The Newtonian Mechanics of Demand

Abstract: Economic engineering is a new field wherein economic systems are modelled in the same manner as traditional mechanical and electrical engineering systems. In this paper, we use Newton's theory of motion as the basis for the theory of demand; thereby establishing a theoretical foundation for economic engineering. We follow Newton's original development, as set forth in the Principia, to determine economic analogs to his three laws of motion. The pivotal result is an operational definition for an economic force, i.e. a want or a desire, in terms of a price adjustment. With this, we model the price effects of scarcity and trade friction in analogy with the models for the spring and damping force. In turn, we define economic benefits and surplus as analogous to the definitions of mechanical work and energy. These are then used to interpret the various types of economic equilibrium considered by economists from a mechanical perspective. The effectiveness of the analogy is illustrated by applying it to modelling the price and inventory dynamics of various economic agents -- including consumers, dealers, holders, spot and futures traders -- using linear-time invariant systems theory.

• The paper establishes a Newtonian framework for modeling economic forces, treating demand as analogous to inertia in physical systems.
• It employs linear time-invariant system models to capture dynamic price adjustments and trade cycles with engineering precision.
• The study offers actionable insights for economic policy and market regulation through a rigorous, force-based approach to economic engineering.

The Newtonian Mechanics of Demand: Foundations of Economic Engineering

The paper "The Newtonian Mechanics of Demand" seeks to create a novel foundation for economic engineering by modeling economic systems using Newtonian mechanics' principles. The author, Max B. Mendel, ingeniously aligns Newton's laws of motion with economic dynamics, proposing that wants or desires act as economic forces akin to physical forces in mechanics. This paper offers a structured analogy between mechanical and economic systems, potentially transforming how economic behavior and market dynamics are understood and applied.

Core Concepts and Methodology

The paper embarks on establishing parallels between Newtonian mechanics and economic theory, where inertia corresponds to demand and force parallels economic want or desire. The analogy extends to economic variables: momentum becomes price, while velocity translates to quantity demanded. The primary innovation lies in equating economic forces to the rate of price change, synonymous with how force alters momentum in Newtonian mechanics.

This analogy is compelling as it offers an operational definition of economic forces, challenging traditional economic notions of equilibrium controlled by metaphorical “invisible hands.” The introduction of economic analogs to classic mechanical constructs—such as springs representing storage constraints, damping forces illustrating trade frictions, and potential and kinetic energy introducing economic benefits and surplus—further solidify this interdisciplinary approach.

Numerical Insights and Implications

The paper introduces a linear time-invariant (LTI) systems perspective, frequently used in engineering, to model dynamic economic systems. By applying such a framework, the author demonstrates how first- and second-order dynamical systems can effectively model economic phenomena like price stickiness and trade cycles. These models provide a rigorous mathematical basis to understand and predict economic dynamics by tracking price and inventory levels over time. The treatment of dynamic price adjustments through discount factors resembles exponential decay functions well-known in control engineering, which can also explain price rigidity phenomena in economics.

Implications and Future Directions

The implications of this research are both intriguing and substantial. From a theoretical standpoint, this work invites a rethinking of economic dynamics, moving from static models of supply and demand equilibrium to a dynamic, force-driven approach. This aligns with the broader movement in economics towards incorporating more rigorous quantitative and predictive analytical tools.

Practically, adopting this framework could revolutionize approaches to economic policy interventions and market regulation. By modeling economic forces dynamically, analysts and policymakers might better understand and manage short-term economic shocks and long-term growth patterns. Furthermore, control theory could inform market stabilization strategies akin to feedback control in engineering systems.

Future research may explore the limitations of linear models in capturing complex economic dynamics. The groundwork laid here could be extended to nonlinear systems, opening avenues to account for more sophisticated market behaviors and interactions. Further investigation might also focus on integrating risk and uncertainty into this Newtonian economic framework, thereby broadening its applicability and robustness.

In summary, this paper's approach could be foundational for establishing a new discipline of economic engineering, paralleling the established rigor found in physical sciences and engineering. By providing a unified theory for analyzing and modeling economic dynamics using classical mechanics, this research sets the stage for further interdisciplinary collaboration and innovation in economic theory and practice.