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TheBaseCampParadox:AReectiononthe PlaceofTtonnementinGeneralEquilibrium Theory

MichelDeVroey
EconomicsandPhilosophy/Volume6/Issue02/October1990,pp235253 DOI:10.1017/S0266267100001231,Publishedonline:05December2008

Linktothisarticle:http://journals.cambridge.org/ abstract_S0266267100001231 Howtocitethisarticle: MichelDeVroey(1990).TheBaseCampParadox:AReectiononthePlaceof TtonnementinGeneralEquilibriumTheory.EconomicsandPhilosophy,6,pp 235253doi:10.1017/S0266267100001231 RequestPermissions:Clickhere

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Economics and Philosophy, 6 (1990), 235-253. Printed in the United States of America.

THE BASE CAMP PARADOX

A Reflection on the Place of Tatonnement in General Equilibrium Theory

MICHEL DE VROEY

Universite Catholique de Louvain

A basic issue in political economy is the question of how a decentralized economy is possible: How can a system survive and, moreover, be efficient, if all decisions are taken independently, that is, without any explicit coordination?1 The issue has two sides to it. On the one hand, it is a "thought experiment," falsifiable only on logical grounds, an object of debate for the sake of pure intellectual interest, even for people who might not live in a market economy. On the other hand, for those who do or might live in such an economy, a thought experiment of this kind contains a critical political dimension, for the conclusions derived from it will usually be appealed to in arguing about the ideal organization of the economy. According to Hahn, the aim of general equilibrium theory (henceforth, GET) is to address this issue: "Smith not only posed a obviously important question, but also started us off on the road to answering it.

An earlier and quite different version of this article was published in the Revue Economique, July 1987, under the title "La possibility d'une economie d^centralisee: Esquisse d'une alternative a la thorie de l'equilibre general." I am grateful to the following for their helpful comments: C. Arnsperger, J. Cartelier, L. d'Ursel, D. Foley, D. Hausman, S. Marglin, C. M6nard, P. Mongin, P. Salmon, M. Sawyer, P. Solar, W. Samuels, and two anonymous referees. 1. While Adam Smith has often and rightly been credited for first having raised this issue, its Hobbesian underpinning should not be forgotten, for what is at stake is the counterintuitive possibility that social harmony can result from human rivalry. 1990 Cambridge University Press 0266-2671/90 $5.00 + .00. 235

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GET as classically stated by Arrow and Debreu is near the end of that road" (Hahn, 1981; reprinted in 1984, p. 72)} Comparing Adam Smith's question to a peak to be scaled by economic theory, Hahn asserts that Walrasian equilibrium, in its ArrowDebreu formulation, is the indispensable base camp for such a climbing (1984, p. 10). This view has become the object of a large consensus within the economic profession and, indeed, it has going for it quite impressive theoretical developments. Still, one may wonder whether the conceptualization of a market economy on which it rests is adequate and, hence, whether Walrasian equilibrium is really the best place to set up the base camp. The aim of my article is to address this adequacy issue. The basic intuition is that to deal with it one has to investigate the role of the tatonnement (henceforth, TAT) assumption within GET. I argue that this role is far more important than is usually admitted, and that adopting this assumption leads to a paradoxical result, which I call the "base camp paradox," that what is allegedly a decentralized economy turns out to be a planned economy. Thus, the Walrasian base camp appears to be oddly located. Rather than being at the foot of the summit that has to be climbed - a really decentralized economy - it is located at another summit - a centralized economy. And, although such a paradoxical location is defensible as a useful methodological detour, this situation nevertheless calls for reflection about an alternative starting point, in which the premise of the analysis would more closely correspond to its explanandum. While the claim that GET has a centralized economy as its object of analysis is not new,3 it is striking that it has not had much impact. Such "benign neglect" must be explained. It is due, I will submit, to a lack of in-depth reflection on the definition of a market or decentralized economy. The view that a TAT economy (as I will call an economy based on the TAT assumption) is centralized follows from such a reflection, which furthermore suggests a close resemblance between a TAT economy and "market socialism," as this notion was used in the debate on socialist calculation. So the Walrasian economy ends up being a special type of socialist economy! This in turn paves the way for carrying over to the Walrasian approach those criticisms voiced by neo-Austrians, in particular Hayek, against socialists such as Lange. The article has six sections. The first five deal with the critical analysis of GET. In the first section, I recall a basic distinction between price
2. Hahn's position concerning the success of GET cannot be gleaned from such a statement. Other statements come closer to the views developed in this article, for example: "GE is strong on equilibrium and very weak on how it comes about" (1973; reprinted in 1984, p. 140). 3. See for example, Clower (in Walker, 1984), Fisher (1983), Hahn (1984), Howitt (1973), Leijonhufvud (1968, 1981), Ostroy and Starr (1974), and Weintraub (1979).

