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The main weakness in the neoclassical theory of economics is its static nature. By a static model one cannot explain observed time paths of economic quantities, like the flows of production of firms, the flows of consumption of consumers, and the prices of goods. The error in the neoclassical framework is that there economic units are assumed to be in their optimum state and thus not willing to change their behavior. Therefore, in neoclassical models a static equilibrium prevails. In this paper, the authors change this assumption so that economic units are assumed to be willing to improve their current state that may not be the optimal one. In this way, one can explain economic dynamics where every economic unit is changing its behavior towards improving its welfare. The authors define the economic forces acting upon the production of firms, the consumption of consumers, and the prices of goods. They show that in this dynamic system, business cycles and bankruptcies of firms emerge in a natural way like in the real world. [ABSTRACT FROM AUTHOR]

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]