The Mathematization of Economic Theory
By. Gerard Debreu.
The American Economic Review, 81(1), May 1991, pp. 1-7.
The introduction of Mathematics into Economics in the early 20th century radically changed the analytical methodology and tools in solving economics problem. It profoundly changed the natural of our profession. In the five short decades, mathematics - formulas and derivations, solved economic models with more clarity, generality, rigor, and simplicity. It becomes a “common language” for economic theory. Mathematics opens an efficient scrutiny for logical errors. The great logic solidity contributes to a fast construction of economic theories. Some of which take a comprehensive view of the economic system.
The raising importance of mathematics can be observed from the increasing pages of periodicals, the size of ES, and the graduate admissions. From 1935 to 1977, the pages increased 12 times, from 400 to 5000 pages. 1944 was the milestone for such growth and it was also the year John von Neumann and Oskar Morgenstern published the Theory of Games and Economic Behavior. The Fellows of Econometrics Society (ES) also contributes to the vast growth. In the 13 research-doctorate programs in US, over 50% of the faculty are ES member. Graduate school also requires proficiency in calculus and linear algebra upon admission. The trend is inevitable.
Physics and economics served some similarity as the application of mathematics benefited the development of both discipline. Abstract concepts were captured through axioms, equations, and calculations. But the experimental feature of physics allowed it to violate the canons of mathematical deduction. Economic theory adhere to the rules of logical discourse, but must renounce the facility of internal inconsistency because its’ lack of experiment base.
The advantages that Mathematics brought are overwhelming. Mathematical analysis in economics is no longer an option, but more or less something that judge your work and career. “The very choice of the questions to which he tries to find answers is influenced by his mathematical background” (Debreu, pg. 5). The danger is whether economics has become secondary, that the strong and solid foundation of economic theory is dominated by the fancy equations and proofs?
The over rely on mathematics is risky if economics theory weakens. It opens a gate for irresponsible models where the equations are fancy but the logics are controversy. For example the causal relationship that is observed in equation: does it really inference a causal relationship or there might be a third cause? This requires careful examinations of economics logics to avoid fallacy.
The allowance for experiment should be developed in economics. Experiment economics is already conducted on micro-level behaviors; it is an alternative tool to examine models or theories. Experiment in macro-level – national economy – is at the moment improbable because the volume is large and cost may be high.
Mathematization in economics is not perfect. It does not capture all of the factors, for example - kindness. But it did have its contribution – a common language for scholars to communicate without misunderstanding.
ECON500500 Reading and Writing in Economics
Abstract review
Tuesday, November 27, 2007
[Abstract Review] Economics in Action: Ideas, Institutions, Policies
Economics in Action: Ideas, Institutions, Policies
The American Economic Review, Vol. 85, No. 2, Papers and Proceedings of the Hundredth and Seventh Annual Meeting of the American Economic Association Washington, DC, January 6-8, 1995. (May, 1995), pp. 1-8.
George P. Shultz
Shultz suggested that market mechanism and minimum government intervention will lead to economic golden age. He supported the ending of the Bretton Woods system in the Nixon administration and several tax reform acts in his cabinet jobs.
A economy that emphasis on resource allocation, market- and enterprise-base policu, and education create the private incentives necessary for economic growth. Quality education produces skilled and productive labor that is important for political change and open society. A society open to change is an innovative one.
Shultz’s backgrounds lead him to believe that a change in the exchange rate is crucial. Government intervention will do more harm than good because the global economy and the volume of exchange market is too big to manipulate. Moreover, asynchrony can lessen extremes and maintain the equilibrium as a whole. Besides, there is always new entrant and it is unlikely for any businessman to ignore a market that is full of opportunities. In short, Shultz concluded that “the market will win in the end anyway, and the cost of intervention can be high” (pg. 4).
In addition, he observed the inefficiency in BWI and suggested the two institutions to merge and set out missions to emphasize on encouraging private investment and open trade. Moreover, IMF no longer has a par-value exchange system to monitor, and ideas on development also shifted from public sector dominance towards private enterprise and free markets.
Finally, future investment depends on capital saving. To do so, government should reduce deficit, stabilize political condition, ban corruption, and allow privatization. Privatization is most important because it turns “nobody’s money” into “somebody’s money”.
In short, Shultz suggested that open market and freer trade is the key to society’s prosperity. But I argue that such system of openness and international trade may not be as beneficial or else the world is already in harmony. First, the transformation of society is costly if supporting policies are not well planned. International trade is also costly for the environment. Producing at a lower cost did not take account of the carbon dioxide emissions and global warming effects generated through transporting goods. It also forgoes the idea of energy waste and competition for resources. Although resources, in economics sense, cannot be scarce, but environmental damages is inevitable. Second, private incentives do not always coherent between parties. Government should intervene moderately providing the necessary environment, specifically law and orders. Finally, reviewing the past 5 years, the world economy is in chaos. The code of ethics in business world had vanished into the air. Corruption did not cease. I would think the problem is not in open trade and free market, the key is the ethics issue in capitalism that Marx had predicted. The economy is not at golden age, yet.
ECON 500500 Reading and Writing in Economics
Abstract review
The American Economic Review, Vol. 85, No. 2, Papers and Proceedings of the Hundredth and Seventh Annual Meeting of the American Economic Association Washington, DC, January 6-8, 1995. (May, 1995), pp. 1-8.
George P. Shultz
Shultz suggested that market mechanism and minimum government intervention will lead to economic golden age. He supported the ending of the Bretton Woods system in the Nixon administration and several tax reform acts in his cabinet jobs.
A economy that emphasis on resource allocation, market- and enterprise-base policu, and education create the private incentives necessary for economic growth. Quality education produces skilled and productive labor that is important for political change and open society. A society open to change is an innovative one.
Shultz’s backgrounds lead him to believe that a change in the exchange rate is crucial. Government intervention will do more harm than good because the global economy and the volume of exchange market is too big to manipulate. Moreover, asynchrony can lessen extremes and maintain the equilibrium as a whole. Besides, there is always new entrant and it is unlikely for any businessman to ignore a market that is full of opportunities. In short, Shultz concluded that “the market will win in the end anyway, and the cost of intervention can be high” (pg. 4).
In addition, he observed the inefficiency in BWI and suggested the two institutions to merge and set out missions to emphasize on encouraging private investment and open trade. Moreover, IMF no longer has a par-value exchange system to monitor, and ideas on development also shifted from public sector dominance towards private enterprise and free markets.
Finally, future investment depends on capital saving. To do so, government should reduce deficit, stabilize political condition, ban corruption, and allow privatization. Privatization is most important because it turns “nobody’s money” into “somebody’s money”.
In short, Shultz suggested that open market and freer trade is the key to society’s prosperity. But I argue that such system of openness and international trade may not be as beneficial or else the world is already in harmony. First, the transformation of society is costly if supporting policies are not well planned. International trade is also costly for the environment. Producing at a lower cost did not take account of the carbon dioxide emissions and global warming effects generated through transporting goods. It also forgoes the idea of energy waste and competition for resources. Although resources, in economics sense, cannot be scarce, but environmental damages is inevitable. Second, private incentives do not always coherent between parties. Government should intervene moderately providing the necessary environment, specifically law and orders. Finally, reviewing the past 5 years, the world economy is in chaos. The code of ethics in business world had vanished into the air. Corruption did not cease. I would think the problem is not in open trade and free market, the key is the ethics issue in capitalism that Marx had predicted. The economy is not at golden age, yet.
ECON 500500 Reading and Writing in Economics
Abstract review
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