by From James Galbraith and RWER current issue An economic theory that is consistent with life processes and physical laws is necessary for a simple reason: the economic theory that underlies modern “mainstream” economics and practically all textbook teaching in economics is not consistent with life processes and physical laws. And this is a problem. Human beings are living organisms. All human activities, including mental activities, are consistent with physical laws. It is natural to build an economic theory on the foundation of biology and physics. In my forthcoming book with Jing Chen, Entropy Economics, we undertake this task, for two foundational elements of economics: the theories of value and production. Modern mainstream economics is a theory of balance, or equilibrium. The
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from James Galbraith and RWER current issue
An economic theory that is consistent with life processes and physical laws is necessary for a simple reason: the economic theory that underlies modern “mainstream” economics and practically all textbook teaching in economics is not consistent with life processes and physical laws. And this is a problem.
Human beings are living organisms. All human activities, including mental activities, are consistent with physical laws. It is natural to build an economic theory on the foundation of biology and physics. In my forthcoming book with Jing Chen, Entropy Economics, we undertake this task, for two foundational elements of economics: the theories of value and production.
Modern mainstream economics is a theory of balance, or equilibrium. The basic terms of reference are the concepts of supply and demand, which interact in a market and come to rest at certain prices and quantities. There are a thousand different ways in which this process may be disturbed, by “imperfections” and “shocks.” But at the heart of the matter lie the concepts of balance and equilibrium – the immanent order toward which a market system is supposed to tend. This immanent order is sometimes called a “steady state.” This is a very comforting idea, compatible with such notions as the “end of history” and the triumph of market capitalism over competing social systems.
In real life, there is no such thing. In real life, time moves from the past, through the present, to the future, in an unceasing process of change. The changes take many forms, including birth, growth, decline, death, and the rise and fall of societies and civilizations. All of them occur under the influence of physical and biological laws, including especially the second law of thermodynamics and the laws of biological evolution. In our view, economics should adhere to the same broad principles. It should not rest on the illusion of an underlying steady state.