul & Co.Google Scholar
  13. Gilles, R.P. 1996. Economic Exchange and Social Organization: The Edgeworthian Foundations of General Equilibrium Theory. Boston, MA: Kluwer Academic Publishers.CrossRefGoogle Scholar
  14. —. 2018a. The Core of an Economy with an Endogenous Social Division of Labour. arXiv:1809.01470.Google Scholar
  15. —. 2018b. Economic Wealth Creation and the Social Division of Labour: I — Institutions and Trust. London: Palgrave Macmillan.Google Scholar
  16. —. 2018c. Market Economies with an Endogenous Social Division of Labour. International Economic Review.  https://doi.org/10.1111/iere.12369.
  17. Gillies, D.B. 1959. Solutions to General Non-zero-sum Games. Contributions to the Theory of Games 4: 47–85.Google Scholar
  18. Graeber, D. 2011. Debt: The First 5,000 Years. Brooklyn, NY: Melville House Publishing.Google Scholar
  19. Grampp, W. 2000. What did Smith Mean by the Invisible Hand? Journal of Political Economy 108 (3): 441–465.CrossRefGoogle Scholar
  20. Hayek, F.A. 1937. Economics and Knowledge. Economica 4: 33–54.CrossRefGoogle Scholar
  21. —. 1948. Individualism and Economic Order. Chicago, IL: University of Chicago Press.Google Scholar
  22. —. 1960. The Constitution of Liberty. Chicago, IL: University of Chicago Press.Google Scholar
  23. Hildenbrand, W. 1968. The Core of an Economy with a Measure Space of Economic Agents. Review of Economic Studies 35: 443–452.CrossRefGoogle Scholar
  24. —. 1974. Core and Equilibria of a Large Economy. Princeton, NJ: Princeton University Press.Google Scholar
  25. Ingrao, B., and G. Israel. 1990. The Invisible Hand: Economic Equilibrium in the History of Science. Cambridge, MA: MIT Press.Google Scholar
  26. McKenzie, L.W. 1954. On Equilibrium in Graham’s Model of World Trade and Other Competitive Systems. Econometrica 22 (2): 147–161.CrossRefGoogle Scholar
  27. —. 1959. On the Existence of General Equilibrium for a Competitive Market. Econometrica 27: 54–71.CrossRefGoogle Scholar
  28. —. 1981. The Classical Theorem on Existence of Competitive Equilibrium. Econometrica 49 (4): 819–841.CrossRefGoogle Scholar
  29. Nikaido, H. 1954. Note on the General Economic Equilibrium for Nonlinear Production Functions. Econometrica 22: 49–53.CrossRefGoogle Scholar
  30. —. 1956. On the Classical Multilateral Exchange Problem. Metronomica 8: 135–145.Google Scholar
  31. Pareto, V. 1906. Manual of Political Economy, 1972 reprint ed. London: Palgrave Macmillan Press.Google Scholar
  32. Plato. 380 BCE. Republic. 2007 ed. London: Penguin Classics.Google Scholar
  33. Ricardo, D. 1817. On the Principles of Political Economy and Taxation. London, UK: John Murray.Google Scholar
  34. Smith, A. 1759. The Theory of Moral Sentiments. Cambridge Texts in the History of Philosophy. Cambridge: Cambridge University Press. Reprint 2002, edited by Knud Haakonssen.Google Scholar
  35. —. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. Chicago, IL: University of Chicago Press. Reprint 1976.Google Scholar
  36. Sun, G., X. Yang, and L. Zhou. 2004. General Equilibria in Large Economies with Endogenous Structure of Division of Labor. Journal of Economic Behavior and Organization 55: 237–256.CrossRefGoogle Scholar
  37. Trench, W.F. 2013. The Method of Lagrange Multipliers: Supplement to “Introduction to Real Analysis”. Open Source. https://works.bepress.com/william_trench/130/.
  38. Walras, L. 1874. Eléments d’économie politique pure, ou théorie de la richesse sociale (Elements of Pure Economics, or the Theory of Social Wealth), 4th (1926) ed. Paris: Richard D. Irwin Inc. Translation by William Jaffe, 1954.Google Scholar
  39. Wen, M. 1998a. An Analytical Framework of Consumer-Producers, Economies of Specialization and Transaction Costs. In Increasing Returns and Economic Analysis, ed. K.J. Arrow, Y.-K. Ng, and X. Yang. New York, NY: St. Martin’s Press.Google Scholar
  40. —. 1998b. The Dichotomy Between Production and Consumption Decisions and Economic Efficiency. Paper presented at the Australian Economic Theory Workshop, University of Melbourne, Australia.Google Scholar
  41. Yang, X. 2001. Economics: New Classical Versus Neoclassical Frameworks. Malden, MA: Blackwell Publishing.Google Scholar
  42. —. 2003. Economic Development and the Division of Labor. Malden, MA: Blackwell Publishing.Google Scholar
  43. Yao, S. 2002. Walrasian Equilibrium Computation, Network Formation, and the Wen Theorem. Review of Development Economics 6: 415–427.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  1. 1.Management SchoolQueen’s University BelfastBelfastUK

Personalised recommendations