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The Entropy Law and the Economic Process

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There are many great criticisms of neoclassical economics in this book. Georgescu-Roegen (G-R) points out such flaws as
@ regarding the economy as a closed, circular system;
@ neglecting qualitative changes because of the theory's preference for "arithromorhpic" concepts, i.e., concepts organized into distinct and non-overlapping gradations (such as preference/indifference/non-preference), rather than having fuzzy edges or ambiguities (such as real human preferences);
@ failing to attribute value to leisure, and negative value to the drudgery of work (albeit that assuming work must involve drudgery is itself based on some presuppositions not mentioned by G-R); and
@ fallacies in production models, "stock-flow" analysis and input-output tables.
The critique is usually presented with a refreshing brio. G-R isn't afraid to call ideas stupid when he believes them so.

But ... a lot of this book seems to go off the track. There is way more discussion of history of math and physics than seems necessary. Lengthy discussions of eugenics and cloning near the end of the book kind of come out of nowhere. Much of this, especially the biology, is by now very dated, and even that which is less so is often superfluous and bombastic. Some readers may think G-R prophetic because of his occasional allusions to solar power, and I was surprised to see him use the expression "nanotweeze" (as a noun) in 1971 (@351) -- but the book is wrong about so many other forward-looking details that these seem almost like lucky guesses, given the wide range of topics G-R drags into the book.

More substantively, G-R's understanding of physics was quite loose and often wrong. He errs when he talks about how "our whole economic life feeds on low entropy" (@277). Here he seems to be following an error Erwin Schroedinger made in an early edition of his "What is Life?"; Schroedinger corrected the error in a subsequent edition long before G-R's book, but that correction goes unnoticed. G-R's idiosyncratic usage of the terms "free energy," "bound energy" and "polymeres" (sic) will also set your teeth on edge if you come from a natural science background.

G-R does not make a convincing case for the relevance of entropy to economics. There are at least three reasons for this. First is G-R's faulty exposition of the concept, as mentioned above. Second, G-R doesn't adequately motivate the thermodynamics metaphor in economics. As shown in P. Mirowski's "More Heat than Light", the adoption of this metaphor was without empirical motivation, and came in no small part from a kind of "physics envy". It's true the metaphor as adopted didn't include the Second Law (about entropy). But before faulting the model for that omission, one should show why the analogy is appropriate at all. Instead of doing so, G-R mentions a few times that thermodynamics was based on an economics analogy. That's not good enough, especially given the distinctions between physical and social sciences G-R describes in his Chapter XI. Third, even assuming the thermodynamics metaphor can be justified, G-R doesn't address the proper limitations for the metaphor's domain of application. Why just add the Second Law into economics? How about non-equilibrium thermodynamic formalism? How about an analogue to chemical kinetics, which prevent chemical reactions from reaching equilibrium instantly or even at all, and without which we could not be alive? G-R ignores all these, without explanation (indeed, without seeming to be aware of them).

G-R is more convincing in the more limited claim that neoclassical economics models err in considering waste as an "externality", if not ignoring it altogether. That's a significant point, and he deserves credit and gratitude for making it. But this ambitious book does not read today like the grand philosophical synthesis it seems to have been intended to be.