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determination and price formation. The second section describes the TAT institution in its more extreme version. The third section discusses the definition of a decentralized economy and shows the resemblance between the TAT economy and market socialism. The fourth section deals with some weaker versions of TAT. The fifth section is concerned with the way in which GE theoreticians interpret the notion of TAT and its theoretical role. This section also briefly discusses the New Classical view. The central defect of the view of Lucas and his followers consists, I will claim, in their unawareness of the base camp paradox and their unquestioned acceptance of the TAT assumption. The last section of this article is of a very different nature. It discusses some theoretical consequences that follow from radically abandoning the TAT assumption and outlines some features of what a theory starting from an alternative base camp could be.
THE DISTINCTION BETWEEN EXISTENCE AND PROCESS

The question to be answered is whether a market economy is viable. Since the notion of viability is rather vague, a more operational object of analysis is chosen - namely, under what conditions is an equilibrium possible in a decentralized economy? The query about equilibrium must thus be seen as a more tractable rephrasing of the viability question.4 The "conditions of possibility" can be understood in two ways, since one can distinguish between logical and real possibilities. Consequently, two lines of research can be distinguished. In the first one, the investigation aims at asserting the logical conceivability of states of equilibrium, a problem referred to as determination of equilibrium prices. This part of the theory amounts to building up rigorous existence theorems, which in turn open the way to further exploration of the properties of equilibrium (efficiency, uniqueness, etc.). All this can be done without taking into account the way in which states of equilibrium are attained, which is the second line of research, usually referred to as price formation. Here the social process, the interaction among agents by which equilibrium states are achieved, is under examination: How will the economy reach the equilibrium magnitudes, given that economic actors do not have the same information as the omniscient model-builder? The GET viewpoint concerning this distinction has three aspects. First, the theoretical legitimacy and usefulness of making an analytical separation between existence and process is asserted. Second, the existence aspect receives a logical and practical priority over the process dimension. This program has shown its fruitfulness, since it has led to a series of results about both existence and efficiency. Such achievements
4. However, it should be understood that equilibrium clearly is much too strong a proxy for viability, since disequilibrium, in itself, is not in contradiction to viability.

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do not mean, however, that the existence aspect of the research program has been completed, since the results pertain only to the most heroic models. The third feature concerns the way to approach the problem of processes. Here there is no consensus among GET authors, beyond the view that it should be treated in a second stage. I will return to this point later on. In Walrasian theory itself, however, the process dimension is entirely dealt with through the TAT assumption.
PERFECT TATONNEMENT

As shown by Jaffe, Walras' views about the meaning of TAT were rather embryonic and evolved over time from a realistic and would-be dynamic conception to a "theory of virtually timeless, simultaneous and mechanical adjustment operations" (Jaffe in Walker, 1983, p. 252). It will be shown that nowadays this interpretative ambiguity is still present. But first I must delve into the content of the notion.5 I define (perfect) TAT as the set of behavioral and institutional assumptions, insuring that equilibrium prices obtain or, in other words, that exchanges at "false prices" are excluded. Several comments are in order. First, despite a semantic analogy, the notion of TAT should not be confused with that of gravitation, put forward by classical economists, for the latter is perfectly consistent and even implies exchanges at "false prices." Second, adopting this definition and considering a Walrasian economy as based on TAT gives the notion of Walrasian equilibrium an axiomatic character. Third, the equilibrium price vector may obtain in several ways. In other words, TAT may take several forms. The standard one is the "auctioneer scenario." After describing it, I will turn to an alternative form that is probably more appealing, "the omniscient agents scenario," and show that it amounts to the same thing. Fourth, imperfect TAT refers to cases in which the TAT setting, while globally maintained, is altered in some specific respects, allowing for different results. To describe an auctioneer-led TAT, two issues are to be considered. First, what type of social organization should one conceive of in order to ensure the attainment of equilibrium magnitudes? Second, once these are reached, how is trade organized? The first four of the following points answer the first question; the fifth point deals with the second. (a) Agents must convene. It is often supposed that they meet in a "big hall" or, at least, participate in a communication network that allows them to exchange information (through the exclusive intermediation of the auctioneer) before exchanges take place. (b) There exists an auctioneer (a person, possibly a computer) to serve as the coordinator of private decisions. His role is to implement
5. For other assessments see Walker (1972, 1987a, 1987b). The reader is also referred to The New Palgrave Dictionary entries by Fisher (1987, "Adjustment Process and Stability"), Hahn (1987, "Auctioneer"), and Negishi (1987, "Tatonnement and Recontracting").

