Terry Lloyd - Tangled World;Understanding Human Connections, Networks And Complexity

One aspiring social scientist was the Frenchman Lon Walras, whose work Elements of Pure Economics (1901), examines how prices rise when supply falls or demand rises, and fall when supply rises or demand falls. This explanation of the balance between supply and demand established his place as the father of general equilibrium theory.

His borrowing from the physical sciences can be gauged from his correspondence with Henri Poincar, on the possibility of ascribing an absolute measure to something which is ethically, or behaviourally significant. Poincar was a giant in the fields of both pure and applied mathematics, and his work was to challenge the classical foundations of mechanical science. He saw his mathematical work in economics and finance as peripheral, but he did take the time to exchange letters with Walras and made the following extremely pertinent point:

You, on your side, regard men as infinitely self-seeking and infinitely clairvoyant. The first hypothesis can be admitted as a first approximation, but the second hypothesis calls, perhaps, for some reservations.

In other words, Poincar accepted that generally speaking mans acts are consistent with that selfish group homo economicus (something now challenged by sociologists). Meanwhile, as with many commentators today, he could not accept equilibrium theorys other necessary assumption: that all market participants have full knowledge of all of the relevant facts. His doubt on this point highlights the core problem with economics: the difficulty of defining the typical human.

After the revolutionary work of Isaac Newton in the 17th century, classical physics had been largely a matter of refinement until the 20th: broadening its reach; confirming theories by experiment; making more precise measurements. Theories in physics were based around assumptions of the average behaviour of very large numbers of identical microscopic elements.

By the turn of the 20th century scientists were pushing the limits of this approach with speeds that were approaching that of light; size that was sub-atomic; temperatures that were close to absolute zero. Under such conditions the old certainties melt away. It becomes difficult to visualise what is happening, and consequently it is hard to design experiments to confirm such events. This trend was recognised by the American physicist, Albert Abraham Michelson, who said,

The more important fundamental laws and facts of physical science have all been discovered, and these are so firmly established that the possibility of their ever being supplanted in consequence of new discoveries is exceedingly remote. Nevertheless, it has been found that there are apparent exceptions to most of these laws, and this is particularly true when the observations are pushed to a limit.