Re: statistical mechanics vs economics

From: Jordi Molins (jordi_molins_at_hotmail.com)
Date: 12/02/04 

Date: Thu, 2 Dec 2004 12:12:14 +0000 (UTC)

"Paul Danaher" <watwinc@verizon.net> wrote in message news:<eMwqd.4717$6o5.263@trnddc08>...
> Jordi Molins wrote:
> > Hello to everybody,
> >
> > I am new in this newsletter. I have a question, and I would like to
> > know if somebody has some input on it.
> >
> > The question is the following:
> ...
> > Now, economics: in economics there is a very basic principle that
> > states that what they call the production function, Y (aka GDP), that
> > depends on 2 variables (K and L), has the properties that the first
> > partial derivatives are positive, the second partial derivatives are
> > negative, they have some conditions for the first partial derivatives
> > when K and L go to 0 and infinity, and Y is additive.
> >
> > So, apparently the analogy is between these two systems is high.
> > However, the main example in economics for Y is what they call the
> > Cobb-Douglas production function: Y = A*L^b * K^(1-b), where A and b
> > are constants.
>
> The Cobb-Douglas production function is merely a mathematical convenience in
> academic econometrics. The "constant returns to scale" aspect is built into
> the function, and is unrealistic. In real life, scale-free network theory
> has much more to offer (models of nodes which grow and then wither).

Paul, I understand your point. However, it is good to show a bit of
humility. Economists are not stupid. The fact that physics reaches a
much higher precision in its forecasts than economics is not due to
the fact that physicists are more intelligent than the economists, but
just that they have been luckier when they have chosen their thesis
subject.
With the previous argument I am trying to say that it makes sense to
try to reproduce what the economists have done in the past via
"physics" language before starting to generate new models and
extensions. In general, economists are happy with Cobb-Douglas-like
production functions (of course, with extensions), so why not accept
them?
Also, and referring to also the first reply to my email, econophysics
refers more to the financial aspect of economics. However, the
relationship of "old-fashioned" macroeconomics to physics has been
much less studied.
Then, I repeat my question: is there some physical system whose
entropy can be describe by a Cobb-Douglas-like entropy? Thank you.

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