This review includes: 1) Review, 2) guide to related books 3) some citations, and 4) table of contents. The first 9 chapters he discuss the historic developments in philosophy of science, physics and economics. This leads him to conclude that standard economics is founded on analogies to newtonian mechanics. He explores several problematic aspects of this line of thought. These includes the problem of defining the boundaries of the economic process, the problem of treating qualitative changes within the mechanical framework. Within physics the theory of classical thermodynamics, was to revolutionize the discipline of physics. The first law of thermodynamics stated that matter-energy cannot be created nor destroyed. This was not in conflict with Newtonian mechanics. The second law of thermodynamics states that within a closed system the availability of matter-energy decreases. This second law conflicts with classical mechanics, in the way that this process can only consist of a qualitative change. The first part of the book is deals primarily with philosophical and physics issues, and although NGR was economist himself - these discussions are very hard to grasp for a social scientist, as myself. The second part consists of an analysis economic theory (Marx, Marshall, Leontieff and others), founded on the conclusions reached in the first part of the book. The general conclusion is that it is unreasonable to believe that the economic process can defy any laws of physics. At present economic theory ignores the second law of thermodynamics, leading to an uneconomical use of our physical surroundings. Although NGR is cited in any decent microeconomics textbook (for his contributions to micro-theory), this book recieved little response from economists, allthough it remains a classic within ecological economics (Herman Daly cites it all the time). And it is a must for any advanced student of human-environmental interactions. It is, however a VERY demanding book - Some of his articles are recommended instead for starters. John Peet (1992) 'Energy and the ecological economics of sustainability' is also recommendable. Here is a few citations, followed by a list of contents of the book: ' In this sense Classical mechanics is mechanistic because it can neither account for the existence of enduring qualitative changes in nature nor accept this existence as an independent fact. Mechanics knows only locomotion, and locomotion is both reversible and qualityless' ' Since the economic process materially consists of a transformation of low entropy into high entropy, i.e., into waste, and since this transformation is irrevocable, natural resources must nessecarily represent one part of the notion of economic value. And because the economic process is not automatic, but willed, the services of all agents, human or material, also belong to the same facet of that notion. For the other facet, we should note that it would be utterly absurd to think that the economic process exists only for producing waste. The irrefutable conclusion is that the true product of that process is an immaterial flux, the enjoyment of life. This flux constitutes the second facet of economic value. Labor, through its drudgery, only tends to diminish the intensity of this flux, just as a higher rate of consumption tends to increase it.' TABLE OF CONTENTS 1. Science: A brief evolutionary analysis 2. Science, arithmomorphism, and dialectics 3. Change, quality and thought 4. Measure, size and sameness: Some object lessons from physics 5. Novelty, evolution, and entropy: More object lessons from physics 6. Entropy, order, and propability 7. Chance, cause, and purpose 8. Evolution versus locomotion 9. The analytical representation of process and the economics of production 10. Entropy, value, and development 11. The economic science: Some general conclusions

Georgescu-Roegen's intentions are laudable, as are many of his proposals. The thermodynamic basis of this work, unfortunately, is unsupportable. This is a pity, as it has left his critique of capitalism open to dismissal, and has contributed to a generation of obfuscation in social and environmental theory.

The problem, simply put, is this: while it sounds convincing to most lay-people (and even many physicists, chemists and engineers) to equate thermodynamic entropy with "disorder", this is based on a meaningless misinterpretation of the second law of thermodynamics. The second law of thermodynamics simply states that energy tends to disperse, if it is not hindered from doing so. It says nothing about "orderliness", and nothing about availability of matter.

Entropy is an extensive property of thermodynamic systems. It is not a property of energy, and certainly not of matter. It is nonsensical to speak of "high- or low-entropy" energy. It is even more nonsensical to speak of "high- or low-entropy" matter. Better to speak of energy quality ("the sun provides us with high-quality energy, and low-quality energy is re-radiated back into space"). Entropy is used to measure the "concentration" (I use this term for illustration only) and hence the usefulness or availability to us of energy, within a given system of matter and energy. The second law of thermodynamics tells us nothing about the tendency of matter to become more or less useful or available to us. There is no thermodynamic basis for reading inevitable decay onto physical, biological or social systems.

Dr. Frank L. Lambert, Professor Emeritus (Chemistry) of Occidental College, Los Angeles, has carried out extensive work over the past few years to demythologise the popular (and, all too frequently, specialist) misunderstanding of the second law of thermodynamics. For anyone contemplating reading "The entropy law and the economic process", I would strongly advise that you first look at Lambert's website: http://www.entropysite.com. He goes through this in detail in multiple format aimed at a range of audiences from lay-person to scientist and engineer.

This review is not intended to be disparaging, towards either Georgescu-Roegen, or others who share the common misunderstanding of the second law of thermodynamics. The problem is deeply entrenched and it will be a long time before the myths around entropy and the second law are dispelled. This is a start.

