Second Law of Economics

Nothing happens in the world without energy conversion and entropy production. These fundamental natural laws are familiar to most of us when applied to the evolution of stars and life or the working of an internal combustion engine, but what about industrial economies and wealth production, or their constant companion, pollution? Does economics conform to the First and Second Laws of Thermodynamics? In this important book, Reiner Kümmel takes us on a fascinating tour of these laws and their influence on natural, technological, and social evolution. Analyzing economic growth in Germany, Japan and the USA and its associated technological constraints, he upends conventional economic wisdom by showing that the productive power of energy far outweighs its small share of costs, while for labor just the opposite is true. Wealth creation by energy conversion is accompanied and limited by polluting emissions that are coupled to entropy production. These facts constitute the Second Law of Economics. They take on unprecedented importance in a world that is facing peak oil, debt-driven economic turmoil, and global threats from pollution and climate change. The Second Law complements the First Law of Economics: Wealth is allocated on markets, and the legal framework determines the outcome. By applying the First and Second Laws we understand the true origins of wealth production, the issues that imperil the goal of sustainable development, and the technological options that are compatible both with this goal and with natural laws. The critical role of energy and entropy in the productive sectors of the economy must be understood if we are to create a road map that avoids a Dark Age of shrinking natural resources, environmental degradation, and increasing social tensions.Nothing happens in the world without energy conversion and entropy production. This message of the first two laws of thermodynamics reflects the pivotal role of energy conversion in the evolution of stars, life, and industrial economies. In this engaging and insightful book, Professor Kümmel summarizes the facts behind these fundamental physical laws and shows why "The Constitution of the Universe" must govern economic thinking if we are to come to grips with the challenges of sustainable development. From the point of view of a physicist, the author shows why energy must be taken into account, together with labor and capital, as a factor in production and economic growth, and describes how entropy production, the ugly twin sister of energy conversion,devalues energy, increases disorder, generates emissions and pollution, and establishes limits to growth in a finite world. Since profit and overall welfare optimization are subject to technological constraints on capital, labor and energy, fundamental assumptions of mainstream economics are called into question. New econometric analyses using the capital-labor-energy triad accurately reproduce economic growth in Germany, Japan and the USA, and show that, for energy, productive power far outweighs its small share of costs while for labor just the opposite is true. Reconsidering economics from the perspective of thermodynamics can help us to create a road map for the future that avoids a Dark Age of shrinking natural resources and increasing social tensions.