In recent years the application of entropy to problems in economics and nan-cial markets has greatly increased. The rst and arguably most inuencial use8of the entropy principle was developed in 1971 by Nicholas Georgescu-Roegenin his magnum opus The Entropy Law and the Economic Process. His workhas been lauded as groundbreaking in historic and economic circles and he wasthe rst economist of note to theorise on the eventual exhaustion of the re-sources of earth. As his work was in opposition to the views of Neoclassical andMarxist economics, it procured erce debate so much so that he is seen as thepioneer of what is now known as ecological economics.
Georgescu contendedthat that economic scarcity is rooted in physical reality and must obey the lawsof thermodynamics. The rst two of these are of course that:1) Man cannot create or destroy energy, only transform it.2) The entropy of an isolated system increases to reach a maximum state.Earth can be thought of thermodynamically as a closed system; it exchangesenergy but not matter with the rest of the universe. Therefore, the resourcesavailable to man are the mineral resources found in the earths crust and thesolar radiation from the sun. Man cannot control the rate of solar radiation,and in any case, the sun shall continue to shine and provide for earth for billionsof years. However, the stock of mineral resources available for work shall beexhausted long before this.Georgescu states that the economic process irreversibly transforms the nat-ural resources on earth to waste, and that the neoclassical goal of perpetualeconomic growth only exacerbates the degradation of earth’s resources.
Hepoints to the scientic fact that the human race is living beyond the carryingcapacity of earth. That is, given the current world population and economicprocess, man is beyond the limits of sustainability given the available resources.His view of the inevitable exhaustion of resources explained by entropy, andsubsequent demise of human civilization has quite aptly been described as ‘eco-nomic pessimism’. He contends it is against the biological nature of mankind torestrain itself suciently for future generations. Just as Carnot concluded thatno perfect engine can exist, Georgescu claims the counterpoint of the possibil-ity of recycling is itself possible only by the use of energy resources plus othermineral resources, and such energy resources are dissipated in use.Advances on Georgescu’s work have been made in recent times, with Romeiroand Sa Earp oering further thought in The Entropy Law and the impossibilityof perpetual economic growth.
They conclude that the entropy law inevitablypoints to the fact that the only ‘responsible’ non-negative growth is zero. Theirresearch gives answers to detractors of the view presented, such as the belief thatmarket pricing mechanisms will punish those who contribute to the impendingexhaustion of an ecosystem stock and give incentives to those adopting newalternatives. The paper counters that this view assumes complete preemptiveknowledge of thresholds. Using as an example that the boiling point of wateris observed empirically and not calculated, they contend that many thresholdscan only be determined once violated and that the very exhaustion of someresources could have drastic eects on other ecosystems.They view the sum of the waste produced of the stock of a resource forall times t > to, that is the stock of the resource at time to, will eventuallyand inevitably consume the nite stock.
Economic growth hastens this process9to ‘irresponsible’ levels. An alternative viewpoint of such stark reality is theas yet unrealised possibility of obtaining low entropy resources exterior to theecosphere and restoring net stocks of resources. This counterargument onlyexists in the realms of science-ction however, and as such economists wouldnot be wise to rest their hopes on such a possibility.