Differential Forms: A New Tool in Economics

Abstract

Econophysics is the transfer of methods from natural to socio-economic sciences. This concept has first been applied to finance¹, but it is now also used in various applications of economics and social sciences [2,3]. The present paper focuses on problems in macro economics and growth. 1. Neoclassical theory [4, 5] neglects the “ex post” property of income and growth. Income Y(K, L) is assumed to be a function of capital and labor. But functions cannot model the “ex post” character of income. 2. Neoclassical theory is based on a Cobb Douglas function [6] with variable elasticity α, which may be fitted to economic data. But an undefined elasticity α leads to a descriptive rather than a predictive economic theory. The present paper introduces a new tool - differential forms and path dependent integrals - to macro economics. This is a solution to the problems above: 1. The integral of not exact differential forms is path dependent and can only be calculated “ex post” like income and economic growth. 2. Not exact differential forms can be made exact by an integrating factor, this leads to a new, well defined, unique production function F and a predictive economic theory.