The Role of Entropy in the Development of Economics

2016

This article deals with the notion of entropy in its applicability to economics. Briefly, it regards some classical cases of such a use as the labour concept of Podolinsky and the bioeconomics of Georgescu-Roegen. This article also attempts to apply the concept of entropy to the analysis of market structures in the example of the perfect competition model. Thus, the article asserts that if we compare different entropy concepts with the main characteristics of a market with perfect competition, we must conclude that the latter is a structure with the maximum level of entropy. But maximum entropy means the system’s death. So, as a system or a structure, a perfectly competitive market cannot exist. When analysing such a model, economists recognise its impossibility in real life from an empirical point of view. However, the application of the entropy concept helps us to repeat this approval also as a methodological one. The use of the entropy concept as a methodological instrument helps...

Journal of Heterodox Economics, 2016

This article deals with the notion of entropy in its applicability to economics. Briefly, it regards some classical cases of such a use as the labour concept of Podolinsky and the bioeconomics of Georgescu-Roegen. This article also attempts to apply the concept of entropy to the analysis of market structures in the example of the perfect competition model. Thus, the article asserts that if we compare different entropy concepts with the main characteristics of a market with perfect competition, we must conclude that the latter is a structure with the maximum level of entropy. But maximum entropy means the system’s death. So, as a system, a perfectly competitive market cannot exist. Despite economists recognise the unreality of such a market from an empirical point of view, the application of the entropy concept helps us to repeat this approval also as a methodological one. The use of the entropy concept as a methodological instrument helps to question some other economic models, too.

Ecological Economics, 1990

In this paper I summarize Raine et al. (2006) and offer comments on the points of agreement and disagreement. Along with my own justifications, I refer other authors to clarify my standpoint. At the end I make an overall assessment of the paper.

Journal of Econometrics, 2002

Entropy

While entropy was introduced in the second half of the 19th century in the international vocabulary as a scientific term, in the 20th century it became common in colloquial use. Popular imagination has loaded “entropy” with almost every negative quality in the universe, in life and in society, with a dominant meaning of disorder and disorganization. Exploring the history of the term and many different approaches to it, we show that entropy has a universal stochastic definition, which is not disorder. Hence, we contend that entropy should be used as a mathematical (stochastic) concept as rigorously as possible, free of metaphoric meanings. The accompanying principle of maximum entropy, which lies behind the Second Law, gives explanatory and inferential power to the concept, and promotes entropy as the mother of creativity and evolution. As the social sciences are often contaminated by subjectivity and ideological influences, we try to explore whether maximum entropy, applied to the d...

Entropy, 2022

Information theory is a well-established method for the study of many phenomena and more than 70 years after Claude Shannon first described it in A Mathematical Theory of Communication it has been extended well beyond Shannon’s initial vision. It is now an interdisciplinary tool that is used from ‘causal’ information flow to inferring complex computational processes and it is common to see it play an important role in fields as diverse as neuroscience, artificial intelligence, quantum mechanics, and astrophysics. In this article, I provide a selective review of a specific aspect of information theory that has received less attention than many of the others: as a tool for understanding, modelling, and detecting non-linear phenomena in finance and economics. Although some progress has been made in this area, it is still an under-developed area that I argue has considerable scope for further development.

Annals of the New York Academy of Sciences, 2010

Almost 40 years have passed since Georgescu-Roegen's seminal work, The Entropy Law and the Economic Process. During this time there has been much debate on the relevance of thermodynamics to economics, and many attempts to build bridges between the two. There has also been much confusion as to what the laws of thermodynamics actually say. This article clearly explains heat, work, and the thermodynamic laws, the meaning of entropy, and the importance of kinetics as a barrier to thermodynamically favorable processes. The two most important misunderstandings in the literature, namely entropy as disorder, and entropy as a measure of information, are highlighted. Reviewing the literature shows that thermodynamics is most relevant for building a descriptive model, or preanalytic vision of economics, because it implies physical constraints on production and consumption. Similarly, it suggests that there may be serious flaws with neoclassical economic models, and in particular the primacy of sustained growth. However, thermodynamics does not seem to aid mathematical modeling in economics, nor does it provide normative insights. As an aid to energy policy, thermodynamics is useful for assessing the feasibility of technology optionsthose that have the potential to meet our goals, and should be counted as options, and those that should not. But it does not provide a prescription outside of this technical realm. Factors, such as environmental impact, cost, and social acceptability, will ultimately determine which technically feasible options are most desirable.

Asociacin Argentina de Economa Poltica-XXX …, 2007

International Journal of Exergy, 2007

An analogy between thermodynamic and economic theories and processes is developed further, following a previous paper published by the author in 1982. Economic equivalents are set out concerning the ideal gas equation, the gas constant, pressure, temperature, entropy, work done, specific heat and the 1 st and 2 nd Laws of Thermodynamics. The law of diminishing marginal utility was derived from thermodynamic first principles. Conditions are set out concerning the relationship of economic processes to entropic gain. A link between the Le Chatelier principle and economic processes is developed, culminating in a derivation of an equation similar in format to that of Cobb Douglas production function, but with an equilibrium constant and a disequilibrium function added to it. A trade cycle is constructed, utilising thermodynamic processes, and equations are derived for cycle efficiency, growth and entropy gain. A thermodynamic model of a money system is set out, and an attempt is made to relate interest rates, the rate of return, money demand and the velocity of circulation to entropy gain. Aspects concerning the measurement of economic value in thermodynamic terms are discussed.