Lausanne School
Part of the series where I am trying to learn more about each of the major economic schools of thought.
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The Lausanne School of economics, sometimes referred to as the Mathematical School, refers to the neoclassical economics school of thought surrounding Leon Walras and Vilfredo Pareto. It is named after the University of Lausanne [a school founded in 1537 Switzerland as a school of Protestant theology] at which both Walras and Pareto held professorships. Polish economist Leon Winiarski is also said to have been a member of the school.
Background
- The term was first coined by the mathematician Hermann Laurent in his article Petit traite d'economie politique mathematique (Small Treatise on Mathematical Political Economy). The central feature of the Lausanne School was it development of general equilibrium theory.
- In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an overall general equilibrium.
- Lausanne School is also associated with the Italian School and the Paretian School, which were based on the works of Pareto. The school is distinguished from the work of Alfred Marshall by the way it maintains the necessity of considering the interaction of all parts of the economy simultaneously so that the behavior that occurs within any part of it can be understood.
- The Lausanne School attempted to answer the question of whether the welfare of an economy can be measured. Its theorists such as Walras proposed that it can be done through a notion of justice in exchange called
commutative justice
, which required all traders to face the same price, which did not change, for a given product. The free competition is said to producemaximum welfare
, allowing for an effective evaluation of questions of welfare.
Leon Walrus
- French mathematical economist and Georgist. He formulate the marginal theory of value and pioneered the development of general equilibrium theory.
- He is best known for Éléments d'économie politique pure, a work that has contributed greatly to the mathematization of economics through the concept of general equilibrium. The definition of the role of the entrepreneur is also found in it.
- For him, exchanges only take place after Walrasian trial and error guided by the auctioneer, has made it possible to reach market equilibrium.
Vilfredo Pareto
- Italian polymath, whose area of interest included sociology, civil engineering, economics, political science, and philosophy. He made several important contributions to economics, particularly in the study of income distribution and in the analysis of individuals' choices. He was also responsible for popularizing the term "elite" in social analysis.
- He introduced the concept of Pareto efficiency and helped develop the field of microeconomics.
- In welfare economics, a Pareto improvement formalizes the idea of an outcome being "better in every possible way". A change is called a Pareto improvement if it leaves everyone in a society better-off (or at least as well-off as they were before). A situation is called Pareto efficient or Pareto optimal if all possible Pareto improvements have already been made; in other words, there are no longer any ways to make one person better-off, without making some other person worse-off.
- He was the first to claim that income follows a Pareto distribution.
- The Pareto distribution is a power-law probability distribution that is used in description of social, quality control, scientific, geophysical, actuarial, and many other types of observable phenomena; the principle originally applied to describing the distribution of wealth in a society, fitting the trend that a large portion of wealth is held by a small fraction of the population.
- The Pareto principle is named after him, and it was built on his observations that 80% of the wealth in Italy belonged to about 20% of the population.
- The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes.