Beyond Supply and Demand:

Entropy and Information in Economic Science

“Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all." --- Attributed to economist John Maynard Keynes

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Entropy and Information in Economic Science

Public discussion of economics is regrettably more political and ideological than scientific.  Economists collect data and employ fancy mathematics, but their science is inadequate to predict unusual and dangerous events like the calamity of 2008, or to implement recovery from them.  One cannot expect politics or ideology to generate good economic policy any more than to calculate how to fuel a rocket. 

The Law of Supply and demand has been central to economics since 1776, when Isaac Newton’s Laws were the last word in science.  Supply-and-Demand in effect compares an economy to a swinging pendulum, which Newton properly describes.  On our site, we introduce a new brand of Thermoeconomics, which carefully compares an economy to an engine.

It boils down to this.  A functioning internal combustion engine must input more units of fuel energy than it can put out units of work.  An engine must waste some heat energy as increasing entropy.  A successful economic transaction must input more units of economic fuel – e.g., dollars – than it can put out as economic work, which is the recovery of costs-to-market in dollars.  A successful economic transaction must waste some dollars as increasing profit.

Contemporary economists already agree that profit is "economic inefficiency", which they consider to prevent a theoretically, ideally perfect Supply-Demand balance.  If profit is inefficiency, it cannot simply be economic fuel.  Comparing an economy to an engine will suggest a more functional way to understand profit and profitability.

Left-click to read the paper or right-click to download a PDF of

If you find these ideas interesting, or have comments and questions, we encourage you to email the authors:  Richard Goldwater and Arthur Jonath

profitandentropy.com/needswork (Some half-baked ideas in need of criticism)

Author bios: Richard Goldwater and Arthur Jonath

A small step in thinking; a giant leap in economics.

Photo above: Rudolf Clausius (1822-1888) – founding thermodynamicist and originator of the concept of entropy