Equilibrium, stability and turbulence: How physics has shaped and limited economic thinking.
Cracow University of Economics (CUOE), Rakowicka 27, Kraków 31-510, Poland
The impact of physics upon social sciences, including also economics, management and finance, has been one of decisive factors of development of the latter. Philip Mirowski in his works the impact of physics upon economics showed that although the influence was sometimes mutual, economics, finance and management to a large extent tried to imitate physics as to prove their quality as scientific disciplines.
The impact of physics onto economic, finance and management has been exerted in four ways. Firstly at the ontological and epistemological level by attempting to make economics in a “scientific” way. Secondly, by applications of physical models in the cases where a sufficient amount of data could be collected. Thirdly, by using models plus their phenomenological interpretations, and fourthly, with the use of analogies and metaphors applied in studies and policy making. It should be added that analogies and metaphors transferred from physics to social sciences have been often simplified, abused and misinterpreted.
The transfer of ideas from physics to economics and other social sciences can be illustrated with applications of five concepts – equilibrium, stability, turbulence, complexity and chaos. Although the above notions are widely used in economics, finance and management yet methods and influence of their applications are not sufficiently deeply analyzed. Their applications may lead to simplifications, sometimes artificial impression of normative “objectivity”, and even to scientism. Advantages and limitations of their limitations seem to be well-known. However, thorough studies show that no deepened analysis of their role in the discourse of theory and practice has been conducted so far bearing in mind two perspectives – relevance of mathematical models to economic/social reality and consequences of their uses in shaping the worldview in economics and finance through semantic and cognitive impact.
The aim of the paper, which includes the first part of results of a broader project, is to show how the ideas of equilibrium, stability and turbulence were transferred from mathematics, physics and control theory to economics, finance and management. The applications of the concepts of complexity and chaos will be only preliminary dealt with in the paper, wherever necessary, since they will be analyzed in detail in the second part of the project – to be presented later.
The research will be based upon a thorough analysis of literature in the areas under study with the use of the author's database. Every concept will be analyzed as follows. Firstly, its origins and applications in physics and, if relevant, other natural sciences and/or control theory will be presented. Then the transfer to economics, finance and management will be described both as direct and indirect applications of mathematical models. Subsequently the use of the models and analogies and metaphors in the language of theory and policy making will be illustrated with three examples: the role of equilibrium in economic and financial models, definitions of financial stability and the impact of the concept of turbulence on strategic management. Special stress will be put on the impact of mathematical models and metaphors associated with equilibrium, stability and turbulence on the discourse in economic theory and practice, since the incomprehensibility of contemporary economy is often linked with constraints imposed by those ideas on interpretations of phenomena in economics, finance and management.
Presentation: Oral at 6 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych", by Czesław Mesjasz
See On-line Journal of 6 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych"
Submitted: 2012-01-22 21:49 Revised: 2012-03-05 09:04