The new entropy law and the economic process

Abstract

We argue that a reformulated second law of thermodynamics recently employed by Schneider and Kay [Schneider, E., Kay, J., 1994. Life as a manifestation of the second law of thermodynamics. Math. Comput. Model. 19, 25–48] to conceptualize the relation between evolution, complexity and ecosystems can also be applied to economic systems. Utilizing thermoeconomic principles, this enables us to formalize the concept of economic evolution as the development of structural complexity to harness available energy from the environment to avert degradation gradients. We conclude, speculatively, that as much as life is an inevitable consequence of the reformulated entropy law [Kauffman, S., 1993. The Origins of Order: Self Organization and Selection in Evolution. University of Oxford Press, New York; Schneider, E., Kay, J., 1994. Life as a manifestation of the second law of thermodynamics. Math. Comput. Model. 19, 25–48], then this is also true of market economies for the same equilibrium seeking reasons. Market economies have experimentally proven themselves, more than any other known institutional arrangements, to abet the production of new knowledge and structural complexity, and therefore energy degradation. As a direct extension of the Schneider and Kay hypothesis, market economies are evolutionary stable because of their efficacy in growing knowledge and increasing structural complexity; a consequence, we argue, that follows from the reformulated second law of thermodynamics. The enormous energy transformations typical of market economies, consequent on their ability to induce and harness new transformations, are ultimately the reason they are selected.