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The Lausanne School
("Walrasians")
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The "Lausanne School" refers to the Neoclassical school of thought surrounding the Frenchman Léon Walras and the Italian Vilfredo Pareto. The central feature of the Lausanne School was its development of general equilibrium theory, generalizing and extending the applicability of the Neoclassical.approach to economics. The Lausanne School has also been alternatively referred to as the "Mathematical School" (due to its stress on mathematical exposition) or the "Italian School" (given the early presence of so many Italians in its ranks).
Léon Walras, one of the leaders of the Marginalist Revolution of the 1870s, taught at the Academy of Lausanne in Canton Vaud, Switzerland, from 1870 until 1893. He was succeeded in his chair by Vilfredo Pareto, one of the leading figures of the 1890s Neoclassical generation. Although the core of their theories were identical, their emphasis and mode of analysis of these two men were pronouncedly different. Consequently, one can distinguish between the early "Walrasian" and the later "Paretian" stages of the Lausanne School.
The "Walrasian" approach was set forth by Léon Walras in his Elements of Pure Economics (1874). His fundamental tool of analysis was a system of simultaneous market demand and supply equations. He was mainly interested in analyzing grand themes: the existence of an equilibrium solution to a this system, the stability of that equilibrium, the incorporation of capital and growth and the introduction of money.
However, for many of his Italian disciples, such as Vilfredo Pareto, Enrico Barone and Giovanni Antonelli, the grand themes were perhaps not as interesting as the details. Put differently, they were particularly interested in the "microfoundations" of general equilibrium systems, the relationship between decision-making households and firms and the resulting general equilibrium. Consequently, the research focus of the Lausanne School moved in a different direction.
As this new direction was announced most prominently in Vilfredo Pareto's Cours d'économie politique (1896-7) and enshrined in his Manual of Political Economy (1906), we shall refer to it as the "Paretian" phase. The Paretians saw the problem as one of ensuring the compatibility of the individual incentives and constraints of consumers and producers in equilibrium. Thus, they concentrated on analyzing the relationship between demand and consumer preferences, between production and the profit-maximizing behavior of firms. The differential calculus and Lagrangian multipliers, rather than simple linear systems of equations, were their tools of choice. From these, they constructed a rather grand "Paretian general equilibrium system" -- a system of equations, to be sure, but one where the agent-theoretic microfoundations were starkly brought to the fore. They replaced all the grand themes of Walras with a single new one of their own: the efficiency and social optimality of equilibrium.
The Lausanne School was not very successful beyond the confines of the small group that surrounded Walras and Pareto. In England, it was professionally buried under the weight of the Marshallian orthodoxy, while in Continental Europe, the opposition of the German Historical School and its French equivalent prevented it from spreading very far. They had little chance to break into America either. The main obstacles were not only their theoretical stance or their focus on an elaborate, idealized economy, but also language. Their work was mostly written in French or Italian, left largely untranslated and published in relatively obscure locations ((their most prominent organ was the Italian journal, Giornale degli economisti). Few economists came across it and, when they did, the generous coatings of mathematics ensured that most of them could not make head or tails out of it.
However, a few highly-talented individual economists with mathematical aptitude did pick it up. Ladislaus von Bortkiewicz, Knut Wicksell, Henry Moore and Irving Fisher were greatly inspired by Walras's theoretical system. Albert Aupetit and Karl Schlesinger continued to work on Walras's theory of money while W.E. Johnson and Eugene Slutsky advanced the Paretian "tastes-and-obstacles" approach.
Things changed considerably in the 1930s. In the 1920s, Étienne Antonelli and Gustav Cassel had taken it upon themselves to resurrect Walras's work from obscurity. Cassel's restatement of the Walrasian general equilibrium system sparked some interest on the Continent. This led to the formation of the Vienna Colloquium in the 1930s around Karl Menger, where mathematicians and economists sought to resolve some of its knottier difficulties. In America, the publication of Irving Fisher's Theory of Interest (1930) illustrated how one could use a Lausanne-style general equilibrium system to explain macroeconomic issues, while Henry Schultz carried on Moore's task of marrying Lausanne economics and empirical analysis.
However, it was the revival of the Paretian system in the 1930s which proved to be the seminal event. The main catalyst was the famous 1934 article by John Hicks and R.G.D. Allen on the derivation of demand from preferences. Throughout the 1930s, John Hicks, Harold Hotelling, Oskar Lange, Maurice Allais, Paul A. Samuelson and many others continued to develop the Paretian general equilibrium system, much of it now in English. Paretian concerns with efficiency spawned the "New Welfare Economics".
Concurrent events, such as the implosion of the Marshallian system under the weight of the Keynesian and monopolistic competition revolutions and the destruction of the European academic establishment by the Nazis, meant that the traditional pillars of resistance were absent. The foundation of the Cowles Commission, the Econometric Society and two mathematically-unrestrained journals, Econometrica and Review of Economic Studies, helped bring scattered theorists together and gave them a forum. The resulting spurt of research energy helped conquer many economics departments in the American and British universities for the Lausanne School, giving them a new institutional basis for advancement.
The Paretians would dominate events until the1950s, when mathematical economics underwent a small revolution in the hands of the Tjalling Koopmans, Kenneth Arrow, Gérard Debreu and the Cowles Commission. From this, the modern Neo-Walrasian School was spawned. Its main achievement was the reconstruction of general equilibrium theory in a manner which reconciled the original Walrasian and Paretian strands of the Lausanne School and gave it a new technical apparatus and scope.
Finally, we should perhaps note that the University of Lausanne itself has changed considerably in the past century. It has shed a lot of the mathematical trappings of the original schools and focused on the overlap of sociology and economics, along the lines of François Perroux. This "third" strand of the Lausanne School can trace lines of descendence from Walras's and Pareto's work.
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