The idea that economics should be modelled on the concepts of physics has been prevalent for the best part of a century. It's a deliciously engaging idea, that the steadfast and unbending rules of science should be the template for the queen of the social sciences. The only trouble is that in economics human beings are part of the system and don't tend to behave as economists would wish them to. On the other hand the ideas generated by analogies between physics and economics have generated a whole bunch of truly great economic ideas and are the basis of the whole of microeconomics. Although it's tempting to argue that these ideas don't truly make sense it's actually quite hard to make this accusation stick. Economics and physics are connected - only just not quite the way economists like to imagine.

Random Walks

The links between economics and physics have a very long history, right back to the seminal work of Louis Bachelier in 1900, when he created a model of economics that predated Einstein's similar work on Brownian motion – the original random walk theory – by half a decade. Bachelier's ideas then lay forgotten for half a century until they were rescued and resurrected by Paul Samuelson. Samuelson is by far the most important economist of the second half of the twentieth century and his PhD thesis, Foundations of Modern Economics Analysis, is the most important work of that age. Samuelson was more or less the first person since Bachelier to start from the premise that there are analogies to be drawn between science and economics that can usefully be applied to generating economic theories, a position from which he then proceeded to develop a whole range of new insights into economics.

From Quals to Quants

Samuelson's approach led directly to the replacement of high minded qualitative ideas about economics with numerical precision: these theories allowed economists to mathematically model their concepts rather than merely engaging in frantic handwaving. In many ways Samuelson is the economic equivalent of Issac Newton, who was the first scientist to solve problems in physics through mathematics, as he turned the dismal science into a quantifiable and manageable set of premises and axioms. The weakness in this approach is that showing an analogy between economics and physics isn't the same as proving that they can be treated…

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