1. CONSISTENT AND INCONSISTENT WAYS TO DYNAMIZE THE NEO-CLASSICAL THEORY.
- Author
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ESTOLA, Matti
- Subjects
- *
NEOCLASSICAL school of economics , *ECONOMIC development , *MECHANICS (Physics) , *CONSUMPTION (Economics) , *ECONOPHYSICS - Abstract
With equal profit functions, the static neo-classical theory of a firm and its dynamization by dynamic optimization give equal results. Thus without additional assumptions, dynamic optimization does not dynamize the theory. In the existing models, the solution paths obtained by dynamic optimization converge to the static optimum only under very restricting initial conditions. On the other hand, the static neoclassical theory of a consumer and its dynamization by dynamic optimization explain different quantities: the real consumption of various goods and the money allocated for consumption over time. Thus the dynamic neo-classical micro theory obtained by dynamic optimization is either inconsistent with the static one, or models a different quantity. The neo-classical framework is then lacking consistent static and dynamic theories of a firm and a consumer, and here we introduce such. We define the "economic forces" acting upon the production of a firm and the consumption of a consumer, and show that these dynamic theories analogous to Newtonian mechanics are consistent with the static neo-classical ones; the latter correspond to zero-force situations in the former. The proposed theories are expressed with measurable quantities and they explain economic growth too. [ABSTRACT FROM AUTHOR]
- Published
- 2013