radon1 wrote:(I originally wrote this as a post in the When a cornucopian rejects Jevons Paradox thread, but then decided that it deserves a separate topic).
People always like to talk about a "system", without explaining what the "system" is, as the word sounds solid enough such that no one would ask any questions. In any event, whenever someone talks about a system, he implies that there is a function that describes that system:
F = F(x1,...,xn, t),
where x1,...,xn is a set of independent variables, and t - is time.
An example of such a function in a thermodynamic system is temperature; in a mechanical system - momentum, and so on. An economic system is usually described by function "GDP", or "output" designated as Q. In the most general form,
Q = Q(p, m, R, t)
where p - is people, m - is money, R - is resources (this is a vector or even a matrix), and t - is time. Here the analytical division begins, because most people do not recognize this function in this form.
First, the primitive "naturalists" go. They discount the money as an inconsequential nonsense, and believe that people and labor is a resource which is indistinguishable from other resources. In their world, the output function looks like
Q = Q (R, t).
In other words, the output function is driven purely by the laws of physics. Sounds familiar, doesn't it? This is quite a significant share of the "peaker" or "doomer" audience - various resourcists, entropyists, anti-entropyists, thermodynamists, eroists, energetists, propagandists of the "Monstrovich's paper" and so on. These people fail to notice that for thousands of years, when the energy and resources were available in abundance, and when, according to them, the growth of output Q should have been at its maximum - because the "total available energy and resources" were at maximum - nobody gave a heck about those energy and resources and the growth was minuscule or non-existent, and something outside the realm of Q(R,t) should have happened in order to mount the present-day growth machine.
radon1 wrote:These people are often preaching some sort dystopian future as the "cure from present-day ills" - all people and resources should be arranged in a specific order in accordance with some formulas and calculations (which they don't usually "have to hand"). However, as they normally see themselves as subjects rather than objects of their experimentation, they fail to notice that if they were subjected to their own recommended treatment by someone else, they could be very unhappy about their place in that new order.
ennui2 wrote:I get criticized as being a strawman guy a lot
ennui2 wrote:The purpose of a site like this should, in theory, be a proving ground where we can pinch our arms to see whether our current convictions about how the world works are true or not. You know, intellectual curiosity. Instead people don't really leave the door open to the idea their paradigms are wrong. And so discussion never really happens, only shouting matches
Cog wrote:It is possible to break the chains of doomerism if you put your mind to it. I was as doomy as anyone in 2009. A few years later I realized I was wallowing in it, searching out only doomy stories to confirm my bias, and was generally miserable.
I still read the doom posted on the forum but with a open mind as to its validity.
radon1 wrote:So, what's the point?
The point is that we understand that
Q = Q (p, m, R, t).
Don't we?
Whatever wrote:You mean like this example from one of your recent posts?:
Is this what you mean by intellectual curiosity, ennui?
dissident wrote:Thermodynamics is applicable to nonlinear dynamical systems:
https://en.wikipedia.org/wiki/Statistical_mechanics
Economics is not a science. during the 1800s it introduced a thermodynamic-like formulation but this is fake.
Humanity is part of the physical world. It is subject to conservation of energy and is a dynamical system. Humans like to engage in magical thinking and pretend they stand apart from physical reality. But that is itself subject to physical constraints (the brain can do all sorts of cut and paste constructs but cannot generate models of reality beyond the available set of experiences and does not do such a good job with this meager data; the ancient Greek philosophers were dead wrong when they believed that they could understand the universe by reasoning it out -- no empirical data input = no understanding).
None of the variables used in economics is fundamental. All of them are actually complex unknown functionals of other physical variables (e.g. energy). The problem is that economics pretends its variables are fundamental and basically indivisible, which is utter nonsense.
radon1 wrote:They discount the money as an inconsequential nonsense... Sounds familiar, doesn't it?
radon1 wrote:The point is that we understand that
Q = Q (p, m, R, t).
Don't we?
dissident wrote:http://dieoff.org/page241.htm
None of the variables used in economics is fundamental. All of them are actually complex unknown functionals of other physical variables (e.g. energy). The problem is that economics pretends its variables are fundamental and basically indivisible, which is utter nonsense.
regardingpo wrote:
To put this as simply as possible, humans can survive without m, but not without R. Or without an environment which can support human life, but it looks like you left that out of your equation.
radon1 wrote:This is not about survival, this is about Q.
radon1 wrote:Environment is a part of R.
radon1 wrote:So, how are you going to analyze Q using the "scientific method"?
What is your solution linking "physical variables" to Q?
Second Law of Thermodynamics May Explain Economic Evolution
(PhysOrg.com) -- Terms such as the "invisible hand," laissez-faire policy, and free-market principles suggest that economic growth and decline in capitalist societies seem to be somehow self-regulated. Now, scientists Arto Annila of the University of Helsinki and Stanley Salthe of Binghampton University in New York show that economic activity can be regarded as an evolutionary process governed by the second law of thermodynamics. Their perspective may provide insight into some fundamental economic questions, such as the causes of economic growth and diversification, as well as why it’s so difficult to predict economic growth and decline.
