APPENDIX
§ 6 (to Ch. XIII, § 9)
Walras and Pareto probably deserve more attention ininterest theory, as in general economic theory, than they havereceived.
Walras ’ interest theory forms an integral part of his theory ofgeneral economic equilibrium. 1 His solution consists of ademonstration that the problem comprises a number of in-dependent equations exactly equal to the number of unknowns,and that the mathematical solution of these simultaneousequations is a counterpart of the economic process by whichthe unknowns are determined in the market. There is thus noreasoning in a circle in the Walras system. The number ofequations is exactly equal to the number of unknowns.
Walras’ treatment of the problem of the determination ofthe rate of interest is very detailed and highly mathematical.For readers who are not familiar with his treatment I ventureto attempt a brief summary. Walras assumes a market forcapital goods as well as for services. He assumes that theprices of capital goods depend on the prices of their services.Since some capital goods last longer than others and all aresubject to risk, he makes allowance for depreciation, amor-tization, and insurance.
His treatment combines the subjective and objective elementsin a simple and direct manner. His cost of production equationscorrespond, in a general way, to my opportunity principles.His equation for the demand for savings corresponds, likewise,to my impatience principles.
Pareto’ s analysis of the problem of the rate of interest 2 isalong the lines laid down by Walras, although he was evidentlynot fully satisfied with Walras’ treatment. Neither he norWalras has developed a systematic theory of income but he
•Walras, Leon, Elements d’Economie Politique Pure.
•Pareto, Vilfredo, Cours d’Economie Politique.
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