A Thermodynamic Formulation of Economics

The thermodynamic formulation of economics is based on the laws of calculus. Differential forms in two dimensions are generally not exact forms (δQ), the integral from (A) to (B) is not always the same as the integral from (B) to (A). It is possible to invest little in one way and gain a lot on the way back, and to do this periodically. This is the mechanism of energy production in heat pumps, of economic production in companies and of growth in economies. Not exact forms may be turned into exact forms (dS) by an integrating factor T, dS = δQ/T. The new function (S) is called entropy and is related to the probability (P) as S = ln P. In economics the function (S) is called production function. The factor (T) is a market index or the standard of living, GNP/capita, of countries. The dynamics of economic growth is based on the Carnot process, which is driven by external resources. Economic growth and capital generation – like heat pumps and electric generators – depend on natural resources like oil. GNP and oil consumption run parallel for all countries. Markets and motors, economic and thermodynamics processes are all based on the same laws of calculus and statistics.