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InvestingThe Last Liberal Art, Second Edition$
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Robert Hagstrom

Print publication date: 2013

Print ISBN-13: 9780231160100

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231160100.001.0001

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(p.13) 2 Physics

Robert G. Hagstrom

Columbia University Press

This chapter examines how various concepts in physics were uncovered and the degree to which they may now be evolving into somewhat different forms with profound implications for finance and economics. It begins with Isaac Newton's discovery of gravitation and his three laws of motion. After Newton, scholars in many fields focused their attention on systems that demonstrate equilibrium (whether static or dynamic), believing that it is nature's ultimate goal. If any deviations in the forces occurred, it was assumed that the deviations were small and temporary—and the system would always revert back to equilibrium. The critical point here is how the concept of equilibrium expanded from celestial mechanics into much broader applications, particularly in economics and the stock market. This chapter also considers the work of Alfred Marshall, the chief proponent of the concept of dynamic equilibrium in economics, and Paul Samuelson's theories of how the market establishes prices.

Keywords:   physics, economics, Isaac Newton, gravitation, three laws of motion, equilibrium, stock market, Alfred Marshall, Paul Samuelson, prices

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