Georgescu-Roegen argues that neo-classical economics(the dominant
form of economics at this time) is not consistent with
fundamental physical laws. The law that NC economics is most in
conflict with is the Second Law of Thermodynamics, the entropy
law. NE Economics assumes that continuous economic growth is
both desirable and possible. According to Roegen any economy is
permanently physically limited by the supply of low-entropy
matter and energy as a source for raw materials and as a sink
for our wastes. The only possible long-term source for
low-entropy energy is the sun and even this is available at a limited rate of flow.

An attempt at steady-state economics (as espoused by Herman
Daley) would be a significant improvement over the present
situation, but would still not be possible in the very long
run because of limitations on the supply of low-entropy raw
materials such as metal ores.

Roegen's point of view is fundamentally in conflict with
current economics, but we ignore his arguments at our peril.
In the not terribly distant future we will run up against
the limits that Roegen warns of.

The book is dense and difficult, but the concepts are extremely
important...

More readable books on the subject are
"Beyond Growth" and "Steady-State Economics"
by Herman Daley.

It must be admitted that Georgescu-Roegen's understanding of entropy was flawed. He, along with many other authors including physicists, thought entropy was a measure of disorder. It is not. That entropy is not a measure of disorder is discussed in a recent scholarly article by chemistry Prof. Frank Lambert, who has a nice web site devoted to the topic. More to the point, it was also discussed in Beard and Lozada's book about Georgescu-Roegen (p. 88, "Economics, Entropy, and the Environment: The Extraordinary Economics of Nicholas Georgescu-Roegen"). It's not easy to say what entropy actually is, but it is straightforward for scientists to measure that, say, the standard entropy of one mole of iron (about 55.8 grams of iron) is 27.7 Joules per Kelvin.

While Georgescu wasn't completely right about all of entropy's aspects, his attacks on Boltzmann's H-Theorem, and on the "information as entropy" school, show completely correct understanding of other aspects of entropy. Furthermore, in his indictment of neoclassical dynamic economics, he was the vanguard of critics who decry slavish devotion to mathematical models which assume we know the future (at least probabalistically). Absorbing Georgescu's lessons would've spared Economics Nobel Laureates Merton and Scholes their disastrous experience running the failed hedge fund Long-Term Capital Management (described in the book "When Genius Failed"): change happens, the past does not always predict the future, and the consequences of one's actions sometimes cannot be imagined by anyone. When investing money, that's a good perspective; when talking about man's effect on the environment, as Georgescu was, it's a perspective that could save the planet.

...entropy is the idea that there is a growing disorder to all systems, living and otherwise. Roegen is the social philosopher who originally, successfully tied the no limit-growth of capitalism to our decreasing natural resources, our increasing endangered species lists, and our decreasing resistances to a bunch of ailments...

I remember having to study passages of this book in college and my instructor said that there's no scientific data to verify what he's saying had any merit. And, now, today, mosquitoes and terrorists and brown outs have everybody up in arms. I can't say Roegen is prophetic, but his argument, to me, always did make a whole lotta sense...and, you know, the artists and the poets seem to have always intuited the validity of this great man's message.

What has really put things in perspective for me is my further readings... I've read works from EF Schumacher ("Small is Beautiful"), Rene Dubos ("A God Within"), Jeremy Rifkin ("Entropy"), and more recently, Derrick Jensen. And they all seem to speak to needing a more humane way of capitalism which doesn't seem bent on destroying everything in it's path.

There are many other authors who may be easier to read than Roegen, but you will find, if you are in anyway interested in the fate of the world, they all refer to his seminal work here.

Although there have been other efforts to tie economic theory to ecology, game theory, and other fields, and even, as in this book, to physics, particularly thermodynamics, none has approached the breadth and depth of this author's work. It is a promising but neglected field of research, and much more attention should be devoted to it.

As a classic in the field, the book establishes the bases for sustainable development policies, and can help to cope with the challenges of future energy supply, limits to growth, and climate change.

I deserves deep consideration by those responsible for policies and actions that can influence the next decades scenario.

One of the best books in economic theory ever made. A seminal text that will be a cornerstone in further studies for many generations of economists and social philosophers.

Radmilo Pesic

University of Belgrade

Believe it or not, this is one of the funniest, most high-spirited books I've ever seen. Demanding, but brilliant and rewarding. Like the part about Marx leaving the enjoyment of life out of his equations of use. And arithmomorphism and identity. This is real.