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price adjustment by announcing and changing prices and holding transactions still until adjustment is completed,7 thereby forbidding exchanges at "false prices." He is external to the economy: he is not an exchanger and he performs his role at no cost to the traders. Thanks to him, all signaling problems are avoided. His function is to establish equilibrium, thereby making private intentions compatible. On the other hand, the auctioneer must not be likened to a central authority, as in a command economy, for he has no power to limit the agents' freedom. Note also that his presence makes money unnecessary. (c) Economic agents are price-takers. Price-setting may be described as impersonal in the sense that the only agent who is able to set and to change prices is the auctioneer, an outsider. Exchangers act as free and rational optimizers. They are isolated from each other, in that their preferences are defined independently of those of other agents. Mimetic behavior, for example, is absent. The quality of goods and services is fully known to them, so that prices are the unique and sufficient means of information. Agents are presumed not to display manipulative behavior. Information is symmetric. (d) The complete description of TAT implies the specification of the time-structure wherein the price-formation process takes place. In this respect, despite its irrealism, instantaneity or logical time seems the easiest assumption to make. Thus, everything supposedly takes place simultaneously. TAT must be completed before consumption and production take place; otherwise the content of the equilibrium vector would become different. Asserting that exchanges take place only when equilibrium prices are reached in all markets amounts to seeing decisionmaking as a unanimous phenomenon involving all the members of the exchange community. Bilateral transactions are excluded. All contracts stand together and are interdependent. (e) Once equilibrium prices have been determined, goods and services still have to circulate. Different devices may be imagined, as, for example, a central warehouse where all suppliers deliver their commodities or the direct organization by the auctioneer of meetings between trading partners. In any case, it is assumed that the search for partners and the circulation of goods are costless. Transaction costs are thus excluded. Concerning the fulfillment of contracts, the informational and behavioral assumptions make it possible to rule out moral hazard

6. Samuelson's standard formulation (1941, p. 102) is as follows: dp/dt = H[D(p,a) S(p)], where H(0) = 0, H' > 0 and a is a parameter. 7. Assuming stability. A sufficient but not necessary condition for the latter is gross substitutability, i.e., an increase (decrease) in the price of the jth commodity will increase (decrease) the excess demand for the ith commodity for all i # ;'.

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and shirking phenomena. Therefore the implementation of contracts supposedly raises no problems. The auctioneer version has the drawback of making adjustments depend on the intervention of an outside actor. One possible way of avoiding this is the "omniscient economic agents" assumption, a version which definitely looks more modern. While the auctioneer is thrown overboard, it is still assumed that agents convene or communicate before trade. But, it is now assumed that they have a full knowledge of the economy, including all utility and production functions and all demand and supply schedules. Hence they are hardly indistinguishable from the omniscient theorist. What is ascribed to them is much more than rational expectations and knowledge of economic theory. It is also supposed that they know the economic data needed for applying the theory. In particular, objects of knowledge, which should be seen as purely private (such as utility functions), are assumed to be common knowledge. Once this assumption is made, the rest follows. Economic agents are able to
do themselves the task performed earlier by the auctioneer and calculate

equilibrium magnitudes. Since they all share the same information, the only price vector (assuming unicity) at which transactions will occur is that one which would have been established by the auctioneer. Exchanges at false prices are again excluded. Thus the new assumption amounts to the more traditional assumption. Under the latter, the auctioneer is present in flesh; under the former, agents have an auctioneerlike computer in their minds.8 In such a TAT framework, whenever exchanges take place, agents know for sure that the prices and quantities they observe are equilibrium magnitudes. Left to themselves, they would be unable to discriminate between "false" and "equilibrium" prices. Thus, in a TAT economy, equilibrium necessarily occurs and is an observable, indisputable reality, for economic agents themselves.9 There is no room at all for disequilibrium or for "out of equilibrium" situations, since reaching equilibrium is a precondition for transactions. There is, however, one crucial snag. It crops up when one realizes that TAT is a very paradoxical institution. On the one hand, in a TAT framework, agents remain entirely free. On the other hand, a TAT framework requires tremendous social discipline, as this story makes clear. So the beauty of TAT - that it provides a story describing how equilibrium
8. In the sequel, I will continue to refer to the traditional form. 9. Underlying this notion is a threefold ranking of levels of knowledge about equilibrium, according to the identity of the subject of knowledge. First, the model builder or theoretician knows equilibrium at once, for he is able to calculate equilibrium magnitudes since he knows all agents' functions. Second, the auctioneer knows that equilibrium is reached as soon as he observes that all excess demand functions equal zero. Third, economic agents know that equilibrium is attained, once they see that the auctioneer is allowing trade. They know that magnitudes then observed are equilibrium magnitudes.

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comes about - might also be its crucial weakness: if the problem of adjustment is solved, it is because of a trick. In effect, adopting the TAT assumption amounts to transforming the object of analysis. What should be a decentralized system is subtly converted into its opposite, a centralized economy. As said earlier, such an assertion is not new. But it continues to appear odd, and acceptance of this view is not widespread. This may be explained, I suggest, by the fact that economists have neglected to reflect seriously on a preliminary question, bearing on the nature of a market economy and its contrast with a command economy.

