General Equilibrium Theory as Normative Ideal Social Order

Abstract

The question concerning neo-classical economics is: How can an economy inhabited by self-regarding agents operate in an efficient and orderly manner? Kenneth Arrow’s General Equilibrium Theory provides a mathematically formalized answer to this question. It is a coherent system and when economic agents act rationally, general equilibrium and Pareto Optimality obtain. In a sense General Equilibrium Theory acts as a normative ideal social order guaranteeing that humans can fulfill their nature as beings of utility in a self-interested manner, while providing for a socially optimal outcome. However the model, while coherent, is divorced from the realities of the capitalist economy. Specifically, it is a model of simple reproduction and as such does not account for the structural logic of capitalist production. The purpose of this paper is twofold. In the first instance I shall articulate an alternative approach to economic theory, based upon a fundamentally different ontological and epistemological basis provided by Karl Marx’s method and model of accumulation heuristically¹ interpreted through Roy Bhaskar’s Critical Realism, in such a way that accounts for and surpasses the methodological weaknesses of neo-classical economics. The second is to disrupt the normative ideal social order by including the structural logic of capitalist production through the employment of Marx’s modl of “capital accumulation.”