THE FIRM AND THE PRICE FORMATION PROCESS - ON THE PRESENCE AND THE RAMIFICATIONS OF A LOGICAL GAP IN THE NEOCLASSICAL FRAMEWORK

This paper represents an attempt to follow-up on Kenneth Arrow's long- neglected identification of a ''logical gap'' In the perfectly competi tive foundation of the neoclassical framework. Attention is initially focused on establishing the fact that this logical gap exists and that it leaves the orthodox paradigm without an endogenous account of the manner in prices are determined. The presence of this logical gap impl ies, in other words, that neoclassical economics fails to provide our discipline with a theory of value. Given this fact, the second, consid erably longer part of this paper establishes the broad outlines of a f ramework in which this logical gap is not present and that is capable, therefore, of providing our discipline with a legitimate theory of va lue. While prior efforts to develop an explicit account of the manner in which prices are determined provide crucial guidance in this regard , these efforts are extended in terms that address certain shortcoming s and traditional sources of resistance.