A Thermodynamic Theory of Economics

An analogy between thermodynamic and economic theories and processes is developed further, following a previous paper published by the author in 1982. Economic equivalents are set out concerning the ideal gas equation, the gas constant, pressure, temperature, entropy, work done, specific heat and the 1st and 2nd Laws of Thermodynamics. The law of diminishing marginal utility was derived from thermodynamic first principles. Conditions are set out concerning the relationship of economic processes to entropic gain. A link between the Le Chatelier principle and economic processes is developed, culminating in a derivation of an equation similar in format to that of Cobb Douglas production function, but with an equilibrium constant and a disequilibrium function added to it. A trade cycle is constructed, utilising thermodynamic processes, and equations are derived for cycle efficiency, growth and entropy gain. A thermodynamic model of a money system is set out, and an attempt is made to relate interest rates, the rate of return, money demand and the velocity of circulation to entropy gain. Aspects concerning the measurement of economic value in thermodynamic terms are discussed.Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy

Coordination, Fragility, High-Powered Money, and the Liquidity Trap: A "Tobinesque" Parable

This paper provides a simple model of fragility in which recession, triggered by demand for high-powered money, generates a liquidity trap. Moreover, in this liquidity trap parable, it is its assured store of value that is the critical attribute of high-powered money and not, perhaps, "liquidity services" per se at all. Thus, a rather "Tobinesque" liquidity trap is portrayed. The crucial ingredients in the model are simple, standard forms of production complementarities.Money; Recession

Thermoeconomics - A Thermodynamic Approach to Economics (Second edition)

This second edition of the book stems from work by the author published in Energy Economics, the International Journal of Exergy and follow-up working papers. Topics covered include the gas laws, the distribution of income, first and second laws of thermodynamics, economic processes, elasticity, entropy and utility, production processes, reaction kinetics, empirical monetary analysis of UK and USA economies, interest rates, bonds, yield curves, yield spread, unemployment, entropy maximisation and the cycle, empirical analysis of world energy resources and climate change as factors affecting economic output, and lastly a discussion of sustainabilityThermodynamics, economics, money, value, utility, Le Chatelier, equilibrium, entropy, production, interest rates, yield, energy, exergy, peak oil, gas, coal, climate change

Demographic Change and New Zealand’s Economic Growth

New Zealand has, by OECD standards, high birth rates. This has provided New Zealand with a relatively young population and continuing labour force growth. Both these features are, on many accounts, good for economic growth. Yet most discussions of New Zealand’s economic performance and its prospects for moving up the OECD income distribution have paid little attention to demography. This paper defines “demography” narrowly as population size, growth, and age-structure, and examines the likely effects on New Zealand’s growth rate in GDP per capita, relative to the rest of the OECD. The first part of the paper gives a broad overview of trends in population size and age structure in New Zealand and elsewhere in the OECD. The second part describes selected demographic trends in more detail and discusses their economic significance. The overall conclusion is future demographic trends are likely to provide New Zealand with a small advantage, relative to the rest of the OECD.New Zealand; OECD; demography; economic growth

Thermodynamics and the Economic Process

This paper develops further a model of the economic process, first set out as part of a paper by the author in 2007, concerning the application of thermodynamic laws to economics. The paper sets out relationships between economic output and capital, labour, resource and waste stocks, with specific reference to energy, and is backed up analysis of data of world energy resources and climate change. The paper conculdes that both energy resource availability and climate change will have significant, limiting effects on the forward path of world economic developoment.Thermodynamics, economics, entropy, energy, exergy, peak oil, gas, coal, climate change

Can population projections be used for sensitivity tests on policy models?

Many policy models require assumptions about future population trends. Sensitivity tests for these assumptions are normally carried out by comparing population projection variants. This paper outlines some of the conditions that variant-based sensitivity tests must meet if they are to be informative. It then describes four common situations where these conditions are not met, so that conventional sensitivity tests are not informative. The solution, the paper argues, is stochastic population projections.Demography; Sensitivity testing; Population projections; Policy modelling

Thermo Economics in a Finite World

An analysis of possible restrictions on economic development posed by climate change and resource factors. The paper examines international trends over several decades of GDP, capital stock, population and energy demand and intensity, and the extent to which these trends may need to change to meet restrictions on CO2 emissions arising from consumption of fossil fuels.Thermodynamics, economics, Le Chatelier, energy, climate change, finite world, limits to growth