Thermodynamics and economics

Economics, as the social science most concerned with the use and distribution of natural resources, must start to make use of the knowledge at hand in the natural sciences about such resources. In this, thermodynamics is an essential part. In a physicists terminology, human economic activity may be described as a dissipative system which flourishes by transforming and exchanging resources, goods and services. All this involves complex networks of flows of energy and materials. This implies that thermodynamics, the physical theory of energy and materials flows, must have implications for economics. On another level, thermodynamics has been recognized as a physical theory of value, with value concepts similar to those of economic theory. This paper discusses some general aspects of the significance of non-equilibrium thermodynamics for economics. The role of exergy, probably the most important of the physical measures of value, is elucidated. Two examples of integration of thermodynamics with economic theory are reviewed. First, a simple model of a steady-state production system is sued to illustrate the effects of thermodynamic process constraints. Second, the framework of a simple macroeconomic growth model is used to illustrate how some thermodynamic limitations may be integrated in macroeconomic theory