The Genesis of Neoclassical Economics

The Disquieting Muses by Giorgio de Chirico

As Isaac Newton said upon losing most of his fortune in the collapse of the South sea bubble in 1721, “I can calculate the motions of the planets, but not the madness of the people..”- Is it really impossible to explain the laws of economics in terms of mathematical laws? This article will take the reader to the dawn of documented time, from the first economic forecaster to Newtonian physics, in order to unveil the origins of the orthodox economic theory- Neoclassical Economics.

One of the fundamental reasons why ideas that form the basis of modern economics are too rigid to displace is because they have roots that have been planted firmly since the onset of recorded time. Dating back to 1400 BC, the Oracle of Delphi was the most important shrine in all of Greece and was the first economic forecaster in Ancient Greece. The predictions were made by the high priestess at the temple of Apollo, a woman named Pythia. Her predictions were vague and nonfalsifiable. The Greeks respected the shrine’s independence and considered the Delphi to be the literal center of the world, therefore explaining how the oracle persisted for a significant amount of time.

An illustration of The oracle of Delphi

It is believed that Pythia informed a gem trader that soon his wife would give birth to a boy who would change the world, therefore, predicting the birth of the Ancient Greek cult leader and Mathematician, Pythagoras.

Pythagoras (c. 570–495 BC) is mostly remembered as a mathematician, famous for the Pythagorean Theorem (a2 + b2 = c2) and is probably the most influential ancient Greek to have left his mark on western civilization. Pythagoras traveled the world, learning from sages and mystics before he became the leader of the pseudo-religious cult that worshipped numbers, known as Pythagoreanism. His followers, known as the Pythagoreans, gave up material possessions, became vegetarian ascetics, and studied under a vow of silence.

A painting of the Pythagoreans — a math cult.

Now comes the most interesting part, the Pythagoreans believed that the number was the foundation of the structure of the universe. Hence, the advent of mathematical discovery we’ve all learned (but never truly learned) in school, the famous theory of right-angled triangles, and the square of the hypotenuse- the Pythagorean theorem.

One of their major arguments for the number forming the structure of the universe was- music. Music is one of the most mysterious and expressive art forms, and it is astonishing that it is governed by mathematical laws. For example, when a string of a guitar is plucked and then fretted exactly halfway up, the two notes differ by an octave. Further, they believed that the cosmos produced a tune, the music of the spheres, which only Pythagoras could hear. This sounds very spiritual, but their belief was not pure spirituality. They believed that “number is all” which makes money (a way of assigning numbers to things) a perfect fit with the Pythagorean Philosophy. This led to Pythagoras being involved in the design and production of the first coins in ancient Greece.

The main application of these mathematical models was astronomy. The ancient Greeks further developed highly complex models that simulated the motion of the celestial bodies. They assumed that heavenly bodies moved in circles — which led to the invention of trigonometry — fancy maths and a lot of circles. Now, Classical astronomy was ultimately overthrown when Isaac Newton derived his laws of motion and gravity by combining Kepler’s theory of planetary motion with Galileo’s study of the motion of falling objects.

To connect the dots, Newton was a great Pythagorean, and his insights about the law of gravity were as astounding as Pythagoras's insight into music and maths.

This gave rise to the famous 16th-century doctrine of Newtonianism. It is a philosophical and scientific doctrine inspired by the beliefs and methods of natural philosopher Isaac Newton. As the Pythagoreans always said: ‘Spread the truth — one set of laws work everywhere’, The Newtonian approach known as rational mechanics, was a parallel of Pythagorean philosophy and has an enormously powerful effect in all fields, from electromagnetism to chemistry to geology. Expanding on the Newtonian approach, it followed that the motion of anything could be predicted using mechanics. This served as a blueprint for numerical prediction — reduce a system to its components, discover the physical laws that govern them, express the equations and then solve.

Fast forwarding to the 19th century, A new group of people calling themselves “economists”, thought that if Newtonian mechanics was so profoundly impactful, maybe it could be applied to the flow of money. Hence, the theory of Neoclassical Economics was developed.

Neoclassical Economics is based on an explicit association with Newtonian physics. How? Well, just as Newton believed that minute particles knock off one another but are unchanged, similarly Neoclassical theory assumes that the economy is made up of unconnected individuals who interact or ‘knock off each other by exchanging goods and services but are otherwise unchanged. Their behavior can be predicted using economic laws, which are as universal as the laws that govern the cosmos.

This brings us to the end of this historical and intellectually stimulating journey of how Neoclassical economics came to be. It continues to form the basis of orthodox economic theory and is a part of the core curriculum taught to future economists and business leaders. When understood in such depth and detail, it might be the most powerful tool in modern history.

Useful tools and resources used for this article: The birth of Pythagoras and The oracle of Delphi, Pythagoreanism — the pseudo religious cult , Books used as resources — 1) Economyths by David Orwell 2) Music and Mathematics: from Pythagoras to fractals by John Fauvel & Raymond Flood & Robin Wilson, Rational mechanics, Newtonian approach —



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Aditi Solanki

Aditi Solanki

A 19 year old undergraduate economics student who writes about multidisciplinary and explorative ideas