DEFINING A DECENTRALIZED ECONOMY

Usually, the dichotomy between a market economy and a socialist or command economy is based on one unique criterion. It may be expressed in two different but equivalent ways. A first one is the presence or absence of a central authority that makes decisions about production and distribution of goods and services. The other one is the ownership structure, leading to opposing public and private ownership (especially, of means of production). Now my claim is that a second criterion is needed. It relates to the way in which decisions are coordinated. In this respect, one should distinguish between a planned system, wherein coordination is achieved a priori way (or wherein decision-making and social validation of decisions are concomitant) and an unplanned system, characterized by a lack of a priori coordination. While a planned economy features a two-step sequence (first phase: decision-cum-validation, the two taking place concomitantly; second phase: carrying-out of decisions), an unplanned economy has a three-phase sequence (first phase: private decision; second phase: carrying out of the latter; third phase: social validation or lack of validation of private decisions). Two consequences follow from this distinction. First, one may think of shifting the main criterion used for defining socialism. I, personally, would indeed maintain that priority should be given to coordination rather than to the ownership structure, for the former refers to a process, a way of organizing trade, while the latter refers to a legal and distributional issue. Second, applying both criteria allows one to construct more subtle typologies. Indeed, two types of socialist systems could be distinguished. The first one corresponds to the traditional representation of a command economy, in which the allocation is decided in authoritarian fashion. The second type is "market socialism," as defined by Lange and Dickinson in the controversy over economic calculation under socialism (Dickinson, 1933; Lippincott, 1938). In market socialism, the central planning allocation supposedly conforms to marginalist principles and in fact mimics TAT. I shall come back to it shortly. Furthermore,

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the category of a private ownership economy also appears too general. A private, planned economy (without public ownership of means of production and central authority, but with a priori coordination of decisions) is perfectly conceivable. This is indeed precisely what is conveyed by the TAT construction. Once it is perceived that these two criteria are important, one can no longer be content with using just one of them. It then becomes quite natural to see a market economy as characterized by the double absence of central authority and of a priori coordination or, in other words, by private property and a posteriori coordination. The flaw of the TAT assumption in terms of its relevance for its alleged object of explanation is then obvious. As an institutional setting, it ensures full a priori coordination of decisions. But for this very reason it is an inadequate representation of a market economy. What it describes is a special sort of planned economy - special because planning is usually (but wrongly) exclusively associated with the absence of private property. Thus, the object of analysis of GET is not a decentralized economy. This is the "Walrasian base camp paradox." As long as the other criterion of definition is not taken into account, this paradox remains hidden. Ironically, if one stresses coordination or the organization of trade while leaving ownership in the background, the TAT economy and market socialism look like twins. Hence, one may assert that TAT amounts to a socialist way of organizing the economy - the auctioneer and the central planning agency play exactly the same role. At this stage, it is difficult to resist the temptation to play on the opposition between two branches of neoclassical theory, the neo-Austrian and the Walrasian, and throw back to GET the criticisms addressed by Hayek (1947) to Lange and Dickinson. Take, for example, the views advanced by a contemporary interpreter of Hayek, Karen Vaughn, while just changing the words "socialist" and "socialism" into "GE theoretician" and "TAT": Thus Hayek argued specifically that while the model the 'GE theoreticians' ['socialists' in the original] were using to arrive at their solution to the pricing problem were not logically contradictory and 'TAT' ['socialism' in the original] was not therefore impossible in the sense of being theoretically inconceivable, it was nevertheless practically impossible, since the 'TAT' ['socialist' in the original] model bore no relationship to the manner in which prices were formed in the real world. (Vaughn, 1980, p. 53)10
10. As cogently argued by Lavoie (1985), one may reinterpret the "socialist calculation debate" as opposing neoclassical (or in my terms, GET) economists, focusing on the existence dimension and Austrians, emphasizing the process aspect of the pricesystem. The oddity is that the neoclassical viewpoint was represented by the "socialists." This taking-over is described by Lavoie in the following terms: "There is no

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The reader should, however, not infer that I am definitely against the use of the TAT assumption. For me, the perception of its paradoxical nature is not a reason for rejecting it. If I have a quarrel, it rather concerns its interpretation.
IMPERFECT TATONNEMENT AND CONTEMPORARY DEVELOPMENTS OF GET

Modern developments in GET have gone far beyond Walrasian equilibrium. To give even the most superficial survey of them clearly falls outside the scope of this article. A few remarks will, however, suffice to make my point. First, it should be noticed that most new developments are still essentially concerned with the issue of existence. Their aim is to prove existence in a less heroic context, by relaxing some of the Walrasian assumptions about information, transactions costs, search, moral hazard etc. Process analysis, including the problem of the organization of trade, has remained a strikingly neglected terrain, with a few exceptions (Clower and Friedman, 1986; Fisher, 1983; Hahn and Negishi, 1962). Second, whereas it is true that not many economists would outspokenly defend and stick to the pure Walrasian TAT process, this is misleading. For, in most cases, if there is indeed a departure from perfect TAT, it is only a homeopathic change.11 Even in the so-called nontatonnement theories, with which I fully sympathize, the label is a misnomer. These theories should be more appropriately renamed "quasi-tatonnement" or "slightly imperfect tatonnement" processes because, while removing one or the other of the elements of Walrasian TAT, they keep all the others in their extreme form. Strictly speaking, the expression "non-tatonnement" should be reserved for social processes that diverge completely from the Walrasian world, such as developed in the neo-Austrian approach or in the alternative model I will

