Thermoeconomics
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In science, thermoeconomics is the application of the principles of thermodynamics to economics as well as the application of principles of economics to the efficient design and engineering of processes.[1] In other words, in thermoeconomics economists use thermodynamics to study economic systems and engineers use economics to improve the design of equipment. The term "thermoeconomics" was coined in the 1962 by American engineer Myron Tribus.[2][3][4] Thermoeconomics can be thought of as the statistical physics of economic value.[5][6] Thermoeconomics is based on the proposition that the role of energy in biological evolution should be defined and understood through the second law of thermodynamics but in terms of such economic criteria as productivity, efficiency, and especially the costs and benefits (or profitability) of the various mechanisms for capturing and utilizing available energy to build biomass and do work.[7][8] A noted researcher in the field of thermoeconomics is American Nobel-prize winning economist Paul Samuelson.[9][10][11] His 1947 book Foundations of Economic Analysis, from his doctoral dissertation, his magnum opus, is based on the classical thermodynamic methods of American thermodynamicist Willard Gibbs, specifically Gibbs' 1876 paper On the Equilibrium of Heterogeneous Substances.[12][13][14] Gibbs was mentor to Samuelson and to American economist Irving Fisher and he influenced them both in their ideas on equilibrium of economic systems.[11][15] Attempts at neo-classical equilibrium economics analogies with thermodynamics generally, however, go back to Guilluame and Samuelson.[16]
Thermoeconomists reason that human economic systems can be modeled as thermodynamic systems then, based on this premise, attempt to develop theoretical economic analogs of the first and second laws of thermodynamics.[17] In addition, the thermodynamic quantity exergy, i.e. measure of the useful work energy of a system, is the most important measure of value. In thermodynamics, thermal systems exchange heat, work, and or mass with their surroundings; in this direction, relations between the energy associated with the production, distribution, and consumption of goods and services can be determined.
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[edit] Overview
Economic systems in a society always involve matter, energy, entropy, and information.[18] Moreover, the aim of many economic activities is to achieve a certain structure. In this manner, thermoeconomics attempts to apply the theories in non-equilibrium thermodynamics, in which structure formations called dissipative structures form, and information theory, in which information entropy is a central construct, to the modeling of economic activities in which the natural flows of energy and materials function to create scarce resources.[1] In thermodynamic terminology, human economic activity may be described as a dissipative system, which flourishes by transforming and exchanging resources, goods, and services. These processes involve complex networks of flows of energy and materials.
Based on what is known as the Le Chatelier principle in thermodynamics, Samuelson (1947) established the method of comparative statics in economics. This method explains the changes in the equilibrium solution of constrained maximization problem (economic or thermodynamic) when one of the constraints is marginally tightened or relaxed. It has proven to be a very powerful tool and found widespread use in modern economics.[18]
[edit] History
Thermoeconomics is a relatively new science, although it traces its conceptual origins to the early 18th century views of the physiocrats. The science of energy, i.e. energetics (in verbal sense) and thermodynamics (in a rigorous sense), began to come into its own in about the year 1850, especially through the works of Rudolf Clausius. One of the first publications to discuss aspects of economic activity from an energy perspective was the 1865 book The Coal Question by Stanley Jevons, the father of modern notions of utility maximisation in neoclassical economics. At the turn of the 20th century, those such as Serhii Podolinsky (1883), Wilhelm Ostwald (1907), and Frederick Soddy (1922) began to study the economic process from the thermodynamic perspective.[19]
The first to argue that money constitutes the economic value of low entropy was German physicist G. Helm in 1887.[20] In other words, Helm was one of the first to correlated the second law of thermodynamics with economic value.[5] Thermoeconomics can be thought of as the statistical physics of economic value.[5] Later, Paul Samuelson, with his Foundations of Economic Analysis, and Nicholas Georgescu-Roegen, in the late 1960s, began to apply thermodynamic and statistical-mechanical theory to economics.[21][22]
[edit] Biophysical economics
Biophysical economics is a system of economic thought based not on money but on laws of energy and material transformations and empirical assessments of these and their relation to money.[19][23] The term 'biophysical economics' was coined by Alfred Lotka in 1924 in his call for the use of basic biological and physical principles to aid economic analysis. It is economics that starts with resource capacities, sustained production potential and human demography and from that examines the actuality and potential of a region for given economic activities, both in toto and per capita.
Unlike neoclassical economics, biophysical economics aims to chart out the territory of a world in which biophysical resources such as oil begin to act as fundamental limiters on economic activity.
[edit] Engineering economics
In engineering and industrial design, thermoeconomics applies to methodologies combining exergy and economics for optimizing the design and operation of thermal systems, a typical example being power generation units.[24] In plant design, for example, energy and mass flowsheets and stream tables are generated which shows the major pieces of equipment. Using these, cost data is generated. Cost estimates are the driving force for any design study.
[edit] Related views
A related term is the recently coined "physioeconomics" by economist Philip Parker, from his 2000 book Physioeconomics - the Basis for Long-Run Economic Growth, in which the physical laws and various physiologial concepts are used to explain both microeconomic and macroeconomic behaviors, especially as these might vary from country to country. According to Parker, humans are homeotherms by nature. Thus, sciences such as heat transfer and thermodynamics, in coordination with recent findings in neuroscience, such as the relation between the hypothalamus and economic function, can be used to model economic aspects such as utility and consumption, which vary per latitude.
According to these views, a country's performance is gauged not by its absolute level of income or consumption, but rather by how far it is from homeostatic steady state. Countries closer to their homeostatic steady state are predicted to grow slower than those farther away, even though they might have lower levels of consumption.
Recently, there has been a push to connect neurochemistry and medicine to economics. In the 1993 Nobel Lecture by economist Robert Fogel, for example, he acknowledges a link between long-run economic growth and fundamental principles of physics and physiology, where he states:
| “ | Recent findings in the biomedical area call attention to what may be called the thermodynamic and physiological factors in economic growth. | ” |