Do All the Children Have Shoes? The Contrived Nature of Demand and Supply in Economics

Abstract

In standard or received economic theory, supply and demand are the key concepts of the discipline and constitute the fundamental dynamic of the marketplace. It is recognized by some economists that, unlike the physical sciences, economics does not rest upon the constraints and laws of the physical universe, but upon a psychological dynamic. For example, Robert Heilbroner, in a short article, “The Embarrassment of Economics”(1998), expresses the perennial concern that haunts and embarrasses many economic thinkers: Is economics really a science? Heilbroner reminds students of economics, that their discipline rests not on physical constraints, but on parallel psychological stimuli...the rise and fall of prices which produces differing behavior in buyers and sellers. Heilbroner goes no further in pursuing the question of the source of these opposing parallel responses to the stimulus of prices. Ultimately, however, for a proper understanding of economics as well as human behavior, we must trace these pervasive behavioral responses back to the human brain. There is no where else to go. The answer, I contend, is that the source of these parallel behavioral responses is to be found in our evolved brain structure. That is, demand and supply are driven by the reciprocal algorithms of behavior.