Monday, March 12, 2018

The View from Les Houches: Thermodynamics vs. Economics

School of Physics in Les Houches, France, March 2018. Juergen Miknes shows some of the concepts that he has developed in his parallel analysis of thermodynamics and economics. It is a remarkable synthesis that you can find described in detail here. In the slide above, he suggests to replace the Cobb-Douglas function, commonly used in economics, with a function based on the concept of Shannon's entropy.

I am not sure of a number of things in Miknes' work, in particular the idea of equating (in some ways at least) the growth of entropy with the growth of production. Nevertheless, it is a fascinating work.

Something that surprised me (but probably I shouldn't have been surprised) was how strongly Miknes was challenged by an economist in the audience. Apparently, economists don't like their field invaded by those pesky physicists. So far, economists have been able to keep physics away from their secluded garden and continue keeping the field open only to people with the right credentials (according to them). For how long, it is all to be seen.


  1. The trivial bottom line of the ideas laid out in the referenced article is that the same calculus can be helpful in physics and in economics. The same for statistics. Nobody would idsagree here.
    I didn’t see any identification of analogous processes, i.e. described by the same formalism, being suggestive of anything new or original though, in particular with reference to entropy and temperature. And I am not so surprised, thermoeconomics and thermodynamics have little in common with their underlying statistical mechanics.

  2. I left a comment on Facebook.

  3. I am not Ok with this approach. I tend to be way more radical.
    I think that the economics discipline needs a reset as its underlying scientific methods are faulty and its role in society is not science but ideology.

    Deductiv-nomological models have shown themselfs as unusable a long tome ago. Still economists claim to be a science, even if the mainstream scientific method is not scientifical.

    Plainspeak: If empirical data suggests e.g. a linear model for some time, there is no proof whatsoever that the underlying problem really behaves linear, doing so is not science but fiction. This does not stop economists doing exactly that.

    I think that after Meadows at al created the first dynamic world model in economy and the result was "The Limits to Growth", economists ideologically dismissed further study in dynamic models because the result was not acceptable for them.

    Instead they stick with inventing models out of thin air, which is what deductive nomological means, and call it science. Better yet, if the models fail to predict real world events, like the financial crisis, they still stick to those models, claiming its not the models, but the world that is faulty.

    Economics mainstream needs to reflect on its role in a very fundamental way. What economics does, from an anthropological point of view, is legitimizing the ideology of the ruling elite. As long as economics is not science but politics, it needs to be disregarded as a whole. Critique on basis of certain models gives it to much credit.

  4. Of course economics is touchy, after all what do you do with a discipline that insists on transposing the x and y axis and then claiming it makes sense.

  5. There is a little video from David Suzuki who generally shares my opinion:

    In german there is a more in depth critique of the scientific methods of economics by Austrian Economist Prof Jakob Kapeller.
    He basically destroys all notions that economics is a science.
    Sadly I can't find anything like that in english.

    1. there are many author that dismantle economics as a science in english... see for example 'the dismal science' S. Marglin or The Delusions of Economics, by Gilbert Rist

  6. And insists on writing a function that leaves out most of the factors that make up the mythical function because they are either; a) too many for the equation and function to make sense or work and b) because they are well externalities and hence can be discarded but as we know they have made the world to fit their prejudices as was intended, so it must be right. Just look at our modern neoliberal societies, perfect replications of feudalism.

  7. The paper is flawed UGO because it attempts to equate the role of banks with a heat pump, what a load of nonsense. Banks are not reservoirs of savings but monopoly licenses to create money from nothing (see Modern Monetary Theory for an explanation), if you control your currency you can make as much as you like by the stroke of a pen (As the ECB and the US do), if you don't or agree to share a currency like most of Europe did, then you end up like Greece, Spain, Portugal, Italy etc, vassals and debt peons.

    1. "...if you control your currency ..."

      The problem with MMT is that it must control much more than a currency. It's authorities must control human beings and human actions. I predict that in a few decades they will have more rebellion and anarchy on their hands than they can manage.

      In the words of Foghorn Leghorn, "Watch this!"

      another fred

  8. when working in the shadow of genius, as Miknes is no doubt seen to be by his peers, and those who nod in agreement with him, I find that it's best to reduce the economic system in which we all must exist to as simple a formula as possible, something reduced to such a fundamental level that even a genius can understand

    and keep repeating that formula when faced with nonsense:

    money is a token of energy exchange

    money is a token of energy exchange

    that is as powerful and immutable a law as those of thermodynamics.

    but it cannot be exchanged or substituted for the laws of thermodynamics--each has their separate function in the governance of our existence.

    nevertheless, those we elect to high office remain convinced that if we spend sufficient money, all our energy problems will be solved---and after reading Miknes' work, be absolutely certain that energy is a function of money, rather than the other way round

  9. While the above lecture by Jakob Kapeller is great, this one is more on the topic. I got them mixed up:

  10. There is a Nature article by JP Bouchaud,(Science & Finance, Capital Fund ManagementScience & Finance, Capital Fund Management) called:

    "Economics needs a scientific revolution"

    arXiv:0810.5306v1 [q-fin.GN] 29 Oct 2008
    Economics needs a scientific revolution

    I argue that the current financial crisis highlights the cruc
    ial need of a change of mindset in economics and financial engineering , that should move away from dogmatic axioms and focus more on data, orders of magnitudes, and plausible, albeit non rigorous, arguments. An edited version of this essay appeared in Nature.

    Read here:

  11. I quoted I.A. Richards to some English professors: "Of course literary criticism is a branch of biology" and was laughed out of the room. But I've never seen a concept expressed without the use of a substrate. It's ALL physics.

  12. As the saying goes: If you want to win an argument, use the word entropy, because nobody is really understanding the concept.

  13. There is a paper from 2001 "The Need to Reintegrate the Natural Sciences with Economics" by Hall et al which goes in a similar direction. I like the differences shown in fig. 1 and 2 how the economic world works according to economics (perpetuum mobile) and to physics (flow model for matter/energy streams with increasing entropy).



Ugo Bardi is a member of the Club of Rome, faculty member of the University of Florence, and the author of "Extracted" (Chelsea Green 2014), "The Seneca Effect" (Springer 2017), and Before the Collapse (Springer 2019)