thermodynamics and economics
ABSTRACT
The paper postulates a thermodynamic theory of money and describes both quantitavely and qualitatively its mechanics that unify economic production and finance in a sustainability framework. The theory will examine various economic issues, such as, full employment, economic growth, economic development, economic justice, the role of financial institutions, technology transitions and sustainable natural resource use, and be contrasted with the dominant money theory. It is claimed that as the current practice lacks any objective natural limit, it artificially violates the 2nd
Thermodynamic Law, creating all the conditions for the transformation of a financial crisis to economic and eventually to an environmental one. Finally, the paper proposes a necessary biophysical re-design of the global financial architecture based on the theory’s ideas for overcoming the current financial, economic and environmental crisis. The theory begins from Gessell’s ideas on a natural money system and is further expanded to include Roegen’s ideas as well; thus providing the wide range of the theory’s consistencies with Ecological Economics. Primarily, money must imprint accurately thermodynamic resource depreciation; which means that it must accurately reflect the total entropy increase from natural resource transformation into economic goods. Considering ecosystem entropy as a kind of benchmark entropy, natural resource transformation into products will only increase total entropy in the system; being in accordance to the 2nd Law (dS/dt≥0). Furthermore, products are also subject to thermodynamic depreciation. This effect should also be reflected in the value of money across time, via a respective purchasing power loss and negative interest rates. Generally, as money comprises a social covenant on the accepted means of human economic exchanges, its purchasing power must primarily follow the thermodynamic depreciation of the economy’s material base. This will
The paper postulates a thermodynamic theory of money and describes both quantitavely and qualitatively its mechanics that unify economic production and finance in a sustainability framework. The theory will examine various economic issues, such as, full employment, economic growth, economic development, economic justice, the role of financial institutions, technology transitions and sustainable natural resource use, and be contrasted with the dominant money theory. It is claimed that as the current practice lacks any objective natural limit, it artificially violates the 2nd
Thermodynamic Law, creating all the conditions for the transformation of a financial crisis to economic and eventually to an environmental one. Finally, the paper proposes a necessary biophysical re-design of the global financial architecture based on the theory’s ideas for overcoming the current financial, economic and environmental crisis. The theory begins from Gessell’s ideas on a natural money system and is further expanded to include Roegen’s ideas as well; thus providing the wide range of the theory’s consistencies with Ecological Economics. Primarily, money must imprint accurately thermodynamic resource depreciation; which means that it must accurately reflect the total entropy increase from natural resource transformation into economic goods. Considering ecosystem entropy as a kind of benchmark entropy, natural resource transformation into products will only increase total entropy in the system; being in accordance to the 2nd Law (dS/dt≥0). Furthermore, products are also subject to thermodynamic depreciation. This effect should also be reflected in the value of money across time, via a respective purchasing power loss and negative interest rates. Generally, as money comprises a social covenant on the accepted means of human economic exchanges, its purchasing power must primarily follow the thermodynamic depreciation of the economy’s material base. This will