The Lausanne School of Economics

In the late 19th century, with growing criticism of the classical school of economics of ignorance of microeconomics, Leon Walras, one of the pioneers of the 1871 Marginalist Revolution, founded the Lausanne school of economics (Ecole de Lausanne). With an emphasis on mathematics, this school attributes all economic activity to the choices and actions of individuals. The central feature of the school is the concise formal description of ideas with mathematical notation which was lacking in classical economy. Lausanne school economists such as Leon Walras, Vilfredo Pareto, and others formulated and improved principles and theories such as general equilibrium theory, Pareto optimality, the 80-20 rule, the circulation of elites, ordinal utility and so on. The paper critically examines these ideas and their evolution. This paper explains the general equilibrium theory developed by Walras, breaking through the misconceptions revolving around unrealistic assumptions. With the focus on welfare economics, the principles of Pareto of Lausanne school had profoundly impacted public policy, the highlights and challenges of this impact is analysed. The aim of reviving Walras’s ideas from enigma led to further development in economics by Irving Fischer, Cassel, Wicksell. Paretian “taste and obstacles” approach was also advanced by Slutsky and W.E.Johnson. The abandonment of walras’s theories is the crucial cause of contemporary financial crisis ,thus, Lausanne tradition is alive, kicking and highly relevant in the contemporary world.