An Economics With Verbs, Not Just Nouns

Any economist will have some immediate reactions here, several of which are anticipated by Arthur. 

The reader may object that mathematics in economics does use verbs: agents maximize; they learn and adapt; rank preferences; decide among alternatives; adjust supply to meet demand. But the verbs here are an illusion; algebraic mathematics doesn’t allow them, so they are quickly finessed into noun quantities. We don’t actually see agents maximizing in the theory; we see the necessary conditions of their maximizing expressed as noun-equations. We don’t see them learning; we see some parameter changing in value as they update their beliefs. We don’t see producers deciding levels of production; we see quantities determined via some optimizing rule. We don’t see producers responding to demand via manufacturing actions, we see quantities adjusting. It might appear that dynamics in the economy are an exception—surely they must contain verbs. But expressed in differential equations, they too are just changes in noun quantities. Verbs in equation-based theory require workarounds.

It should be said that Arthur has a point. The equations in economics often have "black box" component--that is, you can't see what's going on inside. For example, firms in a standard economic model have a "production function," which shows that when certain levels of inputs are used, certain levels of outputs emerge. But on the subject of how production actually works, the equation is silent. 

More important, on the subject of how the process of production interacts with new technologies for production and offering new products to consumers, the production function is also silent. When talking about issues like the underlying causes of productivity growth in an economy, or issues like economic development of low- and middle-income countries, these black box production functions (at least in their basic versions) don't capture what's actually happening. 

View single page >> |
How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.