An independent-minded French economist, Maurice Allais strove to carry the message of the original Lausanne School of Leon Walras and Vilfredo Pareto into the modern era, through what we have called the Paretian Revolution of the 1930s. Maurice Allais wrote two major treatises in the 1940s, Á la Recherche d’une discipline économique (1943, reprinted 1952) and Economique et interet (1947) whose inspiration was to a great part derived ‘from meditation upon the works of Leon Walras, Irving Fisher and especially Vilfredo Pareto, three great masters who deeply influenced me’ (Allais, 1992). As a later commentator put it, had Allais written these two works in English, ‘a whole generation of economic theory would have taken a different course’ (Samuelson, 1983).
In his 1943 opus, Allais provided the groundwork for much of the Paretian system, including the first proofs of the Fundamental Welfare Theorems in both a static and intetemporal framework. He went on to unveil what are now standard ideas about market failures in a general equilibrium setting. Recognizing the potential implications of natural monopolies, transactions costs and unnatural rents on market efficiency, Allais made several quite ‘radical’ policy proposals. His affinity to the old Lausanne school extended to the points on policy, e.g. sharing the latter’s call for the complete nationalization of land and massive income redistribution by capital taxation.
Allais’s work on intertemporal equilibrium and capital were extended in his 1947 book and further developed in other articles (1960, 1962, 1965, 1967). Among his contributions in 1947 was the invention of the now-famous ‘overlapping generations’ (OLG) model (before Paul Samuelson). Allais also introduced the ‘Golden Rule’ for optimal growth (long before Edmund Phelps, but after John von Neumann). The Baumol transactions demand for money rule was also anticipated by Allais in 1947.
The contribution Allais is generally best known for in the Anglo-Saxon world is the Allais Paradox in the theory of choice under uncertainty – which he presented in a series of papers in 1953. Succinctly, the paradox claims that the assumptions made in conventional expected utility theory contradict real life decisions – specifically, Allais finds behavior which contradicts the expected utility rule. The idea introduced by Allais is that there is a systematic relationship between an agent’s attitude towards risk and the ‘degree of certainty’, what was later called the ‘common consequence effect’. Discovering this paradox, Allais led the way to new attempts at formulating new theories of decision-making under uncertainty (e.g. 1983, 1984, 1986, 1988, 1991).
In his earlier 1943 book, Allais’s introduced several other advances in general equilibrium theory besides welfare theory and the concept of an intetemporal equilibrium: namely, he introduced a unique non-tatonnement process of stability without interim prices. In 1971 and after, Allais called for a re-examination of the foundations of the Neo-Walrasian economics he had helped create, proposing instead a theory of ‘markets economies’ relying on his 1943 process. This process relied on the ‘search for surplus’ in exchange, which eschewed the concept of price as a guiding principle. Equilibrium, Allais claimed, is achieved when surpluses are exhausted and only then can prices be deemed to exist. His theory of surpluses and markets is best outlined in his 1989 treatise, Théorie Générale des Surplus (see also 1973, 1981, 1986, 1987).
Maurice Allais’s legacy is mixed. Through his two major works (1943, 1947) and as mentor of two of the most prominent pioneers of Neo-Walrasian theory, Gerard Debreu and Edmond Malinvaud, Allais channeled numerous concerns of the original Lausanne School economists into the post-war General Equilibrium program. Today, he might be best known for his development of the Allais Paradox in uncertainty theory, but most of Allais’s highly original contributions – notably his surplus theory of exchange and stability and his unique ‘psychological-relativistic’ theory of money (1966, 1972, 1974, 1975) – have been either completely ignored or surreptitiously stolen by the mainstream economics establishment without due acknowledgement. His calls for a re-examination of the foundations of Neo-Walrasian theory and his single-handed attempts to reform it have only recently gotten wider attention.
Nonetheless, despite the numerous setbacks during his professional career, Maurice Allais was vindicated by being made an officer of the Legion of Honor in 1977 and a richly- deserved Nobel Memorial prize in 1988. It perhaps also should be mentioned that while Allais’s contributions to economics have only been reluctantly recognized, his contributions to physics and history have been better acknowledged!
A graduate of the the École Polytechnique and the École Nationale Supérieure des Mines (ENSM) of Paris, Allais taught at ENSM from 1944 to 1988. He was director of research at the Centre Nationale de la Recherche Scientifique (1954-1980) and the Center of Monetary Analysis at the University of Paris (1970-1985).
