The Unity of Science and Economics by Jing Chen

Author:Jing Chen
Language: eng
Format: epub
Publisher: Springer New York, New York, NY

3.6 Physics, Mathematics and Predictability

There have been a lot of criticisms about establishing economic theory on the foundation of physical principles. But both Jevons and Walras, the main founders of neoclassical economics, were trained as natural scientists. “Jevons did so many things that it is difficult to classify him by occupation. … from examination of his other works we are inclined to list him rather as a physicist who wrote extensively on economics.” (Jaynes 2003, p. 316). Both Jevons and Walras attempted to establish economics on the foundation of physics. From The Coal Question and other works, it is clear that Jevons understood economics from the perspective of thermodynamics. However, the mathematical methods of non-equilibrium thermodynamics were not yet developed in Jevons and Walras’ time. Jevons himself made it very clear that “I believe that dynamical branches of the Science of Economy may remain to be developed, on the consideration of which I have not at all entered.” (Jevons 1871, p. vii). Our theory can be understood as mathematical formalization of Jevons and Walras’ vision.

Furthermore our body, our mind and our environment are physical systems governed by the same physical laws. Cars move much faster and carry much heavier loads than humans because cars are designed to consume much more energy than humans. Several years ago, it was mandated in some countries that cars should burn energy grown from the fields. Food prices soared as humans have to compete with cars for available crops. Riots erupted in many regions because of the high food prices. When we understand humans and human societies as both physical and economical systems, we will be able to assess the consequences of our actions more accurately. There will be much less “unintended consequences”.

This is a mathematical theory of human societies. It is often suggested that events in human societies are not conducted in controlled environment, such as laboratories. Mathematical theories, which have been successfully applied in natural sciences, cannot be applied with the same level of effectiveness in human societies. But planetary movements are not conducted in controlled environment. It was the attempt by Copernicus, Kepler, Newton and many other pioneers to describe planetary movements mathematically that modern science was born. Some people suggest that events are human societies are not repeatable. Mathematical theories, which are supposed to describe repeatable events, cannot be applied to prediction with high level of confidence. But mathematical theories of atomic bombs and hydrogen bombs were developed before even a single atomic bomb or hydrogen bomb was detonated. Indeed, the very designs of nuclear bombs were guided by the mathematical theories of nuclear bombs.

To me, good mathematical theories are low cost experimental science. An actual global financial crisis can cost trillions of dollars. But with a mathematical theory built on a solid foundation, it takes only several hours of calculation to understand the links between the types of policies and the magnitude of business cycles and financial crisis. However, the policies that generate economic instability over long term often stimulate economic activities over short term.

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