Still dead after all these years: interpreting the failure of general equilibrium theory

More than 25 years after the discovery that the equilibrium point of a general equilibrium model is not necessarily either unique or stable, there is still a need for an intuitively comprehensible explanation of the reasons for this discovery. Recent accounts identify two causes of the ®nding of instability: the inherent di culties of aggregation, and the individualistic model of consumer behaviour. The mathematical dead end reached by general equilibrium analysis is not due to obscure or esoteric aspects of the model, but rather arises from intentional design features, present in neoclassical theory since its beginnings. Modi®cation of economic theory to overcome these underlying problems will require a new model of consumer choice, nonlinear analyses of social interactions, and recognition of the central role of institutional and social constraints.