Influence of Isaac Newton in the Development of Economic Thought
The age-old debate about whether economics is a science lends itself to a few historical anecdotes. One such is the influence that Isaac Newton had over the development of economic thought. Although he directly didn’t have a hand in formulating the economic laws we know today, he did, however, inspire many important economists to their discoveries.
This essay would be focusing on how Newtonian way of thinking influenced and inspired the thoughts of the father of modern economics, Adam Smith. Newton lives even in Smith’s work, the Wealth of Nations, in that some of the chapters he wrote shared a likeness to the ones seen in Newton’s Philosophiæ Naturalis Principia Mathematica with regard to the ordering as seen in Chapters V, VI, and VII in Book I of his book.
Newton’s time away from the sciences was engaged at the Royal Mint of Britain where he was instrumental in coming up with the idea of having a monetary rating for gold, i.e., attaching a monetary value to gold. It may be argued that it’s not the sciences itself but the thought that led to the discovery and rediscovery of old and new sciences that really influenced economic thought as we know it.
Adam Smith was fascinated by the concept of how two completely unrelated things tend to have a grand or subtle effect on each other. Almost as if the summon of one warrants the call for the other. This would be substantiated during the course of the essay where we analyze the similarities, or rather the adoption of a sort of frame of reference of thinking that Smith used to come up with the conclusions that he did. The influence of science in economics is evident in its very nature — in that economies behave like systems, as in thermodynamics. We talk about how economies tend to move from states of disequilibrium to equilibrium. We talk about self-adjusting variables that stabilize an otherwise imbalanced economy to a state of agreement. This dependency is rather profound in nature and very much so in the field of economics. One might cite how a fall in the price of onions can increase the demand for it to show an inverse relationship between two singular variables. On the other hand, one might also cite the ripple effect caused in an economy when a single variable like the rate of interest is altered. This dependency is the catalyst for the creation of many similar yet so distinct sub-fields in economics. To illustrate this genesis of sub-fields we can consider the Philips curve. One small yet significant relationship seen between inflation and unemployment led to the concomitant sub-fields that won the Nobel Prize in Economics for seven Laureates except Philips himself.
The point here is that the principles that lay the basis for all scientific thought is, in fact, the very same for all economic thought. Which is why the burden of proof lies on the postulator than the reader. Anyone who claims an economic phenomenon to their name oft has to prove themselves right by scientific methods and seek validation through rigorous academic scrutiny.
Smith’s works derive much of their core engineering from the way Newton postulated his laws of motion, namely, the concept of Value (First Law of Motion), the concept of Natural Price (Second Law of Motion), and the concept of Market Price (Third Law of Motion). The first concept of Value is explained with the idea of the true value of a commodity. Smith says that the true value of a good lies in the amount of labor gone into producing that good. Any other additions are simply understood as profit, rent or fluctuations in the value of money. The reason value is associated with inertia is the fact that inertia talks of an object being at its true equilibrium state of being at rest. That is its true form in a vacuum without external influences. The concept of Natural Price is compared to that of Newton’s second law, i.e., if an object is influenced by an external force, it will move with that momentum in the direction of that influencing force. This is very similar to how changes in factor costs affect the price of goods. Also, the direction of price rise or gain is exactly the same as that of the factor cost. In its essence, this law talks about the direct proportionality of variables in economic systems — how a change in one factor will bring about a comparable change in the dependent factor in the same direction as the change induced by the independent factor. The third concept of Market Price is compared to that of Newton’s most famous law of motion — “Every action has an equal and opposite reaction”. This law hints at the inverse proportionality of factors. In economics, that would mean inverse relationships between variables in an economic system. An example of this would be the Law of Demand. It states that keeping all else constant, as the price of a commodity increase, the quantity demanded that commodity decreases. As we can see, one variable exhibits an opposing reaction to the movement of the other. Also, we know that the demand curve is linear and therefore shows a linear relationship. Of course, this is simply for the sake of understanding. We know that in reality, not all inverse relationships in economics are of equal magnitude and measure. However, we mustn’t lose sight of the reason I brought this up. Newtonian laws if superimposed with Smith’s ideas almost lay gracefully upon one another. It is almost as if they were friends who discussed ideas over a drink and continued to work on their respective papers with each other’s insights.
Isaac Newton was also an investor. He invested in the South Seas Company with hopes that friendly trade with Spain, at the time, would yield riches. With many of Britain’s luminaries buying into that “opportunity”, it led to the creation of what was termed much later as a bubble. Little did he know, this led to a Pop!, thanks to soured relations with Spain, that cost Newton an equivalent of $238 million. Such was the inspiration for the infamous remark, “I can calculate the movement of the stars, but not the madness of men.”
Smith likens the observations of Aristotle and Descartes to that of the ones we do today. The very task of critically evaluating an argument (or observation), by that token, goes back to the Grecians. Science begins with observation and so does economics. Undeniably, a lot of what we know in economics is a derivative of separate ideas but the first step tends to remain. Economics as a subject is a result of many observations, inferences, and arguments that have been disputed and countered by many more observations, inferences, and arguments — one besting the other albeit not by much. Science works similarly in that one does not fully accept an observation to be true without having tested it profusely under every known condition. Any mishaps or outliers but again account for exceptions and must be tested again. This very scientific method employed by Newton and other faces of science could possibly have been the tool future economists needed to answer questions of the past which, eventually explained the problems of today.
The world is no stranger to the fact that Isaac Newton was one of the last alchemists. It’s said that he spent most of his life trying to find the philosopher’s stone which is famed to have the ability to turn stone to gold. This anecdote served as the inspiration for John Maynard Keynes, in his work, “Newton, the Man,” to praise the way Newton saw the world and his method of thought. Keynes was fascinated by how Newton saw the world around him not just as a scientist but as a child of wonder, magic, and legend. He saw the world from the eyes of a visionary who dared to blur the line between truth and myth. If we look at this from a philosophical perspective, more often than not, we have academicians chasing a theory of everything — one theory to rule them all. They chased a theory that could explain everything that was happening around them. A testament to this is Albert Einstein who worked on one himself but, alas, due to his untimely demise couldn’t finish what he started. What I would like to infer from this is that the prize is in the pursuit itself. It is like finding one piece of a much larger puzzle for every ten miles that you walk searching for it.
It is clear that Newton has had a deep impact on the development of economic thought of classical and modern economist but not for the reasons one would usually tend to associate him with. This is seen from how his method of thinking influenced Smith’s way of thinking that finally gave us the Wealth of Nations. To close, it is imperative to understand that it is not in Newton’s laws but in his methods that one sought inspiration.
References
1. DeMichele, Thomas. (2016) Sir Isaac Newton was an Economist. http://factmyth.com/factoids/sir-isaac-newton-was-an-economist/
2. Hetherington, Norris S. (1983) Isaac Newton’s Influence on Adam Smith’s Natural Laws of Economics. https://www.jstor.org/stable/2709178?seq=1#page_scan_tab_contents
3. Diemer, Arnaud, & Guillemin, Hervé. (2011) Political Economy in the Mirror of Physics: Adam Smith and Isaac Newton. https://www.cairn-int.info/article-E_RHS_641_0005--political-economy-in-the-mirror-of.htm
