Economic thermodynamics

In human thermodynamics, economic thermodynamics is the thermodynamic study of the process by which a country's money and goods are produced and used. [1]

Overview
In 1926, English radiochemist Frederick Soddy's published his famous Virtual Wealth and Debt on thermodynamics in the economic sense.

In the study of thermoeconomics economists use the laws of thermodynamics such as Clausius' entropy, or the principles of nonequilibrium thermodynamics, such as Prigogine's dissipative structures theory for the modeling of the activity and forcast of economies. Synonyms include eco-thermodynamics and thermoeconomics.

In a general sense, the argument exists that the science of economic thermodynamics began following the publication of English-born American economist Kenneth Boulding’s famous 1966 article “The Economics of the Coming Spaceship Earth” in conjunction with Romanian mathematician Nicholas Georgescu-Roegen’s 1971 book The Entropy Law and the Economic Process, after which economists became interested in the subject. [11]

In 1989, American economists Daniel Underwood and Paul King stated the connection between thermodynamics and economics as: [12]

“The fact that there are no known exceptions to the laws of thermodynamics should be incorporated into the axiomatic foundation of economics.”

In 1990, German theoretical ecologist Bengt Mansson wrote out a standard chapter on economic and thermodynamics in the seven-part textbook series on thermodynamics edited by American chemical thermodynamicist Ali Mansoori. [14]

Likewise, in 2008 by American physical chemist Thomas Wallace argues: [13]

“If economics is to be considered as a science-based discipline, the principles of physical science, including the laws of thermodynamics, must be appropriately applied.”

In 2011, German physicist Reiner Kummel, in his The Second Law of Economics: Energy, Entropy, and the Origins of Wealth, argued that we need to begin to incorporate energy and entropy thinking into economics; his general derivation and presentation was incorrigible, novice, and essentially baseless. [15]

Related terms
A related term is "biophysical economics" coined by Austrian-born American mathematician and physical chemist Alfred Lotka in 1925 used to signify the application of biological and physical principles to aid economic analysis. [4]

The related term "bioeconomics" refers to the study of how organisms of all kinds earn their living in nature's economy, with particular emphasis on co-operative interactions and the progressive elaboration of the division of labor. [6] Today, the term is used in various ways, from Georgescu-Roegen's thermodynamic analyses to the work in ecological economics on the problems of fisheries management. [7]

The term “econophysics”, described as the use of statistical mechanics to solve problems in economics, was coined by H. E. Stanley in the mid 90's, to describe the large number of papers written by physicists in the problems of (stock) markets, and first appeared in a conference on statistical physics in Calcutta in 1995.

Objections
Although most scientists agree that all physical processes abide by the laws of thermodynamics, there are many economists and physicists that maintain that the economy is exempt from these laws. In 1972, American economist Paul Samuelson, who earlier in his career was an avid user of thermodynamic analogies, asserted that: [10]

“The sign of a half-baked speculator in the social sciences is his search for something in the social system that corresponds to the physicist's notion of entropy.”

In 2003, American physicist Joseph McCauley argued that “real financial markets cannot behave thermodynamically” because “financial markets are unstable, they do not approach statistical equilibrium, nor are there any available topological invariants on which to base a purely formal statistical mechanics.” [9]

