The Newtonian Mechanics of Demand

Abstract

Economic engineering is a new field wherein economic systems are modelled in the same manner as traditional mechanical and electrical engineering systems. In this paper, we use Newton's theory of motion as the basis for the theory of demand; thereby establishing a theoretical foundation for economic engineering. We follow Newton's original development, as set forth in the Principia, to determine economic analogs to his three laws of motion. The pivotal result is an operational definition for an economic force, i.e. a want or a desire, in terms of a price adjustment. With this, we model the price effects of scarcity and trade friction in analogy with the models for the spring and damping force. In turn, we define economic benefits and surplus as analogous to the definitions of mechanical work and energy. These are then used to interpret the various types of economic equilibrium considered by economists from a mechanical perspective. The effectiveness of the analogy is illustrated by applying it to modelling the price and inventory dynamics of various economic agents -- including consumers, dealers, holders, spot and futures traders -- using linear-time invariant systems theory.