Introduction

In a frequently quoted remark, Joseph Schumpeter characterized the Walrasian system of general equilibrium as the “Magna Carta” of economics. What is less well remembered is that Schumpeter also believed that the Walrasian system could never be more than a broad organizational framework for thinking through the implications of interdependence between markets and economic actors. In Schumpeter's view, operationalizing Walras in the sense of providing a usable tool for policymakers and planners to evaluate the implications of different courses of action was a utopian pipedream.

Despite Schumpeter's cautions, operationalizing Walras has nonetheless been a preoccupation of economists for several decades. The debates in the 1930s on the feasibility of centralized calculation of a Pareto-optimal allocation of resources in a Socialist economy involving von Mises, Hayek, Robbins, and Lange (and begun earlier by Barone) were implicitly debates on the operational content of the Walrasian system. The subsequent development by Leontief and others of input-output analysis was a conscious attempt to take Walras onto an empirical and ultimately policy-relevant plane. The linear and nonlinear programming planning models in the 1950s and 1960s were viewed at the time very much as an improvement on input-output techniques through the introduction of optimization into Leontief's work. And today, with the use of applied general equilibrium models for policy evaluation, the same idea of operationalizing Walras is driving a new generation of economists forward.