As Annila and Salthe explain in their study published in Entropy, the second law of thermodynamics was originally formulated to describe the flow of heat from hot to cold areas. However, when formulated as an equation of motion, the second law can be used to describe many other processes in energetic terms, such as natural selection for the fittest species, organization of cellular metabolism, or an ecosystem’s food web. In these systems, free energy is consumed; that is, energy is dispersed in a way to promote the maximal increase of entropy, which is the essence of the second law.
While economic activities are traditionally viewed as being motivated by profit, Annila and Salthe argue that the ultimate motivation of economic activities is not to maximize profit or productivity, but rather to disperse energy. From this perspective, a growing economy consists of entities (e.g. products, labor, etc.) that are assigned an energy density resulting from their individual production processes. These density differences are the forces that direct energy flows (e.g. manufacturing processes) to equalize energy density differences within the system and with respect to its surroundings.
The scientists argue that this tendency to disperse the maximum amount of energy (that is, to consume free energy in the least time) is what gives rise to economic laws and regularities. Further, economies organize themselves in hierarchical systems within systems to improve on energy dispersal and to access new sources of energy. For instance, the global economy is comprised of national economies, each housing economic zones that in turn accommodate districts, firms, households and so on, organized so that global resources are produced and consumed most effectively in terms of energy dispersal.
Whatever wrote: Let the physicists solve it.
The scientists argue that this tendency to disperse the maximum amount of energy (that is, to consume free energy in the least time) is what gives rise to economic laws and regularities. Further, economies organize themselves in hierarchical systems within systems to improve on energy dispersal and to access new sources of energy. For instance, the global economy is comprised of national economies, each housing economic zones that in turn accommodate districts, firms, households and so on, organized so that global resources are produced and consumed most effectively in terms of energy dispersal.
Do you even have a place for the second law in your formula?
radon1 wrote:Brilliant. Thanks for posting this. Fantastic illustration.
Again, can they please present proven formulas that support their hypothesis? Or at least, a verifiable set of historical data confirming it? Because general statements, which have not been proven, are just that - empty general statements. Waste of time, in other words.
Not saying that they are wrong, but can they please take time, do the real physicists' work, and actually prove their propositions, rather than play a blogger?
Entropy 2009, 11(4), 606-633; doi:10.3390/e11040606
Article
Economies Evolve by Energy Dispersal
Arto Annila 1,2,3,* and Stanley Salthe 4,*
1Department of Biosciences, University of Helsinki, FI-00014 Helsinki, Finland
2Institute of Biotechnology, University of Helsinki, FI-00014 Helsinki, Finland
3Department of Physics, University of Helsinki, FI-00014 Helsinki, Finland
4Biological Sciences, Binghamton University, Binghamton, New York 13754, NY, USA
*Authors to whom correspondence should be addressed.
Received: 17 September 2009 / Accepted: 14 October 2009 / Published: 21 October 2009
Abstract: Economic activity can be regarded as an evolutionary process governed by the 2nd law of thermodynamics. The universal law, when formulated locally as an equation of motion, reveals that a growing economy develops functional machinery and organizes hierarchically in such a way as to tend to equalize energy density differences within the economy and in respect to the surroundings it is open to. Diverse economic activities result in flows of energy that will preferentially channel along the most steeply descending paths, leveling a non-Euclidean free energy landscape. This principle of ‘maximal energy dispersal’, equivalent to the maximal rate of entropy production, gives rise to economic laws and regularities. The law of diminishing returns follows from the diminishing free energy while the relation between supply and demand displays a quest for a balance among interdependent energy densities. Economic evolution is dissipative motion where the driving forces and energy flows are inseparable from each other. When there are multiple degrees of freedom, economic growth and decline are inherently impossible to forecast in detail. Namely, trajectories of an evolving economy are non-integrable, i.e. unpredictable in detail because a decision by a player will affect also future decisions of other players. We propose that decision making is ultimately about choosing from various actions those that would reduce most effectively subjectively perceived energy gradients.
Keywords: energy transduction; entropy; hierarchy; evolution; natural process; natural selection; statistical physics; thermodynamics
PACS Codes: 05. Statistical physics; hermodynamics; and nonlinear dynamical systems; 87.23.-n Ecology and evolution; 89.65.-s Social and economic systems; 89.75.-k Complex systems
1. Introduction
Parallels between economic and biological systems have not gone unnoticed. Common roots stem from the formulation of evolutionary theory based on natural selection [1]. Darwin was inspired by the idea that favorable variation is preserved under a struggle for existence when reading Malthus [2]. The tenet of self-directed and self-regulatory processes was first posited by classical liberalism as being manipulated by an ‘invisible hand’ [3], and was later reworded as laissez-faire policy [4] and is today given, albeit in more refined terms, as free-market principles [5].
It is time to re-inspect the fundamental resemblance between economic and biological systems using the 2nd law of thermodynamics, which was recently formulated as an equation of motion for natural processes [6,7,8]. In this form, evolution by natural selection can be recognized as being guided by the 2nd law. This relationship is in agreement with earlier reasoning about the governing role of the 2nd law, known also as the principle of increasing entropy, in directing numerous natural processes, animate as well as inanimate [9,10,11,12,13,14,15,16,17,18].
