Swinging All the Way: The Education of Doctor Lucas and Foes

The canons of orthodoxy selected a peculiar vision of social evolution: the focus of economics on the analysis of the emergence and dominance of markets, described as the institutions constructed by the rule of individual maximization. In that framework, the originally established definition of equilibrium—the intrinsic drive to the changeless state of stasis—was certainly a paradoxical requisite for success. Yet, the concept of equilibrium became a cornerstone of modern economic theory, namely for very practical and concrete reasons: it provided the justification and the rationale for exhaustive quantification and computation, identified as legitimate knowledge responding to the positivist criterion of enlightening science. In that sense, orthodoxy imposed a contradictory scientific program, since change and disequilibrium, and not conservation and equilibrium, are the very nature of social relations. Nothing revealed the contradiction better than the inquiry into fluctuations of economic life.

Léon Walras intuitively argued for such a static concept of equilibrium, with his powerful metaphor of the lake: the market permanently tends to stasis, which is permanently disturbed just as the level of the lake is disturbed by the wind, "the level of the water always looking for equilibrium, without ever attaining it.... Just as the lake is in some days deeply agitated by tempests, so is the market violently agitated by crises, which are sudden and general perturbations of equilibrium" (Walras [1883] 1983, 207–8). This metaphor was a powerful inspiration for the acceptance of equilibrium as the result of the very structure of forces. But it was also an inspiration for the transition from the typical mechanical world of imposing regularities—a world projected as a clock, the masterpiece of human ingenuity in the seventeenth and eighteenth centuries—to the next generation of metaphors, conceiving irregularities as being generated by external events, the blowing winds.

Changes, therefore, could be explained as the result of shocks impinging on the stabilizing mechanism. The "normal" state of affairs, or the "natural" form of evolution, was still identified with the tendency of the system toward a rest point, but cycles entered the picture as the analogues for "winds" and "tempests." Equilibrium, as the theoretical norm, was protected, but fluctuations, as reality, were also explained.

Indeed, the pervasiveness and the impact of business cycles from the early era of industrial capitalism became a major question for the emerging science of economics. Macroeconomic theories fail or succeed depending on their explanation of business, or trade, cycles. But the identification of many of these theories with the general equilibrium paradigm of neoclassical economics is problematic, even when they claimed allegiance to it, not to speak of the Keynesian heritage. This essay discusses the intellectual process establishing the canon, through the education of models and modelers, in order to match the general framework of Walrasian economics with the explanation of irregularities, or equilibrium cum fluctuations.

Three successive models of models and their respective foundational metaphors are scrutinized for that purpose. The first, just referred to, is the image of the lake, suggested by Walras himself. It provided a framework, based upon the distinguo between structure and behavior, or mechanics and environmental influences, and consequently established the operational definition of endogeneity and exogeneity, attributing intelligibility to one and causality to the other. Cycles were consequently described as independent modes of oscillation created by factors alien to the natural equilibration of the system.

Nevertheless, the exact nature of this equilibration process could not be captured by the analogy of the lake. The lake is a given, and the winds producing waves and changes are mostly outside the scope of human action—bucolic contemplation is not the function of economics. Action was required to tame the business cycle, and that was the creed of the next generation of metaphors and metaphorists.

As understanding was supposed, in the positivist universe, to equal the design of a mechanical representation of the phenomenon, Ragnar Frisch suggested a...