Physics Envy Doesn’t Bite, But It Stings

The term “physics envy” conjures an amusing image of an economist lying on a reclining lounge, talking his heart out to everyone’s favourite psychoanalyst. Physics has sneaked its way into Economics and Finance from the Brownian Motion assumption for the Black- Scholes Option Pricing Model to the Gravity Model of International Trade in International Economics. Economics has always been struggling to find its place in the Sciences, (even being proposed to replace Engineering as the ‘E’ in STEM). Too mathematical with its complex statistical and econometric tools, yet not as succinct as the models in Physics. The dilemma is unsurprising.

Yet, as ambitious as modern economics tends to be, it often forgets the humble origins of Adam Smith’s seminal work, to be in moral philosophy. Economics was proposed as an ethical and social exercise. It sat on the shelves with the likes of Machiavelli, Moore and Locke. There is little cause for astonishment in that, either — philosophical musings birthed the art of statecraft and policy. Macroeconomics developed as an offshoot of the same (perhaps, you can call it the second cousin you occasionally chit-chat with at parties). The idea seems counter-intuitive as most Econ 101 classes begin with the microeconomic fundamentals and how these concepts are further applied to explain macroeconomic phenomena. That has a lot to do with the state of modern economic education. Alfred Marshall, the architect of the Marginalist Revolution, which shaped modern economics, was greatly responsible for the mathematicisation of economics. As the name suggests, this school of thought focused on the marginal productivity, marginal cost and marginal utility for devising precise points of equilibrium in the goods as well as labour markets.

Thomas Kuhn’s model on ‘Paradigm’ in science, can perhaps, shed better light on the evolution of modern economics. Kuhn mentions four stages of development in a Science: Pre-Science, Normal Science, Crisis and Revolution. In terms of economics, the moral philosophy stage can be seen as the Pre-Scientific stage, where the discipline was in disarray. Smith’s ‘Wealth of Nations’ onwards, economics saw a structure, prominently with the works of David Ricardo. It could be called a Normal Science, but its focus was still more on the theoretical aspects of political theory and moral philosophy. Since multiple schools of thought have co-existed in the economic discipline, there is little to say which crisis in particular deserves the qualification…