Images of competition and their impact on modern macroeconomics

Modern mainstream macroeconomics is characterised by its reliance on a general equilibrium framework of Walrasian origins, which is crucially associated with perfect competition and statics. To cope with the real economy, macroeconomics has been “forced” to introduce imperfections and frictions of various kinds into the perfectly competitive model. This raises, argues the paper, significant conceptual and analytical difficulties and tensions. There exist, however, other views of competition and markets which could provide more solid and fruitful foundations to the analysis of the macro-economy. After a selective examination of some contributions to the development of the notion of perfect competition, the paper looks at how modern mainstream macroeconomics dealt with general equilibrium and deviations from it. The paper argues that these alleged deviations from the perfectly competitive case should rather be regarded as inherent features of market economies. Dealing with them more satisfactorily requires calling on a different view of the working of the economy instead of trying to correct and amend the imaginary case of perfect competition.