Historical macroeconomics page

Thermodynamic Economics

A dialog on the MAI-not list
January 1998

While I have no objection to your treatise whatsoever and agree with your conclusions for the most part, the problem I can see is overcomplication of issues that can only be followed by academic minds.

I started reading economics in '82 and by '85 I came to the inescapable conclusion, later supported by many scientist friends and never broken by anybody, that: Monetary economic efficiency doesn't exist and the only economic efficiency is the thermodynamic one. Therefore, costs can not be cut by monetary manipulations, only through the reduction of physical inputs of resource/energy.

The "law" I wrote was:

A Principle for the application of physical efficiency to economics:
THE REAL, OR PHYSICAL COSTS OF A PRODUCT, OR SERVICE ARE CONSTANT

An efficient product contains physically efficient or ideal amounts of energy and matter, regardless of numerical or monetary considerations. Monetary cost efficiency can not exist outside the concepts of physical efficiency and becomes a cost transfer on other sectors. Therefore it is not efficiency, but temporary convenience.

Nothing can be made "cheaper" than the limits of physical efficiency of "no waste". Fiduciary money is a concept, not a reality and can not overrule the laws of physical, or ecological efficiency. Somebody, something, sometime, somewhere must pay the full costs.

In the past 13 years I have never had the slightest reason to change this. The reason that I concentrated on the concept of efficiency was that if and when the true laws of economic efficiency are recognized and implemented, virtually all the problems caused by the present false concepts will be eliminated. It won't bring Nirvana and to a great extent it will mean cutting back on many things we now accept as part of the system, therefore it will bring on the loss of certain luxuries. However, because of the simplicity involved in the application of "low resource inputs to reach certain targets" can be understood by anyone and there's no argument about them.

All the very best, Ed (Ed Deak, Big Lake, BC)

Ed Deak is absolutely correct with this one--the question is: Does it matter?

As I see it, there are always two discussions going on simultaneously whenever the question is economics.

One concerns the "symbol" economy. This is the world of statistics, money, legal arrangements, stocks, etc. MAI is clearly a "symbol economy" issue.

The other concerns the "physical" economy. This includes mines, roads, ships, oil wells, factories, schools, farms and all the other physical manifestations of human economic activity.

Ideally, the discussion of one SHOULD be a discussion of the other. However, this is rarely the case these days for a multitude of reasons. If you can imagine the modern relationship between the two, compare economics to a football game;

• The real economy is represented by the players, coaches, refs, ball girls, trainers, and the rest of the folks necessary to conduct a game.
• The symbol economy is represented by the folks in the stands who are making bets on the outcome.

This analogy is flawed, of course, because in a football game, it is absolutely fobidden for the gamblers to influence the outcome of the game--for the simple reason that manipulating the outcome spoils the game. In the economic world, the bettors on Wall Street or Bay Street regularily involve themselves in the outcome of the physical economy.

Of course, it can be argued that whenever the economic gamblers do involve themselves in the real economy, they wreck things just as certainly as would be the case in sport. This probably means we sets higher ethical standards for play than for issues of survival.

In any case, Ed has uncovered yet another disconnect between the physical economy and the symbol economy. His law is really a law in the real economy, but it is an annoyance or an irrelevancy to the folks in the symbol economy who hate to be reminded how dangerous and pretentious is their practice of manipulating economic outcomes to cover their bets.

There is a critically important reason why Ed's Law is should be treated more seriously than it probably will be (sorry Ed, your brilliant observations are not likely to be noticed by the Nobel committee). If we allow economic discussions to be dominated by an economics profession overwhelmingly populated by gambling shills whose professional purpose is justifying the destruction of the real economy and the environment, all other progressive goals are jeopardized.

There will be NO possible sustainable economic development so long as gamblers are accorded more power in industrial societies than someone who could perfect a way to farm with less topsoil loss (or a million other examples.) Just remember, by their very nature, economic actions by the symbol economists can only wreck things--as our friends at the IMF so regularily demonstrate.

If we ever are going to design and build a sustainable economy, the first order of business is to reduce the power of the symbol economy. They will still be allowed to bet on the economy, (outlawing gambling is rather difficult) but they will NOT be able to influence the outcome.

The time has come to hold our economists to at LEAST the same ethical standards of a football game.

regards jon

web page at: http://clear.lakes.com/~eltechno/

Jon, doesn't this statement contradict the lesson from the football game analogy, where you say it's arguable that "whenever the economic gamblers do involve themselves in the real economy, they wreck things"?

And if we accept that the driving force behind (especially industrial) capitalism is finance, i.e. the reinvestment of profits, is it not a confounded argument to pit finance against the real (capitalist) economy? Though there are real differences between financial investment and real investment, they have always co-existed in capitalism. Further, finance has, for over 150 years, been the driving force behind tremendously rapid areas of growth in the real sector. The US offers a fairly clear example: its ability to pull itself out of a precarious second half of the 19th century owes much to the rise of modern finance.

Of course, all this ignores a deeper question to which you and Ed both seem to refer: that of the relationship of real investment to some sort of real economy. However, aren't all of the wasteful ("inefficient") features of financial investment ("gambling"?) also features of real investment, and hence features of a real (capitalist) economy? Though history may teach us little about economies, certainly two lessons can't be ignored: one, that truly competitive economies (themselves quite wasteful) cannot exist on a large or even medium scale (i.e. almost everything beyond a small scale agricultural society); two, that any economy which successfully inhibits these highly destructive market forces ushers in trends of huge and growing waste.

In essence, a true attack on waste necessitates an examination and critique of the market system of allocation.

Regards,
Dave Markland
Winnipeg, Canada

Jon, doesn't this statement contradict the lesson from the football game analogy, where you say it's arguable that "whenever the economic gamblers do involve themselves in the real economy, they wreck things"?

No! Not at all! I guess I could have put this better by writing "the discussion of one SHOULD be the discussion of the other--but rarely, if ever, is!!!"

And if we accept that the driving force behind (especially industrial) capitalism is finance, i.e. the reinvestment of profits, is it not a confounded argument to pit finance against the real (capitalist) economy?

I do NOT accept for a second that the driving force behind industrial capitalism is finance. In fact is has been historically true that those companies who have advanced industrialism the most have been those companies with the greatest mistrust of finance. The minute the money boys show up, there is usually a rapid decline in any company's potential for innovation. It is ALWAYS a finance type who has the "brilliant" idea that the way to increase profits is to fire the engineers in the R and D department.

In fact, I would challange you to name ONE historical example where a group of financial types decided on their own to create an inventive, innovative enterprise. Usually, the innovator has to spend a lifetime raising cash, and then he or she must not only put the idea or invention at risk, but their house or any other asset.

Look, if you really believe that the greedheads of the financial "services" business are NOT the main economic problem in the late 20th century, Why are you opposed to MAI?

regards
jon

web page at: http://clear.lakes.com/~eltechno/