way, Mises claimed, in which this knowledge (about the more effective ways of combining the factors of production) can be generated without rivalry - that is, if all production plans are constrained in advance by being precoordinated under a single plan. Market prices are seen as both the consequence of this entrepreneurial rivalry and as the guides, through economic calculation in profit/loss accounting, for decisions that are made to achieve a more rational use of scarce resources. The neoclassical paradigm, represented by the market socialists in the debate, has recognized and elaborated upon this latter guiding role of prices, but has largely ignored their rivalrous underpinning. Models of static competitive equilibrium banish economic rivalry from the scene and employ the construct of a (centralized) Walrasian auctioneer to adjust the prices that the actual participants passively accept as "parametric." Within this essentially static framework, it seems quite plausible to imagine a central planning bureau fulfilling the auctioneer's duties" (Lavoie, 1985, p. 24). 11. A typical procedure is to assume the five first points of perfect TAT, which allow for the attainment of equilibrium magnitudes, while introducing some decentralization in trade organization. See, for example, Lucas (1987, p. 73).

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present later. Thus, to come back to my initial metaphor, not much progress has been made in escaping the base camp paradox. Despite contrary assertions, GET, explicitly or implicitly, remains largely tied to the TAT framework. Again, this in and of itself is not a defect, since the odd location of the base camp, and the fact that departures from it are only gradual, are defensible on methodological grounds.12 What must be criticized, however, is both the generalized unawareness of the existence of the paradox, and the subsequent tendency to misrepresent the object of discourse by continuing to call decentralized a social procedure that is actually centralized. An example of this is the well-known "islands" metaphor, advanced by Phelps (1970, p. 6). My target is not so much theoretical as its semantic content. The island image suggests, it seems to me, a context of strong decentralization and a posteriori coordination. But this is not at all the case in Phelps' example. The theoretical shift that the image introduces is only a small variation on the TAT theme. Within it, all prices are formed in a centralized way, except for some lack in real wage adjustment. Thus, the island story belongs, let us say at a 99% level, to the TAT framework. Contrary to its semantics, Phelps' islands universe remains much akin to the big auction hall, referred to in the TAT story.
INTERPRETATIONS OF TATONNEMENT

To classify GET authors' conceptions about the role and place of TAT in their theory, three different positions can be distinguished, which I label the "rejectionist view," the "unconditional acceptance view," and the "conditional acceptance view," respectively.
The Rejectionist View

The "rejectionist view" considers TAT simply as an anecdote or an illustrative story that does not belong to the theory in any essential way. According to it, the analysis of existence and efficiency is the exclusive object of GET, which should thus remain mute about processes. Such a view is surely legitimate, but one must be aware of the consequence of adopting it: connections may no longer be claimed between the results of economic theory and real-world markets. If this view is held, GET cannot be seen as aiming at answering Adam Smith's basic question, for this implies that both dimensions of the conditions of possibility problem must be tackled.13

12. Such slight departures may indeed lead to rather unorthodox results, in particular multiplicity of equilibrium. See Diamond (1982) and Howitt (1985). 13. For an opposite viewpoint, see Hausman (1984).

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This view is at the other end of the spectrum. It consists in reaffirming Walras' initial position (abandoned by him later on, as shown by Jaffe), that TAT is a "stylized" representation of real market forces. It is considered a good assumption, not at a descriptive level but at an instrumental one, an "as if" construction in the spirit of Friedman. While this is obscured by their reference to the "omniscient agents" version of TAT rather than to the auctioneer version, New Classical economists are definitely to be counted among the defenders of this view. These authors seem to think that a principle like the following one can be taken as axiomatic: economic agents will always find any unexploited satisfaction or profit opportunities and proceed to exploit them.14 Such a proposition, it seems to me, rests on two conditions. A first one (and also the most stressed one) is the assumption of rationality and maximizing behavior. A second and more neglected one is that, for all advantageous trade possibilities to be exploited, there must exist an adequate institutional setting. In what could it consist? I can see no other answer than TAT. Hence, we fall back on the problem of adequacy analyzed earlier. The heart of the matter is whether TAT, despite its radical descriptive inadequacy with respect to a real decentralized economy, may nevertheless be seen as the stylized figure of market forces or competition. In other words, is one allowed to think that the notions of TAT and gravitation, as used by classical economists, are synonymous or have the same object? For sure, such an assertion cannot be accepted at its face value. It has to be proven, which precisely is not done. As long as it is not elaborated on and remains at the intuitive level, no theoretical conclusion may be drawn. Hence, my dissatisfaction with such an interpretation of TAT: it begs the question by taking for granted what has to be explained, namely, the concrete process by which equilibrium prices are formed.15 As forcefully stated by Hahn: "to leave [the question of
14. This formulation was suggested to me by a referee commenting on an earlier version of this article. 15. New Classicals would probably object to such a criticism in terms of a Friedmanian or instrumentalist methodology. It does not matter, they would probably argue, that a decentralized economy is modeled under the picture of a centralized economy. What does matter, however, are the predictions made on the basis of this explicitly unrealistic model. This debate is, of course, too broad to be dealt with here. Hence, 1 limit myself to two remarks. First, as often argued, one may be skeptical about the capacity of econometric studies to bring to a close such theoretical debates. Second, it has been argued that the "irrealism of assumption thesis" is either a trivial one, in which case it does not serve its immunizing purpose, or a grossly unacceptable one (see Mongin [1988], where this is argued by showing that this thesis is a distortion of the standard philosophical thinking on theoretical terms).

