Mathematical Economics

ECON 205W
Summer 2006
Prof. Cunningham

What Math Econ?

Refers to economic principles and analyses formulated

and developed through mathematical symbols and
methods.
Not a separate school of thought, but rather a method.
Paul Samuelson, By 1935, [i]t became easier for a
camel to pass through the eye of a needle than for a
nonmathematical genius to enter into the pantheon of
original theorists.
Mathematics is used in economics in two general ways:

To derive and state theories, and

To test economic hypotheses or theories quantitatively.

Econometrics combines these two types of mathematical

economics.

Econometrics

Ragnar Frisch, a Norwegian economist and

statistician, introduced the term
econometrics in 1926, modeling the
term after biometrics.
Arose out of a need to test theories, make
estimates, and to forecast.
Useful in policy analysis, which predicts
the impact of government policies and
programs.
Large-scale econometric models.

Leon Walras

(1834-1910)

Developed and advocated general

equilibrium analysis, in contrast with
partial equilibrium analysis used by
others.
Involved solving large systems of
equations.
Endogeneity vs. exogeneity.
Approach leads to interest in VARs, etc.,
much later. (Sims, 1980)

Wassily Leontief (1906-1999)

Russian-born American economist.

Ph.D., from University of Berlin, 1928.
Moved to Harvard as a faculty member.
Input-output analysis, 1936.
Widely used for planning and analysis,
interest in post-war rebuilding,
development, etc.
Problem: fixed technical coefficients.

Von Neumann and Morgenstern

John von Neumann (1903-1957), born

in Hungary, came to US in 1930 to teach
at Princeton.
Okskar Morgenstern (1902-1977),
economist from Vienna.
Together they wrote Theory of Games
and Economic Behavior (1944).
Competition leads to economic warfare,
with strategic interests.

John R. Hicks

(1904-1989)

Background
Professor at Oxford, Nobel Prize 1972 for pure
economic theory.
1932, Theory of Wages. 1935, Wages and
Interest.
1956, Revision of Demand Theory.
1935, A Suggestion for Simplifying Monetary
Theory
1936, Mr Keynes Theory of Unemployment
1937, Mr Keynes and the Classics

Hicks (2)

1939, Value and Capital.

1950, A Contribution to the Theory of
the Trade Cycle.
1974, The Crisis in Keynesian
Economics.
1969, A Theory of Economic History.
1973, Capital and Time: A Neo-Austrian
Theory.
1979, Causality in Economics.