Major Works of Maurice Allais
– A La Recherche d’une Discipline Économique, 1943
– Economie Pure et Rendement Social, 1945
– Prolégomenes a la Reconstruction économique du Monde, 1945
– Abondance ou Misère, 1946
– Économie et Intérêt, 2 volumes, 1947
– Le Probleme de la Coordination des Transports et la Théorie Économique, 1947, Revue d’Economie Politique
– Le Role de Mathematiques en Economie, 1949, Metroeconomica
– Traite d’Economie Pure, 1953 (new edition of Allais,1943)
– L’Extension des Théories de l’Equilibre économique général et due Rendement social au cas du Risque, 1953, Econometrica
– La Psychologie de l’Homme rationnel devant le Risque: La théorie et l’experience, 1953, Journal de la Societe Statistique de Paris
– Le Comportement de l’Homme Rationnel devant le Risque: Critique des postulats et axiomes de l’École Americaine, 1953, Econometrica
– Les theories de la psychologie du risque de l’ecole americaine, 1954, Revue d’Economie Politique
– Fondemonts d’une Théorie positive des Choix comportant un Risque et Critique des postulats et axiomes de l’École Americaine, 1954
– Les Equations fondamentales entre quantites globales, 1954
– Puissance et Dangers de l’Utilisation de l’Outil Mathematique en Economique, 1954, Econometrica
– Explanation of Economic Cycles by a Non-linear Monetary Model with Lagged Relations, 1956, Metroeconomica
– Influence du Coefficient capitalistique sur le Revenue réel par Tête, 1960, Bulletin d’Institut International de Statistique
– The Influence of the Capital-Output Ratio on Real National Income, 1962, Econometrica
– The Role of Capital in Economic Development, 1965, in Econometric Approach to Development Planning
– A Restatement of the Quantity Theory of Money, 1966, AER
– Some Analytical and Practical Aspects of the Theory of Capital, 1967, in Malinvaud and Bacharach, eds, Activity Analysis in the Theory of Growth and Planning
– The Conditions of Efficiency in an Economy, 1968, Economia Internazionale
– Economics as a Science, 1968, Cahiers Vilfredo Pareto
– Growth and Inflation, 1969, JMCB
– Theories of General Economic Equilibrium and Maximum Efficiency, 1971, Revue d’Economie Politique
– Forgetfulness and Interest, 1972, JMCB
– The General Theory of Surplus and Pareto’s Fundamental Contribution, 1973, Revue d’Economie Politique
– The Psychological Rate of Interest, 1974, JMCB
– The Hereditary and Relativistic Formulation of the Demand for Money, 1975, AER
– L’Impôt sur le Capital et la Réforme Monetaire, 1977
– The So-Called Allais Paradox and Rational Decisions Under Uncertainty, 1979, in Allais and Hagen, editors, Expected Utility Hypothesis and the Allais Paradox
– La Théorie Générale des Surplus, 1981, Economies et Societes
– Fréquence, Probabilité et Hasard, 1983, Journal de la Societe Statistique de Paris
– The Foundations of the Theory of Utility and Risk, 1984, in Hagen and Wenstop, editors, Progress in Decision Theory
– Determination of Cardinal Utility According to an Intrinsic Invariant Model, 1986, in Dabone et al, editors, Recent Developments in the Foundations of Utility and Risk Theory
– The Concepts of Surplus and Loss and the Reformulation of the Theories of Stable Economic Equilibrium and Maximum Efficiency, 1986, in Baranzini and Scazzieri, editors, Foundations of Economics
– Economic Surplus and the Equimarginal Principle, 1987, in Eatwell et al., editors, New Palgrave
– The Credit Mechanism and its Implications, 1987, in Feiwel, editor, Essays in Honor of K.J. Arrow
– The General Theory of Random Choices in Relation to the Invariant Cardinal Utility Function and the Specific Probability Function, 1988, in Munier, editor, Risk, Decision and Rationality
– L’Economie des Infastructures de Transport et le Fondemonts du Calcul Économique, 1989, Revue d’Economie Politique
– Autoportraits: Une vie, une oeuvre, 1989
– My Life Philosophy, 1989, American Economist
– La Théorie Général des Surplus, 1989. (reprint of 1981)
– Pour la Réforme de la Fiscalité, 1990
– Pour l’Indexation, 1990
– Cardinal Utility: History, empirical findings and applications, an overview, 1991, Theory and Decision
– La crise mondiale aujourd’hui, 1999
– L’éclatante faillite du nouveau credo, 1999, Le Figaro