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Monster, in a long comment constituting a fairly spectacular demonstration of the concept “missing the point”, takes issue:

Now, let us move on to your statement of the Laws of Thermodynamics in economic terms.

2. You always get less than you pay for.

That’s not just zero-sum; it’s explicitly negative-sum.  If everyone gets less than they pay for, then every transaction leaves all parties worse off than before.

*sigh* The “Laws of Econodynamics” were meant to be jocular, but —

Grade in Physics 202 (Introduction to Thermodynamics): FAIL, in big red letters with a circle around it. Oh, and a friend of mine has plans for a perpetual motion machine. Would you care to invest?

The “real” Laws of Thermodynamics are:

  1. Energy can be neither created nor destroyed.
  2. Energy can be changed from one form to another, but always with losses.
  3. Entropy — the sum total of all the losses — always increases.

Therefore, the Universe is a negative-sum game for everything within it, and zero-sum for the thing as a whole.

[Note two things: First, “energy” is not a perceptible “thing”, it is an existential concept — we can only perceive the effects of energy (heat, a lightning bolt, a heavy object held up by something). Second, there’s no reason for the Laws, no more-fundamental principle that can explain why the Laws are what they are — but nobody, at any time or place, and despite some truly energetic(!) attempts, has ever found the slightest exception to them.]

Energy can be neither created nor destroyed. But, if you find a concentration of energy, it will flow to an area of lower energy; and, if you’re clever, you can make that flow do something useful to you — that is, do work. But you can never get all of the energy to do useful work. Some is always lost, in spillage, friction, or some other non-useful function. That lost energy turns up in the general energy-pool of the Universe. It is no longer concentrated; there’s nowhere it can go where there is less energy, so you can’t make it do useful work any more. Entropy has increased.

One thing you can do with a concentration of energy is use it to concentrate some more useful form of energy. A lump of coal contains a concentration of chemical energy. That chemical energy isn’t very useful to you, so you burn the coal to produce heat, which boils water and pushes your railroad engine down the track. But you didn’t fool Mother Nature; the waste heat from the process spills over and warms the surrounding air, and eventually disappears into the general low-level pool of unusable energy of the Universe.

Life in general (which includes economics) appears to be anti-entropic. It is not. Life builds greater and greater complexity — bigger concentrations of energy — by tapping small energy flows from existing concentrations, mostly (here on Earth) from the Sun. In doing so life appears to make water flow uphill, to build concentrations of energy from nothing, but in fact it does no such thing. It only appears to because we don’t perceive the continuous minute flows of energy that make it work.

Machines do the same thing. We build a machine, reducing the local entropy by using energy flows to create a concentration of energy that will be useful later. We run the machine, perhaps to build something, again reducing the entropy of the machine and its work. But Ma Nature is not confused; handwaving is futile; the losses in the process of building and running the machine disappear into the useless pool, and overall or general entropy increases.

Economics can appear to be anti-entropic in exactly the same way. There’s no particular reason why one or both participants in a transaction can’t make a profit. You want to go somewhere, so you pay the airline to take you. You profit by changing your spacetime coordinates to something more desirable; the airline tallies up receipts, ka-ching! The local system entropy goes down, but the Universe gets its cut, as always, and the general entropy rises.

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September 2009