Physical foundations of economics: analytical thermodynamic theory

Jing Chen9812563237, 9789812563231, 9789812703415

All human activities, including mental activities, are governed by physical laws and are essentially thermodynamic processes. However, current economic theories are not established on these foundations. This pioneering book seeks to develop an analytical theory of economics on the foundation of thermodynamic laws. A unified understanding of economic and social phenomena is presented, an understanding that is much simpler than what mainstream economic theory has to offer. Its aim is to revolutionize thinking in economics and transform social sciences into an integral part of the physical and biological sciences.

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Table of contents :
Contents……Page 8
Preface……Page 10
1.1 Introduction……Page 16
1.2 What is Information?……Page 18
1. Conservatism……Page 24
3. Overconfidence and irrationality……Page 25
4. Loss aversion in winning and risk seeking in losses……Page 26
5. Framing, representativeness and biases……Page 28
1.4 Concluding Remarks……Page 30
2.1 Introduction……Page 31
2.2 The Properties of the Entropy Theory of Value……Page 34
1. Scarcity and value……Page 35
2. Value and the number of producers……Page 36
3. Substitutability and value……Page 38
4. Market size, product life cycle and product value……Page 39
2.3 Physical Entropy, Information and Economic Value……Page 40
2.4 The Entropy Theory of Value and Information……Page 42
2.5 Economic Wealth and Social Welfare……Page 45
2.6 Concluding Remarks……Page 46
3. Production and Competition: An Analytical Thermodynamic Theory……Page 47
3.1 Some Historical Background……Page 48
3.2 Basic Theory……Page 50
3.3 A Comparison with Neoclassical Economic Theory……Page 56
3.4 What is Next?……Page 66
4. Natural Resources, Technology and Institutions: A Historical Perspective……Page 67
4.1 Dynamics of Change in Human Civilization……Page 68
4.2 General Patterns in Biological Evolution……Page 73
4.3.1. The origin of the Industrial Revolution……Page 77
4.3.2. The future of our fossil fuel based civilization……Page 82
4.4 Concluding Remarks……Page 87
5.1 Migration and Trade……Page 88
5.2.1. Theory of education and fertility……Page 101
5.2.2. A comparison with the mainstream theory……Page 104
5.3 Long Term Consequences of Migration Restriction……Page 105
5.4 Concluding Remarks……Page 108
6.1 What Finance and Astronomy Have in Common?……Page 110
6.2 From Modern Astronomy to Modern Finance: A Brief Review……Page 113
6.3 A New Theory of Corporate Finance……Page 115
6.4 A New Theory of Investment……Page 120
6.5 Criteria for a Good Theory……Page 126
6.6 Concluding Remarks……Page 129
Epilogue: Mathematics, Beauty and Reality……Page 131
Bibliography……Page 138
Index……Page 146