Thermodynamics and Economics - Example

Thermodynamics and Economics Name Course Course code Instructor Institution Introduction History is an important component in many techniques, technologies and any other factor that affects human development. For example, a long history exists between neoclassical economics and physical thermodynamics with this relationship bringing into consideration inhabitation of features and capabilities of these components. This relationship obscures the equilibrium that is associated with essential axioms that are usually three enabling representation of systems in mathematical form with each ensuring that certain class of transformation is emphasized upon. The second issue is the approach of responding to problem path of dependence that leads into having varied interpretations of duality in what it is trying to represent (Pezzey, 1997). Asheim (1994) states that despite the existence of these unique differences, however, most economies have proven that some agents tends towards quasi linear and thus resulting in constraint structure that tends to be isomorphic to the physical system structures that results in classical thermodynamic equations of state. On the other hand, entropies are the exact equivalents of thermodynamics potentials and are capable of it been constructed, and it operates in a way that is comparable to its economic counterparts that are free energies. An example of such situation in quasi linear economies is the idea of Walrasian that allows formulation of price, which is an analog of force balance that can easily be realized. Pezzey (1997) says that other economic models that are more general raises methodological problems because most of them illustrate complex models that can easily exhibit physical path dependence. However, the unique difference that exists between economic methodology and thermodynamic methodology is that in the case of economic methodology, the movement is deemed irreversible from the disequilibrium endowment, that original were equilibrium because of trade requirements, which are commonly voluntary. On the other hand and in contrast, thermodynamic is based on transformations that are reversible and are capable of leading the measurement of structure systems (Asheim, 1994). Since the idea of reversibility is sketchy is such situations, it is paramount to look for alternative ways but based on Walrasian notion of preservation of wealth is then introduced. It is evident that there exists a relationship between the economic and physical concepts of equilibrium, and it has been an idea that has been recurring throughout development of theories especially those that are associated to neoclassical economic theory. Since most of these systems and theories are based on either computing properties or trying to prove the existence of certain fundamental, it is inherent to summaries that there are formal and methodological similarities. Norgaard (1991) states that these fields tries to describe phenomena that aims to solve problems that are optimized and constrained. Moreover, these two perspectives rely on dual representations of subsystems that interacts in which each portion is represented by certain variable that is taken from each pair and they have the same subsystem character content while the other has the character manner in which it interacts with any other subsystem (Pezzey, 1997). Dasgupta and Heal (1974) defines physical content variables as quantities that may include the total energy of a subsystem or volume that, that physical agent occupies in space while they define economies as the various amounts of commodities that are held by economical agents. Moreover, in the case of physics, Asheim (1994) states that the are measurable quantities within certain system boundaries such as temperature and pressure while in the case of economics, it is in term of prices in which agents involved in trading are ready to exchange a component or item for another. Nevertheless, as mathematical economies continues to be sophisticated, the parallelism of Walras and Fisher ha been erased with time and together with the notion that it matters when the neoclassical economies are connected in certain a way to physics branch in the physical sciences. Pezzey (1997) states that the notion that originally existed and championed by Walras that the cardinalisation of integral part of energy has been discarded with time hence elimination of the possibility that allows for paring utility and any other measurable experimental quantity. Moreover, inconsistency that is associated with logical making of analogies has resulted in creation of topic parallels to be refuted. However and with time, Norgaard (1991) states that analogies that are formal and mathematical between the classical thermodynamics and mathematic economic have been extensively explored. Norgaard continues to say that these does not provides grounds for justification of finding analogies of physical magnitudes that are somehow more exact as commonly expressed in economic field for instance entropy and energy. There is a long lasting view that neoclassical economics are mostly mathematical but this notion is o loner relevant with any part of physical theory but may be termed as a mere coincidence since it is reflected in the omission of topic parallels. Pezzey (1997) argues that even though the topic has a long history of analysis, it is crucial to