Inequality and economic efficiency of society through the prism of thermodynamics (image by www.ima.umn.edu)

Ksenzhek & Petrova – Inequality and Economic Efficiency of Society through the Prism of Thermodynamics

“Inequality, when it refers to social problems, is a word which rather readily excites passions. During at least two centuries it remains a permanent matter of a great number of economic, sociological, and in some cases even political works. The phenomenon of inequality is perceived often almost as a synonym of ”injustice”. That is unjust, however, because since Adam Smith it is clear that inequality plays really the dual role. On the one hand, inequality is a mechanism of development, and on the other a standing source of poverty and social tensions. An ever-growing degree of inequality that accompanies rapid development of contemporary economy excites both the general public and experts in sociology and economy. Inequality in society has indeed two aspects: social and economic one. The former manifests itself in the difference of living standards of various social strata of society: the real disparity in housing conditions, in the accessibility of education, adequate medical care, legal protection, and the like. On the economic plane, inequality is expressed in the disparity of incomes.

Though inequality in social system is perceived most often as something wrong, it is indeed neither good nor evil. Moreover, inequality of some kind is an innate feature of evolving systems of any nature. All processes of evolution in biology, culture, or technology certainly produce diversity. The diversity that emerges in social systems manifests itself in the inequality in incomes first of all. Thus, inequality as a phenomenon should be considered not as a kind of flaw but as a natural inseparable attribute of social life. The matter may concern the extent of inequality in a society and its influence on social and economic processes.

One may endeavor to examine the question from the positions of thermodynamics. This branch of science is rather distant from economics and sociology on the knowledge tree, nevertheless there are deep reasons for their rapprochement. The existence of an innate bond between economic processes and consumption of energy was evident long since, at least on the level of philosophy and physics. However, the penetration of rational ideas from outside into the area of economics has occurred with much ado. So, the notion of entropy, a fundamental concept of thermodynamics, was first introduced into economics about 35 years ago by Georgescu-Roegen.

Since then the area of usage of the methods and ideas of natural sciences in the domain of social sciences, the economics first of all, expands gradually, perhaps even too gradually. Thermodynamics defines the universal laws of energy conversion. Economy is driven by the flows of energy. The present-day trends of world development manifest the linkage between the economy and consumption of energy more obviously than ever. Functioning of the economy consists finally in performing work at the expense of dissipation of energy consumed. All such processes, including the economic ones, obey the fundamental Laws of Thermodynamics. Examination of economic processes on the basis of general thermodynamic concepts may reveal some new facets of habitual notions and facts of economics and sociology. Among other points, there are the problems of inequality and competition, of riches and poverty, of distribution of economic power between different social strata, of the efficiency of money, etc.

The most obvious parameter defining the measure of inequality is the distribution of the aggregate income of a society among its members. To conceive the mechanism that engenders inequality in social system more visually, one has to comprehend some peculiarities of the substance that is the main acting factor of economic processes, namely, the money. This specific substance functions as the working medium that circulates in economic cycles. Examining closely the ”behavior” of this working medium, one may come to a conclusion that there is a reason to consider money as a certain specific form of energy. ”

Octavian Ksenzhek and Svetlana Petrova
Inequality and Economic Efficiency of Society through the Prism of Thermodynamics

 

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