The Passage of Time, Capital, and Investment in Traditional and in Recent Neoclassical Value Theory

With the shift from traditional analyses where capital is a single value factor of variable ‘form’ to the neo-Walrasian versions, general equilibrium theory has encountered new problems pointed out by P. Garegnani (1976, 1990): impermanence problem, price-change problem, substitutability problem radically question the right to consider neo-Walrasian equilibria as approximating the actual path of real economies. The paper briefly summarizes these problems and then concentrates on a fourth problem, the savings-investment problem, arguing that neo-Walrasian general equilibrium theory assumes that investment is adjusted to full-employment savings but cannot justify this assumption. The attempt to justify it in intertemporal general equilibrium through the tâtonnement is subjected to a new criticism: it is shown that the tâtonnement assumes Says’ Law all along the adjustments, and determines investment in a way that would crumble if it were not assumed that consumers determine their demands for consumption goods on the basis of an assumption of full employment incomes, which is not justified outside equilibrium, and was not assumed in traditional analyses. This reinforces the absence of reasons to view neo-Walrasian equilibrium paths as sufficiently approaching actual paths. It is concluded that behind the reference to intertemporal equilibrium as the microfoundation of macro analyses there is a continuing faith in traditional neoclassical time-consuming adjustment mechanisms, based on the old and untenable conception of capital that the shift to neo-Walrasian equilibria intended to do without.