## MARCH OF THE MODELS

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### Historical origins and early models
- Adam Smith’s 1776 The Wealth of Nations is a celebrated but wordy precursor to modern economics; contemporary practitioners favor concise journal articles and mathematical models.
- François Quesnay (1758) created the Tableau économique, the first economic model, using a diagram of zigzags to depict the circulation of money and goods; it foreshadowed John Maynard Keynes’ theory of the circular flow of income and the multiplier developed in the 1930s.
- Quesnay drew on the circulation of blood in an organism to model economic flows and emphasized agriculture and “net product” as the ultimate source of economic value.
- David Ricardo in the early 19th century introduced rigorous, logical verbal models (e.g., land fertility and rent), emphasizing simplification and chained reasoning to derive implications such as landlords gaining at the expense of workers and capitalists.

### Emergence of “small worlds” and model-focused inquiry
- Economists began imagining “small worlds”: distillations of economic reality as models (mathematical or otherwise) used to “inquire into” and “inquire with” economic phenomena.
- The Edgeworth box, named after Francis Edgeworth, is a canonical small-world device representing allocations of two goods between two people and illustrating the first welfare theorem (efficiency of competitive markets) and the separation of efficiency from distribution.
- Small worlds allow analysis from diverse starting points (e.g., equal distribution or extreme inequality) and show that some outcomes can be efficient yet highly unequal.

### Mathematical method and the 20th century transformation
- The marginalist revolution introduced calculus to represent “marginal” changes (e.g., marginal utility), shifting many small-world models into equations.
- During the 20th century, the mathematical method was applied to macroeconomics (developing from Keynes), growth theory (Robert Solow), modern industrial economics (game theory), and econometrics (connecting models with data).
- The modern discipline’s stylized “economic agents” are simplified representations: “self-contained dots of consciousness” who make consistent choices according to rational precepts, enabling tractable modeling but omitting complex human motives.

### Critiques, limitations, and broader approaches
- Joseph Schumpeter criticized excessive abstraction (the “Ricardian vice”), arguing that drastic simplification can render results tautological and omit important social realities.
- Economists were criticized in the early years of this century for failing to foresee the global financial crisis; the assumption of “rational agents” was blamed for neglecting irrationality and malfeasance in finance.
- The Edgeworth-box abstraction omits the “messy history of institutions and power” that shapes distribution, raising questions about whether economists have done too much inquiring “into” and too little inquiring “with.”
- Recent developments broaden mainstream economics:
  - Behavioral economics introduces psychological realism into models.
  - Thomas Piketty’s 700-page Capital in the Twenty-First Century demonstrates public appetite for broad historical narratives and critiques of capitalism.
  - Unorthodox traditions and a diversification of methods coexist alongside neoclassical approaches.

### Guidance and normative outlook
- “Good economics must strike the right balance between models as objects fascinating in themselves and as instruments to peer into the chaos of economic reality.”
- The remedy to narrow model use is not necessarily to abandon modeling and mathematics but to deploy them more deliberately to support economics’ earlier humanistic values.
- Maintain simplification where useful, while ensuring models are instruments for understanding real-world institutions, power relations, and historical dynamics.

*Source: F&D, MARCH 2024, “MARCH OF THE MODELS,” Niall Kishtainy*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/03/kishtainy.pdf_