A reexamination of the role of thermodynamics for environmental economics

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As the discussion about the role of thermodynamics in environmental economics has not led to a conclusion yet, a more fundamental approach seems to be necessary which also takes into consideration the relationship between economics and the natural sciences in general. To this end value theory is chosen as a starting point because it is the centerpiece of every economic theory. It is shown that neoclassical environmental economics suffers from serious deficiencies because of its value concept heedlessly copied from classical mechanics. Thermodynamics can be expected to be helpful to redress these defects because the economy can be thought of as a dissipative structure dependent on its environment. The obvious way to integrate thermodynamics consists in the formulation of thermodynamic constraints to complement neoclassical environmental economics. But this approach remains unsatisfactory because the neoclassical mechanical hardcore is incompatible with the entropy law and its implications. Evidently, the neoclassical paradigm and its value concept have to be given up. But the alternative of the energy theory of value must be rejected because its determinism cannot be reconciled with the richness of human behaviour. As thermodynamic analogies offer no solution either, there is a dilemma between the necessity and the apparent impossibility of adequately integrating thermodynamic concepts. It turns out that a normative inconsistency is responsible which is due to the demand for intergenerational justice. Therefore, the integration of thermodynamics into environmental economics hinges on a meta-economic value decision. If sustainability is adopted as the guiding principle, the insights of thermodynamics call for a macro-economic environmental policy setting absolute limits to the economy. But this macro policy is incompatible with neoclassical economics so that a social reconstruction of economics, based on a social theory of value, becomes necessary. In sum, thermodynamics is important for environmental economics: besides fulfilling a general heuristic function, it also fulfils a decisive conceptual and an analytical function insofar as it helps to justify sustainability and to operationalize macro-economic environmental policy.