Refereces
1. (a) Thims, Libb. (2007). Human Chemistry (Volume Two), (preview), pg. 677-678. Morrisville, NC: LuLu.
(b) Ksenzhek, Octavian S. (2007). Money: Virtual Energy - Economy through the Prism of Thermodynamics, Universal Publishers.
(c) Longman Dictionary of Contemporary English (Economy).
2. De Vries, Sipke S. (1999). Thermodynamic and Economic Principles: and the Assessment of Bioenergy. Dissertation (abstract). Delft University of Technology.
4. (a) Lotka, A. J. (1924). Elements of Physical Biology (published in 1954 as Elements of Mathematical Biology), Baltimore: Williams and Wilkins.
(b) Cleveland, Cutler, J. (1999). "Biophysical Economics: From Physiocracy to Ecological Economics and Industrial Ecology"; in: Bioeconomics and Sustainability: Essays in Honor of Nicholas Gerogescu-Roegen, (editors: J. Gowdy and K. Mayumi) (pgs. pp. 125-154. ). Edward Elgar Publishing.
6. Reinheimer, Hermann (1913). Evolution by Co-operation: A Study in Bioeconomics, London: Kegan, Paul, Trench, Trubner.
7. Corning, Peter, A. "Bioeconomics as a Subversive Science From 'Tastes' and 'Preferences' to 'Adaptation' and 'Basic Needs'" (Prepared for the Annual Meeting, Western Economics Association International San Francisco, CA, July 1996), Institute for the Study of Complex Systems.
9. McCauley, Joseph L. (2003). “Thermodynamic Analogies in Economics and Finance: Instability of Markets.” Physica A, 329 (2003): pp. 199-212.
10. Samuelson, Paul. (1972). The Collected Scientific Papers (pg. 450). Vol. 3, ed. R. Merton. Cambridge, Mass.: MIT Press.
11. (a) O’Hara, Phillip A. (1999). Encyclopedia of Political Economy, (section: “Entropy, Negentropy, and the Laws of Thermodynamics”, pg. 261-65). Routledge.
(b) Boulding, Kenneth E. (1966). "The Economics of the Coming Spaceship Earth", in H. Jarret, ed., Environmental Quality in a Growing Economy. Johns Hopkins University Press.
12. (a) Underwood, Daniel A. and King, Paul G. (1989). “On the Ideological Foundations of Environmental Policy”, Ecological Economics 1: 324.
(b) Hardin, Garrett. (1993). Living Within Limits: Ecology, Economics, and Pollution Taboos. (pg. 45). Oxford University Press.
13. Wallace, Thomas P. (2009). Wealth, Energy, and Human Values: the Dynamics of Decaying Civilizations from Ancient Greece to America (pg. 31). AuthorHouse.
14. Mansson, Bengt. (1990). “Thermodynamics and Economics”, in: Mansoori, G.A., Sieniutycz, S. and Salamon, P. (1990). Advances in Thermodynamics, Vol. IV: Finite-Time Thermodynamics and Thermoeconomics (pgs. 153-74). Taylor & Francis.
15. Kummel, Reiner. (2011). The Second Law of Economics: Energy, Entropy, and the Origins of Wealth (abs). Springer.

Further reading
● P. Lisman. (1951). Thermodynamics and Economics. The Hague, Netherlands Postal Service.
● Hertzmark, Donald I. (1978). Economics, Thermodynamics, and the Allocation of Energy. Thesis/dissertation University of Wisconsin-Madison.
Bryant, John. (1979). “An Equilibrium Theory of Economics”. Energy Economics, Vol. 1, Issue 2, April. pgs. 102-11.
● R.S. Berry, B. Andresen. (1982). "Thermodynamic constraints in economic analysis. Self- organization and dissipative structures: Applications in the physical and social sciences", W.C. Schieve and P.M. Allen, eds., University of Texas Press, Austin, Texas.
● P.T. Samuelson (1983). "Thermodynamics and Economic Isomorphisms", in: Global Econometrics, F.G. Adams-Hickman, B.G. Hickman, eds., MIT Press, Cambridge.
● K. Martinás (1989). About Irreversibility in Microeconomics, Research Report (AHFT-89-1), Department of Low Temperature Physics, Roland Eotvos University, Budapest, March.
● Golan, Amos, Judge, George G., Miller, Douglas. (1996). Maximum Entropy Econometrics: Robust Estimation with Limited Data. Wiley.
● W. Krehm, Introducing the Entropy Concept to Economics 2000, Committee on Monetary and Economic Reform, COMER Publications, Toronto, Canada.
● Martinas, Katalin. (2000). “About Irreversibility in Economics”, Open Systems & Information Dynamics, Vol. 7, pgs. 349-64.
● Buenstorf, Guido. (2004). The Economics of Energy and the Production Process: an Evolutionary Approach (entropy, 25+ pgs). Edward Elgar Publishing.
Schwartzman, David. (2007). "The Limits to Entropy: the Continuing Mususe of Thermodynamics in Environmental and Marxist theory", In Press, Science & Society.
A Thermodynamic Formulation of Economics (PDF) - Juergen Mimkes.
Bryant John (2007). "A Thermodynamic Theory of Economics" International Journal of Exergy, Vol. 4, No. 3, 302-337
● Rutledge, John. (2007). “Energy Model of Economic Activity”, Chinese Academy of Sciences.
● Annila, Arto and Salthe, Stanley. (2009). “Economies Evolve by Energy Dispersal” (abstract), Entropy, 11(4): 606-33.
● Quevedo, H. and Quevedo, M.N. (2009). “Statistical Thermodynamics of Economic Systems.”, ArXiv.org, Mar. 25.

External links
Thermodynamicsociety.org - a small discussion forum on the relation between physics and economics.
Energy, Entropy, Economics, and Ecology (a list of related excerpts, articles, and books).
Thermodynamics and Economic Activity – Eileen O. van Ravenswaay, Michigan State University, 1998.

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