This work proposes to restate the theory of surpluses by taking into account observed situations of the creation and liberation of surpluses which clearly break the rules and norms of accepted rationality. It presents a general theory which incorporates these situations which are not accepted within the classical hypotheses.
This theoretical framework incorporates psychological time in the analysis of surpluses and of the resulting equilibrium in the wake of Walras, Dupuit, Pareto, Marshall, Hicks and Allais. The concept of substitution, together with the resulting dynamic of the marginal rate of substitution, are redefined on the basis of the specific referential of a psychological nature, which constitutes the economic Subject and its action, and is structured by duration, memory and forgetfulness. Although we appear to be substituting goods, quantities and physical matter – and this is often the case – it is always a question of substituting time, value-times, matter-time, units of memory and duration.
The work thus proposes an HRSLR approach (Hereditary, Relative, Subjective and of Limited Rationality hypothesis) to the “consumer” demand function. We define the notion of a fundamental price on the basis of the relationship between the instantaneous price and the perceived psychological value-time. We posit an analogy between (i) marginal rates of substitution; (ii) marginal rates of increase or slowdown in the perceived psychological value-times; and (iii) marginal rates of accumulation or decumulation of memory.
In real life, we are not dealing with aberrations but with fields of choice which are not always convex and with marginal rates of substitution which are not always decreasing. The situations of concavity and of increasing psychological returns are sufficiently numerous for the theory to try and incorporate them within the framework of a limited rationality. The understanding of events which are simply presented as “irrational” can only stand to gain from this.
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Pascal Blanqué is Chief Investment Officer for a major international asset management company. He formerly served as Chief Economist for a large international banking group. With a dual background as both an academic and practitioner, he has focused his work on monetary issues, the functioning of financial markets and the philosophical foundations of economics. His books include Money, Memory and Asset Prices, Essays in Positive Investment Management, Philosophy in Economics and The Economic and Financial Order. A former student of École Normale Supérieure, Paris, a graduate of the Institut d’Études Politiques, Paris and with a PhD in Finance from Paris Dauphine University, he has pursued research and teaching activities. He was awarded European CIO of the Year in 2013 and 2018 by Funds Magazine and has received the Institutional Investor’s European Manager Lifetime Achievement Award (2016). He is a member of the 300 Club.