The Physical Foundation of Economics: An Analytical Thermodynamic Theory

Thermodynamic analysis reveals large overlooked role of oil and other energy sources in the economy

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Before I begin this review, let me just say that I was a student of Jing Chen so there will naturally be some bias here, but I will try to be fare.

The Physical Foundation of Economics: An Analytical Thermodynamic Theory

This book presents a theory that bridges the well ordered world of physics and the chaotic world of economics. It goes a long way in explaining why the world of human structures and systems are the way they are and suggests that, perhaps, the world is not as unpredictable, chaotic or complex as the dismal science would have us believe. This book contains a fundamental idea that leaves readers thinking, "that's so simple and obvious, I could of thought of that".

Unfortunately the book does suffer from being too complex for a wide audience. Some people will be intimidated by the mathematics involved, but if you can get past the math this book is very worthwhile. A "dumbed down" version would be nice to see so this profound idea could be brought to a wider audience. Go to Amazon. Discover the best of shopping and entertainment with Amazon Prime. Prime members enjoy FREE Delivery on millions of eligible domestic and international items, in addition to exclusive access to movies, TV shows, and more.

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Up to the middle of the nineteenth century, the Second Law was still a rather intuitive and therefore vague formulation of empirical facts about energy transformation processes. The inspiration for this idea came from a formal representation of the First Law given by J. Willard Gibbs — He knew that energy can neither be created nor destroyed. Yet the energy of a particular sub-system can change. Intensive variables of the system are quantities which do not change when two identical systems are coupled.

In contrast, extensive variables are quantities whose value for the total system is simply the sum of the values of this quantity in both systems. For example, temperature and pressure are intensive variables, volume and particle number are extensive variables. Here Xi represents the intensive variable and Yi represents the extensive variables.

For all the intensive variables being used at the time, the corresponding extensive variables were well known, with one exception. There was no extensive variable corresponding to the intensive quantity temperature, T. Here Q is the heat and S is the extensive variable corresponding to the absolute temperature T. He further showed that the variable S is a function of the system; it remains constant in any reversible cycle process, and it increases otherwise. This implies, given the definition of the entropy variables, that the spontaneous exchanges of heat between two bodies can only take place in one direction, from hot to cold, in line with experience.

Isolated systems exchange neither energy nor matter with their surrounding environment. Closed systems exchange energy, but not matter, with their surrounding environment.

Open systems exchange both energy and matter with their surrounding environment. Whether truly isolated natural systems exist at all is an open question.

Real systems on the earth always exchange at least energy with their environment, albeit only in small amounts. The universe as a whole could be an isolated system, but that conjecture is beyond testing, however.

Today there are several branches of thermodynamics, e. Up to only actual phenomena of heat energy were studied and analysed, only at the macroscopic and not on the microscopic level. After researchers examined atomic and molecular details at the microscopic level, in particular with statistical methods.

To distinguish these different approaches, the pre findings are summarised under the notion of phenomenological thermodynamics, dealing with all the notions, results and interdependencies mentioned above. Having dealt with the macroscopic level, we now turn to microscopic procedures developed after This circumstance can be seen from empirical observations in everyday experience, e.

Further, phenomenological thermodynamics, with which we have dealt up to now, does not explicitly deal with time.

The Physical Foundation of Economics: An Analytical Thermodynamic Theory

For that reason, temporal irreversibility is hard to grasp in the framework of equilibrium thermodynamics. The relationship between entropy and irreversibility became somewhat clearer, at least as far as the physics of gases was concerned, thanks to Ludwig Boltzmann — He gave a mechanical interpretation for entropy which enabled him to explain why it always increases with time see for extensive explanations Faber et al.

Statistical mechanics, developed by James Clerc Maxwell — starting in , views gases as assemblies of mol, described by probability distribution functions depending on the position and velocity of the molecules. This view allowed the establishment of the connections between the thermodynamic variables, that are the macroscopic properties such as temperature or pressure, and the microscopic behaviour of the individual molecules of the system, which was described by statistical means. In , Boltzmann made the decisive step by introducing the concept of microstates and macrostates of a system.

The economic readers will have noted that there is a close analogy between this approach in physics and economics. For the sake of the theoretical treatment, we number them from 1 to 4. We observe a certain number of balls in one half of the system.

These different observable states are the macrostates of the system. The microstate of the system is defined by the specification of that exact configuration that specifies which ball is found in what part of the container. For example, one microstate could be: Balls 1 and 2 can be in one half and 3 and 4 in the other half of the container.

The container can be in five different macrostates: , , , and We note that the macrostate can be realised by only one microstate; the macrostate can be realised by four microstates, and finally the macrostate can be realised by six different microstates. Boltzmann assumed that all microstates have the same probability of occurring, provided that there is no physical condition which would favour one configuration over the other.

By counting the number of different microstates realising the same macrostate, he posited that the macroscopic thermal equilibrium is the most probable state, in the sense that it is the macrostate which is realised by the largest number of different microstates.

The larger the number of particles a system contains, the more likely it is to find the system in its most probable state.

In our example of the container with four balls, we would thus be most likely to find the container to be in the macrostate , with an equal number of balls in each half. Boltzmann related the quantity W, counting the number of possible microstates realising one macrostate, to the thermodynamic entropy S of that macrostate, by.

Entropy has thus become a measure of likelihood: Highly probable macrostates, that is macrostates that can be realised by a large number of microstates, also have high entropy. For Boltzmann, however, this is only a question of probability: It is highly probable that the entropy of an isolated system increases. It could, however, with very low probability also decrease. As mentioned above, the larger the number of particles a system contains, the higher the probability of finding the system in the macrostate of maximum entropy.

Hence, strictly speaking, statistical mechanics supports the Second Law of Thermodynamics only at the limit of large numbers. In phenomenological thermodynamics, the entropy concept was always intimately connected with heat. It is the merit of statistical mechanics, despite its shortcomings mentioned above, to de-couple these two concepts and show the more general nature of entropy, namely as a measure of likelihood or, equivalently, a measure of disorder. For instance, the mixing of two distinguishable gases at the same temperature and with the same density is not affected by any thermal effect, but nevertheless it leads to an increase in entropy.

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We will show this in the following. In this approach, which goes back to Claude Shannon — , entropy is a measure of the information contained in a message. Since in the following we shall not refer to the resulting interpretation of entropy, we shall not here take a closer look at the information-theoretic interpretation of the notion of entropy see Georgescu-Roegen , Appendix B: , who discusses the relationship between ignorance, information, and entropy. Suffice it to note that the thermodynamic interpretation of entropy can be derived from the information-theoretic interpretation of entropy cf.

It is evident from our presentation above that entropy is a difficult concept to apply. For this reason, we start with a warning Section 3. This leads us to the way thermodynamic insights are used in Ecological Economics Section 3. The entropy notion is extremely complex. The physical concept is generally judged to be quite intricate. If we take the word of some specialists, not even all physicists have a perfectly clear understanding of what the concept exactly means.

Its technical details are, indeed, overwhelming. It is therefore no surprise that the application of the entropy concept has given rise not only to many misunderstandings and controversies in Mainstream Economics and Ecological Economics, but often entropy has also been applied incorrectly in social contexts. One reason for this is that one needs a strong background in physics and economics to understand and appreciate the literature on this topic. Here we can only give some indications.

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