Certainly in the past too, the principle of increasing entropy has invigorated cross-disciplinary thinking [19,20] and given rise to evolutionary economics, thermoeconomics and econophysics [21,22,23,24,25,26,27,28]. However, the inspiration has not been exhausted, because the entropy law, in the words of Georgescu-Roegen is still surrounded by many conceptual difficulties and equally numerous controversies [19].
Common considerations about entropy contrast with the principal findings of this study. It is reasoned here that economic activities are not confined by the 2nd law but are actually manifestations of it. The entropy of an entire economic system does not decrease due to its diverse activities at the expense of entropy increase in its surroundings. Rather, it follows from the conservation of energy that both the economy and its surroundings are increasing in entropy (decreasing in available energy) when mutual differences in energy densities are leveling off as a result of economic activity. The key here is that according to the statistical physics of open systems increasing entropy means dispersal of energy, rather than as increasing disorder. Finally, we understand the ultimate motivation of economic activities, not as the maximizing of profit or productivity, but rather to disperse energy.
These conclusions stem from the same statistical theory [6,7,8] that has been recently applied to understand diverse evolutionary processes [29,30,31,32,33,34,35,36,37] The 2nd law is found to yield functional structures, hierarchical organizations, skewed distributions and sigmoid cumulative curves that also characterize economies. Here, we use the thermodynamic formalism to address some fundamental questions of economics. What drives economic growth and diversification? Where do the law of diminishing returns, the Pareto principle, the balance of supply and demand, and the principle of comparative advantage come from? Why is it so difficult to predict economic growth and decline?
These questions are approached here from a strictly material and operational standpoint. It is understood that this standpoint of thermodynamics which relates everything directly or indirectly in terms of energy may immediately strike some as deficient. For example, is not information, as an essential guide of economic activities, immaterial? However, it has been argued that no information can be stored or processed without being represented in a physical form that, in turn, is subject to the laws of thermodynamics [38,39,40]. Moreover we fully acknowledge that physics in its traditional deterministic and reductionist form applicable for closed systems is rightfully rejected in attempting to account for behavior of open systems, e.g., for human endeavors. However the 2nd law, when formulated properly using the statistical physics of open systems, reveals that nature is an intrinsically interdependent system and its evolution is inherently a non-deterministic process. Thus, our holistic account aims to remove doubts and concerns commonly leveled against physicalism. Yet, our objective is not to turn economics into physics, but to clarify economic activity in the context of the 2nd law, which accounts for all irreversible motions in nature.
We will proceed to describe an economy as an energy transduction system, first in qualitative and then in mathematical terms. Thereafter the intractable nature of economic progression and regression is clarified, and, as well, accompanied structural, functional and organizational changes are exemplified. Some familiar economic relationships and regularities are derived from the ubiquitous natural law. Finally, the subjective nature of decision making is discussed.
The equation of motion for an evolving economy (Equation 3.3) can be rewritten using the definition of entropy S = kBlnP as the law of increasing entropy [6,8]:
The equation of motion says that entropy S is increasing when energy density differences, contained in Ajk, are decreasing by way of various flows vj. The non-negativity of dS/dt is apparent from the quadratic form obtained by inserting Eqaution 3.5 in 3.6. The formula obtained from statistical physics of open systems is consistent with the basic maxim of chemical thermodynamics [45], i.e., the entropy maximum corresponds to the free energy minimum as well as with the classical form of dS given by Carnot [46], the Gouy-Stodola theorem [55,56] and the mathematical foundations of thermodynamics [50,57,58].
The form of Equation 3.6 makes it explicit that it is the energy density difference between the system and its surroundings that drives the probable motions. The economy will prosper when the difference from its surroundings is positive and conversely the economy will decline when the difference is negative. The significance of surroundings is apparent, for example, when an economy is curtailed by an embargo. It is emphasized that both during economic progression and regression, the entropy of the economy, just as the entropy of its surroundings, are increasing. There is no room for a provisional proposition that the entropy of a system could possibly decrease at the expense of entropy increase at its exterior (or vice versa). Such generosity would violate the conservation of energy because the system and its surroundings share the same flows at their mutual interfaces [8].
radon1 wrote:Futilitist wrote:Do you even have a place for the second law in your formula?
You have R in the formula, and obviously, whatever applies to R, applies to the overall formula. Did you know it, by the way?
radon1 wrote:And by the way, are you sure you understand what the second law of thermodynamics is?
Whatever wrote:
Here is the introduction to their formal paper:
2. Economy as an Energy Transduction System
According to our naturalistic approach, an economy is an energy transduction system. To describe its characteristics and evolution in a self-similar manner using the statistical physics of open systems, all entities of the system are regarded as systems themselves (Figure 1). Each entity is associated with an energy density that results from its physical production processes.
Futilitist wrote:No, I didn't. I don't care about your silly economic "formula".
And by the way, are you sure you understand what the second law of thermodynamics is?Yes.
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