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the coordinating power of the price mechanism] unstudied, is to leave very important matters in darkness. The auctioneer is a coordinator DEUS E X MACHINA and hides what is central" (1987, p. 137). To conclude, the unconditional acceptance of the TAT assumption, as exemplified by the New Classical school, suffers from a surfeit of ambition, in contrast with the rejectionist view. This position amounts to holding a very optimistic valuation of GET and its scientific success. Trumpeting the success of GET and at the same time accepting TAT as a theoretical blackbox seems an unacceptable position to me.
The Conditional Acceptance View

In this view, which may be associated with authors like Arrow and Hahn, among several others, TAT is seen as an assumption usefully to be made at an elementary stage of theory, because it permits concentrating attention on the equilibrium price determination problem, while not excluding, at least formally, the price formation aspect. But, intrinsically, the assumption is deemed to be unsatisfactory and in need of a gradual removal, along the lines of non-Walrasian existence and stability theories. Since this interpretation accepts the view that the overall success of GET depends on progress in the removal of Walrasian TAT, adopting it, however, obliges one to hold reserve judgment about this success. And such a position, of course, implies that no inferences about the real world are allowed to be drawn from results obtained in the TAT framework. As the reader will easily guess, this is the view that I, personally, would endorse.
AN ALTERNATIVE BASE CAMP: THE SEPARATION ASSUMPTION

The foregoing analysis should not be interpreted as recommending writing off GET as a research program. Such a suggestion would be presumptuous; moreover, it would be wrong. Despite its flaws, GET has witnessed impressive developments and has revealed itself much more flexible than expected. On the other hand, alternative research programs, such as the neo-Austrian, the post-Keynesian, or the Marxian ones, have not been able to develop in a similar, cumulative way, so that one of the strengths of GET lies in the weakness of rival theories. Still, I believe that it is worthwhile to look for alternative research directions. In particular, I find it important to investigate the consequences of totally rejecting the TAT assumption and to address the question of how to conceptualize a "really" decentralized economy. Earlier, I have characterized a planned economy by an a priori coordination of decisions. The latter is precisely what is absent in a really decentralized economy. Here, decisions are taken privately in a context of deep uncertainty about their outcomes. Agents commit themselves

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by spending money in an irreversible way without knowing, when the decision is made, whether it will prove well-founded or not. Such a system can be called a separated economy, the term "separation" referring to the fact that decision-makers are isolated and have no possibility of a priori communication. The problem is to analyze its functioning. What new or specific concepts are needed? Taking TAT as a negative reference, the following four lines of research can be pointed out. First, while TAT is characterized by simultaneous decision-making, a posteriori coordination makes sense only if some sequentialism is introduced, obviously a more realistic viewpoint. Second, these assertions made about equilibrium, especially the proposition that it is a prerequisite for transactions, are no longer valid in the new context. The way in which the notion of equilibrium may play a role in explanation is thus bound to change. Third, in TAT money has no place. Would it not be the case that abandoning this framework will result in giving money a central role? Fourth, Walrasian theory, originally at least, treats all markets as formally identical and does not give a particular treatment to the labor market. Again, would it not be the case that in a separated economy this principle would no longer hold, thus paving the way for the view that the labor market is radically different from others? For lack of space, I will limit myself to the first two questions.16
The Sequential or Overlapping Monetary Circuits Framework

To conceptualize a sequential economy is undoubtedly a difficult task. One possible approach consists in emphasizing the role of traders, as suggested by Clower and Friedman (1986). Here I suggest another line of research centered on the notion of circuit, as modernized by Foley. Such an approach "views the circular flow of commodities and money from the perspective of the income statements and balance sheets of capitalist firms" (Foley, 1986, p. 1). The separated economy may then be conceptualized as a web of interconnected and overlapping "monetary circuits."17 The notion of circuit traces the different stages of a given production and trade process. An initial inflow of money serves to purchase factors of production (this is the opening of the circuit); goods are

16. The reader might ask what exactly is the status of the subsequent analysis? It is not a manifesto for a new paradigm but a more modest exercise in theoretical scenario constructing. My main reason for engaging in such an exercise is that, for reasons which cannot be explained here, I, like several others, while critical of GET, also feel dissatisfied with the existing established alternatives, be it the Marxian, the postKeynesian, or the neo-Austrian theory. 17. Contrary to some other uses of the circuit notion, where it refers to the economy as a whole, here it receives only a micro-interpretation.

