Entropy and economic processes — physics perspectives

This paper is a contribution to the discussion on the relation between thermodynamics and economic theory. With respect to thermodynamic constraints on the economy, there are two diametrically opposite positions in this discussion. One claims that the constraints are insignificant (‘of no immediate practical importance for modelling’) and in the intermediate run, do not limit economic activity and, therefore, need not be incorporated in the economic theory. The other holds that thermodynamics tells us that there are practical limits to materials recycling, which already puts bounds on the economy and, therefore, must be included in the economic models. Using the thermodynamic concept of entropy, we show here that there are fundamental problems with both positions. Even in the long run, entropy production associated with material dissipation need not be a limiting factor for economic development. Abundant energy resources from solar radiation may be used to recover dissipated elements. With simple, quantitative analysis we show that the rate of entropy production caused by human economic activities is very small compared to the continuous natural entropy production in the atmosphere and on the Earth’s surface. Further, the societal entropy production is well within the range of natural variation. It is possible to replace part of the natural entropy production with societal entropy production by making use of solar energy. Society consumes resources otherwise available for coming generations. However, future generations need not have less resources available to them than the present generation. Human industrial activities could be transformed into a sustainable system where the more abundant elements are industrially used and recycled, using solar energy as the driving resource. An economic theory, fit to guide industrial society in that development, must not disregard thermodynamics nor must it overstate the consequences of the laws of thermodynamics. © 2001 Elsevier Science B.V. All rights reserved.