by From Frank Salter and RWER issue 81 Despite economic cycles being the norm from the beginnings of the industrial revolution, major areas of economic thought present equilibrium as an appropriate basis for analysis. Blaug (1998, p.23) comments “indeed real business cycle theory is, like new classical macroeconomics, a species of the genus of equilibrium explanations of the business cycle (which would yesteryear have been considered an oxymoron).” The formal treatment of time is eschewed. In their articles, The Production Function and the Theory of Capital, both Robinson (1953) and Solow (1955) express their concerns about the use of time in economic analysis. Robinson points out that time is unidirectional in the real world, and that some mathematical descriptions fail to reflect the
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from Frank Salter and RWER issue 81
Despite economic cycles being the norm from the beginnings of the industrial revolution, major areas of economic thought present equilibrium as an appropriate basis for analysis. Blaug (1998, p.23) comments “indeed real business cycle theory is, like new classical macroeconomics, a species of the genus of equilibrium explanations of the business cycle (which would yesteryear have been considered an oxymoron).” The formal treatment of time is eschewed.
In their articles, The Production Function and the Theory of Capital, both Robinson (1953) and Solow (1955) express their concerns about the use of time in economic analysis. Robinson points out that time is unidirectional in the real world, and that some mathematical descriptions fail to reflect the fact. Solow (1955, p.102) expresses his concerns, “But the real difficulty of the subject comes… from the intertwining of past, present and future.”
Robinson (1980) continues to voice her critical assessment of the treatment of time in economic analysis. Later, no longer maintaining the concerns of his earlier insight, Solow (1994, p.47) states “Substitution along isoquants is routine stuff.”
Setterfield (1995, p.23–24) concludes “it is not easy to introduce historical time into economic models in a manner that is at once meaningful and tractable. This is surely explained by the very nature of historical time, which must, by definition, defy deterministic, structural modelling”[1] and notes “the unwillingness of economic theorists to confront issues relating to historical time in the context of economic models”.
Boland (2005) in reviewing a three volume collection of articles, Time in Economic Analysis, by Zamagni and Agliardi (2004), concludes, “Namely, how can we build economic models where time matters because it is irreversible?” expressing his belief that this collection demonstrates the failure of economic analysis to offer any meaningful answer.
Clearly a physically valid analysis of economic development through time is required.