Stability of Absolute Prices in a Walrasian System

Abstract

There now exists a considerable volume of literature on the formal properties of Walrasian equilibrium systems. ^2/ The present note does not aim at supplying any new theorems on the subject. I shall merely be concerned with certain questions of economic interpretation. More specifically, I want to consider the meaning of the following customary textbook and classroom statement: “In a Walrasian equilibrium of exchange the level of absolute prices is arbitrary.” I should also add that my objective is very limited in the sense that I do not propose to go into any intricacies concerning specific theories of the demand for money.

I owe thanks to my former student, Mr. A. Sorsveen, whose notes from a lecture of mine were helpful in preparing this article. I am also indebted to my colleague, Mr. K. Sydsaeter, for valuable advice on the mathematics involved.