Physical Macroeconomics: Part III - Economy and General Living System Principles

Abstract

Four principles of living systems (openness, isomorphism, feedbacks and steady state) formulated by Bertalanffy in his General System Theory, are fully applicable to the economy. In addition to these principles, we introduce the fifth one – the creation of information. By creating information instead of useless entropy removed from the system to the environment, the living systems increase the information component of their working potential. The growth of information potential allows them to exist, develop and evolve despite the fatal entropy tendency expressed by the second law of thermodynamics. Socio-economic evolution is a continuation of biological evolution. The appearance of nerves in biological systems and the creation of electrical networks in the economy have been fundamental milestones, after which the information potential growth had accelerated sharply. Both highly evolved biological organisms and economies have various levels of self-regulation. At the level of biochemical reactions and market interactions, there is a random self-regulation, while at the macro level, centrally determined regulation plays a key role.