Abstract
This paper examines relations between econophysics and the law of entropy as foundations of economic phenomena. Ontological entropy, where actual thermodynamic processes are involved in the flow of energy from the Sun through the biosphere and economy, is distinguished from metaphorical entropy, where similar mathematics used for modeling entropy is employed to model economic phenomena. Areas considered include general equilibrium theory, growth theory, business cycles, ecological economics, urban–regional economics, income and wealth distribution, and financial market dynamics. The power-law distributions studied by econophysicists can reflect anti-entropic forces is emphasized to show how entropic and anti-entropic forces can interact to drive economic dynamics, such as in the interaction between business cycles, financial markets, and income distributions.
Highlights
Where Econophysics Came FromIt has long been argued as for example by Mirowski [1] that economic theorists have drawn on ideas from physics, with an especially dramatic and influential example being
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While the emerging econophysicists identified themselves as being physicists, an important impetus to their activities came from the intense discussions between economists and physicists at the Santa Fe Institute starting in the late 1980s [30,31]
Summary
It has long been argued as for example by Mirowski [1] that economic theorists have drawn on ideas from physics, with an especially dramatic and influential example being. Eugene Stanley, who as a longtime editor of Physica A has played a crucial role in publishing many papers that have been identified as representing and advancing this approach, with the term first appearing in print in 1996 [4] When it came to define this multidisciplinary neologism, the emphasis given by Mantegna and Stanley [5] was not upon the ideas or specific theoretical methods involved, but rather on the people doing it: “the activities of physicists who are working on economics problems to test a variety of new conceptual approaches deriving from the physical sciences”. While most of the economists in these discussions disavowed some of the models developed by the econophysicists, the irony is that some of these models introduced by the physicists that could generate such higher moments as well as scaling properties were originally developed by economists, with the most important example of this being the Pareto distribution [35]
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