The entropy law and the economic process

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1. dredmorbiusSep 2019
   The role of energy and technology in economics has been grossly misunderstood and/or misstated for decades -- it's largely a product of post-WWII economics, though there are of course older precursors.

   A contemporary economist who's demostrated the role of energy in economic production, and whose work would (and IMO should) revolutionise the study, is Steve Keen. His 25 minute presentation "The Role of Energy in Production" adds an additional term, energy, to the standard Cobb-Douglas function, and explains virtually all of the residual.

   https://invidio.us/watch?v=BAjN6bG7XzM

   Audio quality is poor, but I cannot recommend this video highly enough.

   For those who prefer text, much of the material is in this post:

   http://www.debtdeflation.com/blogs/2016/08/19/incorporating-...

   The idea that "technology" is responsible for "efficiency gains" comes from the work of Robert Solow, and is called the "Solow Residual". It is quite literally a mathematical (or statistical) artefact: if you study the behaviour of a dependent variable on the basis of one or more independent (or explanatory) variables, whatever change is not explained is the "residual", or residual variance.

   The residual is real. Its attribution to "technology" is wholly arbitrary. Solow's independent variables were Capital and Labour, using what's called the Cobb-Douglas production function. They collectively explain only about TK% of all increase in net productivity.

   Solow himself has more modestly described the residual as "the measure of our ignorance".

   https://en.wikipedia.org/wiki/Solow_residual

   The soundness of the Cobb-Douglas function has been questioned by numerous other economists, though their views have remained outside the mainstream. A particular challenge has been meeting the economic fashion of the past 75 years or so of "mathiness" -- being able to express relationships in a concise mathematical function, which is what Keen's work above does.

   This is strongly bolstered by other work, e.g., in Robert J. Gordon's The Rise and Fall of American Growth[1], US economic output per worker from 1920 - 1970 (and possibly beyond) grew linearaly with additional horsepower or kilowatts per worker. Growth since roughly 1970 has slowed.

   Keen isn't the first to come up with this understanding. If one reads Adam Smith with the understanding that in his time, labour was power, then Smith's measure of wealth, "the annual produce and labour of the nation", is in large part based on energy input.[2] Leslie White formulated an eponymous law that the level of a civilisation is proportional to its net power throughput, similar to the Lotka-Darwin power law, that the evolutionary advantage goes to organisms which maximise energy flow.[3]

   Others include Henry Adams[4], Kenneth Boulding[5], Nicholas Georgescu-Roegen,[6], Herman Daly[7], R.U. Ayres[8], and Charles A.H. Hall[9], as well as ecologists Howard T. Odum and Eugene Odum[10].

   There are also several histories seen through the lens of energy, most especially Vaclav Smil's Energy and Civilization (2017) and Energy and World History (1994)[11], and Manfred Weisenbacher's two-volume epic Sources of Power[12]. Both Smil and Weissenbacher divide human history into the eras of hunter-gatherer, agriculture, coal, oil, and post-oil. It's a novel and highly illuminating historical framework.

   ________________________________

   Notes:

   1. https://www.worldcat.org/title/rise-and-fall-of-american-gro... Gordon's book divides American economic history since 1870 into roughly three fifty-year periods: 1870-1919, 1920-1969, and 1970-2015, the book's publication year. These are roughly accelerating growth, peak growth, and decelerating growth. It's a remarkable history and marshalling of facts.

   2. White's Law, more precisely: "culture evolves as the amount of energy harnessed per capita per year is increased, or as the efficiency of the instrumental means of putting the energy to work is increased." https://en.wikipedia.org/wiki/White%27s_law

   3. http://www.eoht.info/page/Darwin-Lotka+energy+law

   4. See especially The Education of Henry Adams, considered one of the most important books of the 20th century.

   5. Formulator of the maxim, "anyone who believes in infinite growth on a finite planet is either mad or an economist".

   6. Georgescu-Roegen's The Entropy Law and the Economic Process is excellent, but also famously impenetrable. Still recommended. The work is in many ways similar to Frederick Soddy's, though G-R doesn't cite this, see: Wealth, Virtual Wealth, and Debt https://en.wikipedia.org/wiki/Wealth,_Virtual_Wealth_and_Deb... and The Role of Money https://archive.org/details/roleofmoney032861mbp

   7. Daly has a number of less-technical essays included in Ecological Economics: Principles and Applications (https://www.worldcat.org/title/ecological-economics-principl...) and Ecological Economics and Sustainable Development: Selected Essays (https://www.worldcat.org/title/ecological-economics-and-sust...).

   8. R.U. Ayres has published multiple papers and books on this topic. I'd recommend his bibliography generally: https://www.worldcat.org/search?q=au%3Aayres%2C+r.u.&&dblist... Keen has been working directly with Ayres in recent years.

   9. See Energy and the Wealth of Nations https://www.worldcat.org/title/energy-and-the-wealth-of-nati.... Hall is also the origin of the concept of EROEI, energy returned on energy invested.

   10. The Odum brothers, both ecologists, have written or co-written the leading textbook on ecology, Fundamentals of Ecology. Howard came up with an "energy circuit language" that's remarkably similar to a similar concept of Aldo Leopold's (Sand County Almanac), though both Odum and Leopold sources claim no mutual awareness at the time.

   11. Smil's books, Energy and Civilization (https://www.worldcat.org/title/energy-and-civilization-a-his...), an update to Energy in World History (https://www.worldcat.org/title/energy-in-world-history/oclc/...). The recent book has been reviewed and recommended by Bill Gates: https://www.gatesnotes.com/Books/Energy-and-Civilization

   12. Weissenbacher: https://www.worldcat.org/title/sources-of-power-how-energy-f... Somewhat unevenly written, but comprehensive.

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2. paganelOct 2025
   There’s also almost the entire economics-related work of Nicholas Georgescu-Roegen. From his Wikipedia page:

   > He is best known today for his 1971 magnum opus The Entropy Law and the Economic Process, in which he argued that all natural resources are irreversibly degraded when put to use in economic activity. A progenitor and a paradigm founder in economics, Georgescu-Roegen's work was decisive for the establishing of ecological economics as an independent academic sub-discipline in economics.

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3. andrewjlJun 2023
   > His main idea, exposed in The Entropy Law and the Economic Process (1971), was that economic organisation is a continuation of biological organisation. Why? Because all machines are necessarily made of materials and use energy, and because all labour involves our biological bodies, which are also made of materials and use energy. The economy is – unavoidably – a bioeconomy, which means it is a subsystem of the larger finite and nongrowing ecosystem that is the Earth.

   The problem with Georgescu-Roegen's bioeconomy framework is that biological systems are highly constrained in the degrees of freedom they can change in the short run versus the long run. Whereas the global economy as conventionally understood can change much faster after a relatively brief period of time. It's the type of metaphor that obscures more than it reveals I think.

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4. paganelOct 2022
   > The whole point is that eventually a planetary population must stop producing more energy. Those that don't, die.

   Haven't read him until now, to be honest, but this discussion and some other recent threads from HN make me really want to start reading Georgescu-Roegen's work [1]:

   > He is best known today for his 1971 The Entropy Law and the Economic Process, in which he argued that all natural resources are irreversibly degraded when put to use in economic activity. A progenitor and a paradigm founder in economics, Georgescu-Roegen's work was decisive for the establishing of ecological economics as an independent academic sub-discipline in economics.

   There was a HN-er who had some good comments about Georgescu-Roegen in the past, not sure if he's still active (I can't remember his username) or if he'll see this comment to add some further insights.

   [1] https://en.wikipedia.org/wiki/Nicholas_Georgescu-Roegen

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