Ep. 471 Reaction to Eric Weinstein on Gauge Theory in Economics
Adam joins Bob in reviewing Bob’s recent conversation with Eric Weinstein, on his work (with Pia Malaney) in applying gauge theory to economics. Bob argues that neoclassical economists but also Austrians should consider Eric’s bold proposals.
Mentioned in the Episode and Other Links of Interest:
- The YouTube version of this conversation.
- This episode’s sponsor, the Scott Horton Academy.
- Bob’s original interview of Weinstein on the InFi podcast.
- The HamanNature substack.
- Help support the Bob Murphy Show.
About the author, Robert
Christian and economist, Chief Economist at infineo, and Senior Fellow with the Mises Institute.
Great show. Very interesting. As a guy who loves math, I sympathize with his approach. As an applied industrial math guy, though, I wonder how practical this is. How does one collect data and create an approximate multi dimensional intertemporal preference/utility function for an individual? How does one do this for 100000s of individuals? Now what do you do with those to predict how the economy “evolves” over time? What is the mechanism for updating the prices across millions of products/services over time in the presence of these utility functions over millions of products/services if they evolve over the time axis
Too.
Is one assuming that all prices are instantaneously in equilibrium at every continuous time point? Is that the trajectory of the price vector? That doesn’t sound right either. Sounds equally incomputable.
If “equilibrium” means no arbitrage opportunities, I’m pretty sure yes he’s assuming that.
Yeah, there’s a lot of layers here.
When Weinstein talks about Economics adopting derivatives from mathematics … I came from a Physics/Engineering background and started learning Economics later … it’s not quite identical. I would agree with the “spirit” of what Weinstein is saying but disagree with many details, although still kinda interesting despite that.
Let’s look at charging a capacitor: the voltage is 1/capacitance times the integral of current over time. See first equation here – https://www.learningaboutelectronics.com/Articles/Capacitor-equations.php
Expressing that in derivative form: Current is capacitance times first derivative of voltage wrt time (same thing, different way of putting it). Second equation at above link.
So, in that system. there’s no “marginal electron” who just decided to charge the capacitor. Every electron is exactly the same as the others (ignoring spin and entanglement which aren’t modeled in the above equation). It isn’t what Economics would consider a marginal equation, but IT IS a differential equation.
Now, let’s look at the stock market … I might be interested in stock ABC:XYZ and perhaps I own some and, for whatever reason, I think fair value is $100 per share. Current price is $104 per share, but I would not sell until the price gets to $110 per share and I would not buy unless it gets down to $90 per share … and why? Because I want to make a profit, and I’m not fully confident in my own value estimation, so I leave a margin for error.
Some other guy is willing to sell those same shares at $105 per share, and there could be many reasons for that … perhaps he has a different estimate of fair value, perhaps he is willing to pick up smaller profits, maybe his daughter has a wedding and he wants to raise some cash for that. There’s lots of possible reasons … but what matters is once that guy is willing to sell at $105 and I am only willing to sell at $110, then I’m out! After that, I don’t influence the current market price at all … I’m no longer the marginal buyer … I could change my position to sell at $109 or sell at $111 and makes no difference.
This means “at the margin” only represents a small subset of the total market participants. There’s no equivalent concept in Physics. Electrons don’t have subjective preferences.
Whatever it is that Economics are using … it borrows ideas from differential equations, but they ain’t the same thing.
Very interesting comments, Tel.