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produced, and then they are sold, with their sale involving a flowing back of money and the closure of the circuit. When credit-money is involved, two further surrounding stages are added: money-creation and money-destruction, the latter being debt repayment. The flowing back of sufficient earnings may be seen as validating the earlier circuit opening. The contrast with TAT is that in TAT, decision-making and validation cannot but go along, while here they take place sequentially and may be dissociated: it may well be the case that validation does not occur. The magnitude of a particular circuit depends on the importance of the project it finances. In principle, there are as many circuits as there are business ventures, which immediately reveals that in practice it would be quite difficult to separate one circuit from another within a given firm. A notion of monetary circuit provides several insights, leading to a conceptualization of the market economy very different from what is conveyed by GET. Overlapping circuits. The different operations take place in a definite order. Even if, for the sake of the argument, each operation were seen as taking place instantaneously, the circuit cannot be reduced to one point in time. It must refer to a succession of such points. Moreover, individual circuits necessarily overlap. Consider the opening of a circuit. It consists in a purchase that obviously represents a sale for another agent. Consequently, in the simplest possible case, the opening of one circuit coincides with the closure of another. Hence, the notion of an absolute beginning of the economy does not make sense: were all circuits to start at the same point in time, there would be nothing to purchase and so the start could not occur! Consider now the other end of the process. If at time t, a given entrepreneurial unit opens a circuit, thereby more or less irreversibly engaging in a specific production process, this is based on the assumption that other units, both at the same time and later on, are making decisions the eventual outcome of which, at t + x, will be to validate its own decision. Decisions are thus interconnected, the earnings of one agent necessarily consisting in expenditures of others. But this interdependency is a diachronic one, as opposed to the synchronic one in GET. The starting of new circuits validates the previous openings of others and brings the latter to a close. Their own validation in turn depends on the future occurrence of new flows of expenditures. Failures result from the lack of such new flows, from a sequential rupture or disproportionality. Micro-crises. I call "micro-crisis" a failure in circuit closure or a lack of validation. This appears as a deficit in the income account of the economic unit that made what ex post appears to have been a wrong opening decision. In the context of separation, a priori there is no correct behavior, so that errors and losses are normal outcomes. In other words, circuit closure is never guaranteed in advance. The notion of crisis is

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thus applied to particular producers - hence, the name "micro-crisis" rather than, as usual, to the global economy, where the term "macrocrisis" could be used.18 A micro-crisis is like an identity crisis in psychology. What is at stake is the viability or survival of private producers, be they self-employed workers or capitalist firms, the extreme outcome being their disappearance as autonomous entities, for example, through bankruptcy. Of course, micro-crises can also be corrected through adjustments, such as improvements in efficiency, changes in products, etc. But, contrary to the TAT case, where adjustments always take place a priori, correcting potentially incompatible decisions, here they occur ex post and pertain to incompatible outcomes. Crucial decisions. An important theoretical consequence of the sequential time-framework concerns the relationship among different types of economic decisions. In GET, decisions are not only interdependent, but simultaneous. In such a framework, reasoning in terms of prerequisites does not make sense. All decisions are on the same footing. Here, by contrast, a hierarchy among decisions emerges. Some decisions must be regarded as crucial (Davidson, 1982-83), because they condition others, which may be seen as "derived decisions." Crucial decisions are, in fact, concerned with the starting of circuits, that is, investment and labor-hiring decisions. The latter are in turn dependent either on the possession of money-capital or on access to credit. If, moreover, one were to assume a very specialized distribution of endowments among agents, one would arrive at the result that not all of the agents are able to make the crucial decisions. Hence, an analysis in terms of social classes would become appropriate.
Disequilibrium

The adoption of the separation assumption impinges on the theoretical role of the notion of equilibrium. My claim here is not that one could or should get rid of the notion of equilibrium, broadly understood, but rather that a radical shift in emphasis must take place. Now the notion of disequilibrium (defined as an out-of-equilibrium state), which can find no place in a TAT framework, comes to the forefront. Moreover, the specific spelling out of an equilibriating process (i.e., a process for correcting disequilibria) becomes a crucial task. To make my point, I proceed in three steps. First, I reflect on the nature of the indicator to be used in the description of the states of the economy, whether in equilibrium or disequilibrium, and argue for a shift from prices to financial accounts. Second, I explain why in a sequential framework the notion of an observable (I am speaking of models, not,
18. Both phenomena are not necessarily concomitant: while a macro-crisis implies extended micro-crises, the latter may also occur in a context of global prosperity.

