Alfred Marshall (1842-1924) was the central figure in British economics for the last quarter of the 19th century and the first decades of the 20th century. He crafted many microeconomics concepts that students still learn today: price-elasticity of demand, consumer surplus, producer surplus...

His opus magnus, ** Principles of Economics **, became a genuine best-seller and was considered as the Microeconomics bible. Interestingly enough, although he was trained as a mathematician, Alfred Marshall put almost
all the mathematics he used for deriving his results in
the celebrated Mathematical Appendix.

This should not come as a surprise from a man who one wrote:

"*I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules*

*Use mathematics as a shorthand language, rather than an engine of inquiry**Keep to them until you have done**Translate into English**Then illustrate by examples that are important in real life**Burn the mathematics**If you can't succeed in 4, burn 3.*

*This last I did often.*" **Quote drawn from**: "On the Third Hand: Humor in the Dismal Science, An Anthology"

Caroline Postelle Clotfelter, Editor, The University of Michigan Press, 1996

Well, this should also apply to business plans although I am not sure venture capitalists will let you burn the spreadsheet that easily!

**PS**: Talking about the Third Hand, former US President Harry S. Truman once said "*I want a one-armed economist so that the guy could never make a statement and then say 'on the other hand...*"

By the way he also said that "*if we could put a Sears catalog in every Russian’s mailbox on Friday, communism would be dead by Monday morning*."

Dear Eric,

Refreshing !

What is worrying is that, today, scholars tend more and more to hide basic – and often "very basic" indeed - ideas behind a smoke of totally unreadable litany of equations. A friend of mine, a young professor in micro-economics and quite familiar with the “rules of the game” of the academic world, told me that most of key economic and finance journals do no accept papers with less than 10 to 20 – why “between 10 to 20” ? - equations.

What is frightening is that even basic “narrative” description about the “why” of assumptions and the “logic” behind the analytics are now simply ignored, even in the introduction of the model. Invariably it starts with “Let’s assume w is …“ Eventually, when you get finished with the last 54th partial differential equation, after a few litres of light Coke (or Pepsi, as you whish), several sleepless nights and a terrible headache, you just think : “All this for just this. Next time, please cut the crap”.

I think it was Pr Douglas North – however not 100% sure – who once wrote that the analytics of game theory were useful to him in order to help him to structure his thinking about economics of contracts, institutions and so on so forth. That’s the power – and sometimes the beauty - of maths. Read 20 pages of some “qualitative” sociologists or political scientists, you will soon come back with delight to economics and finance analytics.

However, in social “sciences”, maths without thinking leads straight to Marshall’s rule N° 5. And that's often the case.

To conclude, and as my own contribution to help the “Yes” supporters to win the referendum on the EU constitution, I still enjoy very much this quote from Hugo Rossi, found in the classic book of Simon Singh, “Fermat’s last theorem”, about the power of maths in social science and politics:

« In the fall of 1972 President Nixon announced that the rate of increase of inflation was decreasing. This was the first time a sitting president used a third derivative to advance his case for re-election”

Should Jacques Chirac and François Hollande be able to illustrate the benefits of the European integration with a nice and sexy fourth derivative, they’ll win for sure !

:) Didier

Posted by: Didier Joos | May 07, 2005 at 03:40 PM