Kaldor on the Irrelevance of Equilibrium EconomicsWalrasian general equilibrium theory is the greatest obstacle to the development of economics as a science.That is the bold contention of Nicholas Kaldor in his article The Irrelevance of Equilibrium Economics (Economic Journal 82 [1972]: 12371252), and it is undoubtedly true.One can summarise Kaldors argument as follows:(1) General equilibrium (GE) theory was invented by Walras, but found one of its major 20th century developers in the French economist Gerard Debreu.At the time Kaldor was writing, Debreus Theory of Value: An Axiomatic Analysis of Economic Equilibrium (1959) was a notable exposition of the mathematised Walrasian general equilibrium theory.Kaldor notes how the book does not purport to be an empirical description of reality, as, for instance, in describing how prices are actually formed in the real world (Kaldor 1972: 1237).GE theory is an example of the aprioristic or deductive method in economics: a formal system in which a set of theorems are logically deduced from certain assumptions (Kaldor 1972: 1237). But there is no real attempt to verify whether the assumptions are true, or whether its system of established equilibrium prices has any explanatory power or even relevance to actual market economies (Kaldor 1972: 1238).Amongst the unverified and plainly unrealistic assumptions of neoclassical theory are:(1) that producers maximise profits;(2) the existence of perfect competition;(3) linear-homogenous and continuously differentiable production functions;(4) impersonal market relations;(5) information communicated by market clearing prices; and(6) perfect knowledge of all relevant prices and perfect foresight. (Kaldor 1972: 1238).Another delusional assumption is that real economies can approach, or are close to, a state of equilibrium (Kaldor 1972: 1239).Kaldor rightly rejects all these neoclassical assumptions as untrue, and concludes that the main theorems of neoclassical theory cannot possibly hold in reality (Kaldor 1972: 1240).(2) Kaldor argued that where modern economics went wrong both in Classical political economy and neoclassical economics was a fixation with the theory of value, or a deeply mistaken theory of prices, in which the question of how value and price are determined for factor inputs and products takes central stage (Kaldor 1972: 1241). The major flaw in this enterprise has been the assumption of constant returns to scale (Kaldor 1972: 1241).But modern capitalism based on technology, innovation and mass production has increasing returns to scale as its fundamental trait in many industries (above all, manufacturing) (Kaldor 1972: 1242). Division of labour is not only applicable to working human beings, but also to labour-saving machinery and technology. When mass production occurs in industry and output is large, it pays to invest in or implement labour-saving machinery. The capitallabour ratio in production is therefore more a function of market scale than the prices of relative factor inputs (e.g., the price of labour versus machinery) (Kaldor 1972: 1242).Kaldor sees these insights as revolutionary in their ability to overthrow neoclassical theory: once we assume that the production of most commodities is subject to increasing returns to scale, the whole notion of general equilibrium theory itself must be thrown side (Kaldor 1972: 1244). Why? Because a major assumption of neoclassical theory is that a convergence to an