note that some instances and insights exist especially the relationship between neoclassical economics and classical thermodynamics. Information that is associated with these results is huge implications, both for the interpretation of economic theory and econometrics. This paper emphasizes and tends to present a picture that economics does not follow equation of state, or does not define prices in regards of equilibrium and hence lacks the relation that normally exist between theory and measurement, a factor that is commonly found in thermodynamics. In regards to physics, it is usually common to view models of thermodynamic system as basic, but it is paramount to conceptualize the theories into smaller portions that are later referred to as laws that will control the manner in which such models are built and brought abut consistency within the model of thermodynamic that is being described. There are three similarities or basic assumptions that exist between thermodynamics and economies (Norgaard, 1991). Thermodynamic assumptions is in terms of laws while in neoclassical economics are referred to as basic axioms. Some common theories that apply to thermodynamics and utility include 0th law – encapsulation, 1st Law – constraint while the last and third law is 2nd Law commonly referred to as preference. In the case of classical thermodynamics, it results in dual variables that are commonly referred to as the state variables through a central function that is referred to as entropy (Norgaard, 1991). Thermodynamics and economics have played and play an important role that allows for sustainability of development that is exhibited in certain way that allows for improvement in human activities throughout their development. This idea can be traced back to the exploration of fire by man during the ancient period and played a major role in introduction and championing of global balance of thermodynamics. Pezzey (1997) states that this idea has contributed towards an increase in the entropy production by allowing rapid dissipation of free energy to a wider area. Hartwick devised a rule that has dual meaning one of them been linked to the investment rule that aims at ensuring that the total value of investments is within a competitive price range that is estimated to be equal to zero while the second view is that the investment rule should be able to yield a path of consumption that is constant (Hartwick, 1977). This means that the Hartwick investment rule is associated with the fact that holding value of investments should be constant and in most cases should be equated to zero while the same findings and recommendations leads to a utility constant as explained by Asheim (1994). Hartwick rule is important in economical field especially while dealing in accumulation of capital and depletion of resources; it also provides a background of clarifications in terms of semantics and investigates whether the rule champions sustainability as while as determining whether the requirement is either natural resources or manmade requirements (Norgaard, 1991). Pezzey (1997) clarifies that even though the net value of investment may be indicated as negative number, this value does not mean that the utility is unsustainable. Hartwick rule has become a major topic in discussion and criticism to some extent that some people claims it been a myth rather than been a rule (Hartwick, 1977). In fact, Hartwick was the person who introduced the myth through stating that investing of al returns that are exhaustible in reproducible capital tends to imply that the equity is tending towards intergenerational (Asheim, 1994). The fundamental of lack of sustainability is a major factor that contributes towards many governments not introducing the use of Hartwick rule in their policies approach. Asheim (1994) states that other economic approaches exist that can be used to formulate policies in regarding to depletion of resources. Another myth that surrounds the Hartwick rule is the relationship that exists between sustainability in natural capital and manmade (Hamilton, 1995). Spash & Clayton (1997) clarifies this issue by stating that Hartwick rule depends on manmade capital becomes a substitute rather than a complement to capital that is natural. Pezzy (1997) states that Hartwick result is associated with Hartwick investment rule, and it mostly deals with economics of resource. References Asheim, G. B. (1994), 'Net national product as an indicator of sustainability', Scandinavian Journal of Economics 96: 257–265. Dasgupta, P. S. and G. M. Heal (1974), 'The optimal depletion of exhaustible resources', Review of Economic Studies 41 (Symposium issue): 3–28. Dixit, A., P. Hammond and M. Hoel (1980), 'On Hartwick's rule for regular maximin paths of capital accumulation and resource depletion', Review of Economic Studies 47: 551–556. Hamilton, K. (1995), 'Sustainable development, the Hartwick rule and optimal growth', Environmental and Resource Economics 5: 393–411. Hartwick, J. (1977), 'Intergenerational equity and the investing of rents from exhaustible resources', American Economic Review 66: 972–974. Norgaard, R. (1991), 'Sustainability as intergenerational equity: The challenge to economic thought and practice', Report no. IDP 97, the World Bank. Pezzey, J. (1997) 'Sustainability constraints versus 'optimality' versus intertemporal concern, and axioms versus data', Land Economics 73: 448–466. Read More