Entropy and Economics, continued

It is fitting that the above problem/solution section on basic Thermodynamics should end with a problem from which we conclude that the change in entropy of the "universe" is zero. In physics of course, the word "universe" is used to describe not the actual physical universe but the entirety of the systems under consideration, in this case, the ice cube and its surroundings. We know for sure that the net entropy of the actual physical universe, the ultimate closed system, must be greater than zero for any given totality of processes and any given time frame. As Macrakis and others point out, we cannot say that this universal entropy truth--that you can't get something for nothing, or more succinctly, that you can't get anything cheap--is a "natural" law simply because the entire notion is anthropocentric, aiming to discern work and losses relevant to human economic processes. Nevertheless, it is a fact of (economic) life with, at the very least, broad and serious implications. The malleability of the notion--displayed, for example, by the ease with which its essence can be abstracted as in the final solution above ()--is part of both its appeal and also its undoing.

In his recent book Beyond Growth: the Economics of Sustainable Development, Daly introduces the reader to the fundamentals of what should be the impact of GR's entropy-economics ideas on economic theory. This introduction serves as an excellent launching off point, and takes the form of an explanation, on a number of fundamental fronts, of how mainstream economics textbooks would have to be revised if they were to incorporate GR's ideas as more than just lip service. Indeed, part of Daly's point, along with others, is that entropy understandings require a total rewriting of the textbooks in many cases. This requirement is exactly what is keeping economic theory in the dark ages--who would want to rewrite every section of their textbook, especially a best-selling one? Not only does the failure to face up to entropy result in an orientation toward economic activity which pays no heed to the physical limits of the ecosystems on which it depends, but it also "turns good into evil and makes orthodox economics the laughing stock of science" (Soddy qtd. in Daly 1996, p. 188).

The first and main revision on Daly's agenda would be to the circular-economic-flow diagrams which (as this author can attest to) are given to students of economics as a representation of the way things work overall. Such a diagram consists of two concentric circles around four poles. The poles are: product markets, firms, factor markets, and households. The idea, simplistically put, is that the economy is self-contained and is based primarily on firms supplying products and households supplying labor. There is absolutely no accounting, in this formative view, either for the "natural capital," in the form of energy and resources, supplied to the economy by the non-human world, or for the flow of waste and its sinks.

This oversight, especially the latter part, is, Daly stresses, equivalent to biology overlooking the importance of the digestive tract and choosing to focus entirely on the circulatory system (Daly 1996, p. 193). He adds:

Circulation of blood is to circulation of money as the digestive tract is to...(what?)...(GR) filled in the blank with the analogous concept: the one-way flow beginning with natural resources and ending with waste. To this concept he gave the name "entropic flow." (p. 193)

Daly recommends that in a new "preanalytic vision," what others might call a new paradigm, the primary aspect of flow diagrams be the entropic flow, with the circulation of exchange value as a faintly-outlined, secondary (albeit significant) process.