ENTROPIC LIMITS TO ECONOMIC GROWTH A REVIEW

Abstract

Economic growth is described both as feasible and desirable objective in the standard economicliterature. However, the feasibility of continuous economic growth is questionable with theconstraints imposed by the physical environment. The second law of thermodynamics forms thetheoretical foundation of this. This paper intends to discuss the relevancy of entropic limits tothe economic growth, in particular, the implicaticns for current levels and the modes ofeconomic activity.As described by Georgescu Rogen, economic system is only an open subset of a lagerbiophysical system with matter and energy crossing the boundary into the economic system in alow entropy state and evolving into a high entropy state. This unidirectional flow differsfundamentally from the view taken by standard economic theory which sees the economy as aclosed system balanced by internal market equilibrium. There are two important implications ofthis analysis. One is that the production process necessarily results in an entropy deficit. Secondis that the fundamental distinction is established between the stock of terrestrial resources,analogous to capital and the flow of solar energy, analogous to income indicating the differencebetween living on income and living on capital.This analysis has numerous implications on the current levels and modes of various economicactivities. Absolute scarcity of entropy flows means the scarcity of environmental sources andsinks. No industrial system could continue indefinitely drawing down terrestrial stocks of lowentropy, which encompasses rising costs both environmental and production. Also there arestrict limits to what can be achieved through technological progress or resource recycling.Therefore, technologies that are able to produce more welfare out of a given entropic flow wouldbe more important than technologies, which simply increase the volume of throughput.