Towards a thermodynamical theory of Economics

Even though Economics is a topic studied at every college and university, I believe their core fundamentals are not only misunderstood but also not even identified.

When I speak with economists, they fool around specific ideas they learned, but I came to realize that economic systems are nothing more than physical systems, and the same concepts and rules should apply.

If we admit that the economy is a physical system whose magnitudes change with time and in space, we need to match economic concepts to those of Physics. I propose to identify energy to wealth, work to labor and heat to money. Then we inherit the set of laws of thermodynamics. In particular, if we consider the economy in a society as a set of hierarchical thermodynamical systems, it is evident that the

• First law of thermodynamics: Heat and work are forms of energy transfer. While energy is invariably conserved, the internal energy of a closed system changes as heat and work are transferred in or out of it. Equivalently, perpetual motion machines of the first kind are impossible.

comes in place when somebody (first) does some work for a second person (another system). Wealth (energy) has been transferred by the labor executed by the first person to the second in the form of an elaborated product that could not have existed without the first person losing energy (transferring it in the form of work to the second person). If it is expected that the first person received a monetary compensation, the energy loss is therefore restored if this compensation is "fair" (in abstract terms of the money transfer being equivalent to the labor transfer). If the person executing the labor is a slave, this reduces to a system that continuously transfer energy out of it, much in the way the sun does, or does the process creating crude oil (both transfer energy to the human society as a whole system, and at their expense).

It is also evident that someone that has more money can move faster and farther away than someone whose occupation is mundane and provides a low income. This fact reinforces this thermodynamical view of Economics.

Studying inflationary and deflationary processes under these lenses would provide new insights into wealth transferring periods. In this theory, money is just a mean for wealth (energy) transfer, not for wealth storage. In this sense, a natural distinction can be made between paper currency and hard monetary assets such as gold. Both serve as wealth transfer mechanism (heat), but only one is stable.

Under this theory, crude oil would have a much deeper impact on the economy than just a mere impact on industrial manufacturing prices. Much more than that, oil would provide the energy needed for the system to growth (and especially to cope with the compound interest and the exponential growth it requires). Crises and equity peaks can easily be explained and predicted (disregarding timing).

Unless economists take a more humble position and view themselves as just a part of the whole body of laws that govern the entire universe, and not take refuge under the excuse that the "complex human behavior" makes the theory different, we will be doomed to hear experts predict decades of booming economy at peaks and missing opportunities at bottoms.