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of course, of reality) general equilibrium fails to make sense. This leads me to conclude that in a separated economy disequilibria, as expressed by financial deficits, are the only objective or observable social reality for the agents in the model - the exact opposite of a TAT economy. A new indicator. What are the signals or indicators through which agents could recognize states of equilibrium or disequilibrium? In GET, equilibrium can be perceived in two equivalent ways, by looking either at prices or at agents' budgets. The first way is the more common. Equilibrium consists of a specific vector of prices at which all excess demands are eliminated. Seen from the agents' viewpoint, it is a situation in which every agent maximizes his utility within the limits of his budget constraint, all opportunities of advantageous, mutual trade having been exhausted. In this perspective, general equilibrium is nothing but a generalization of individual equilibria, pertaining both to markets and to agents. In my alternative framework, such a double assessment of equilibrium is no longer permitted, for the price indicator ceases to work as soon as the TAT assumption is discarded. Agents no longer have a way to assess the existence or the absence of equilibrium by observing prices, since they do not know the equilibrium magnitudes with which actual prices ought to be compared and since there is no auctioneer to guarantee an identity between observed and equilibrium prices. Hence, only the other indicator remains available, the financial situation of agents, as reflected in income statements, balance sheets, etc., for which I shall henceforth use the general term of "account." All agents in the economy are seen as account holders. One must, however, focus one's attention on firms' or individual producers' accounts. The elusive character of the notion of balanced account. How are the notions of equilibrium and disequilibrium to be understood in terms of this financial indicator?19 At first hand, one is tempted to define as a general equilibrium any situation in which all accounts are (spontaneously) balanced, establishing thereby a correspondence between equilibrium, balanced accounts, and circuit closure. Undoubtedly, a GET equilibrium could be expressed in this way. However, in my alternative context this is not the case. A host of issues arise, whose consequence is that equilibrium can no longer be positively grasped. A first one relates to the relevant time structure within which equilibrium could be assessed. In this respect, it must be realized that the adoption of a sequential framework makes the occurrence of equilibrium at one given point in time (and thus its apprehension) inconceivable. For the economy as a whole, expenditures and incomes are necessarily equal at each point in time. For particular agents, however, even in the most abstract setting,
19. There is an obvious definitional sense in which accounts are always balanced but this must be discarded, for what we are concerned with is the "spontaneous" situation of the account, taking place before its "conventional" closure.

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establishing whether or not there is a balance between these two magnitudes implies that at least two dates be taken into account, that of the initial expenditure and that of the return flow of money. Moreover, different accounts are never balanced at the same time, since circuits are overlapping. Therefore, one may assert that, contrary to GET, in the separation framework no assessment about the existence of a general equilibrium at a given point in time may be made. One might, however, imagine a more complicated way of recognizing equilibrium, by observing that particular accounts are in a balanced state over a given timespan. But this raises at least two other issues, linked to the precise definition of a balanced account. The first, which I will have to neglect here, has to do with the integration of profits into the analysis. The second flows from the ongoing character of economic activities. Suppose that, quite realistically, circuits of different length are evolving at the same time within firms or that fixed capital is introduced. Circuits then overlap within firms themselves, and there is no longer a unique point in time at which operations come to an end, so that a clear delineation of circuits ceases to be possible. In such a framework, the generic concept of account should be divided into flow and stock subcategories. Some might want to look at the balance sheet as the appropriate indicator for our problem. However, as is well known, the information that it provides is only partially reliable: while some of the figures it contains may be interpreted as objective indicators, because they relate to closed circuits, others are only subjective evaluations of future results, which, strictly speaking, cannot be given the status of an objective piece of information, pertaining to achieved outcomes. The existence of disequilibrium. I submit that in a separated economy disequilibria (i.e., deficits or negatively unbalanced accounts) are the only and truly objective (i.e., a possible object of unanimity) reality for economic agents. Moreover, these disequilibria can be observed by them only if they reach a certain threshold, beyond which hiding becomes impossible. Thus in a separated economy the only indisputable information is negative. Firms are encountering losses and can no longer honor their commitments; hence, bankruptcy is the epitome of objective information! More generally, in this framework a judgment about the viability of the economy can be made only in a negative way, based on the importance of deficits and bankruptcies. The more serious and frequent are micro-crises, the more unstable the economy and the more troubled its reproduction.
CONCLUSION

Two claims were made in this article. The first and main one is that GET, while purportedly seeking to resolve the question of the functioning of a decentralized economy, in fact takes for its object of analysis a cen-

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tralized economy. This is what I called the base camp paradox. While this idea, itself, is not new, I have tried to formulate it more explicitly. New aspects have been emphasized: the institutional content of tatonnement, the link between the uhawareness of the paradox and lack of interest in an in-depth discussion of the definition of a market economy, and the close resemblance between the tatonnement economy and the notion of "market socialism." I have also discussed the possible interpretations of the place and role of tatonnement in GET and advanced some criticisms against interpretations like the New Classical one, which seem unacceptable to me. My second claim was to show that it is at least conceivable to devise another base camp and another itinerary for climbing the "Adam Smith's Question peak." Clearly, there is a huge gap between drawing a blueprint for a possible paradigm and actually starting the latter. The difficulties that existing alternative paradigms encounter for taking off are there to warn us. So, neither of my two claims should be interpreted as a recommendation for rejecting GET. Yet the question remains open: Will GET be able to tackle fruitfully the process dimension hitherto neglected and put at the forefront in my alternative approach? While acknowledging GET's amazing and rather dialectic capacity to develop, I remain, however, skeptical enough to hope for the parallel development of alternative theories.
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