Written by John Lounsbury
Econintersect: Steve Keen says that, although you cannot derive economics from thermodynamics, economic theorems cannot violate the laws of thermodynamics. In this new lecture, Prof. Keen discusses definitions of value and why, even though there have been many theories of value, none of the main schools of thought have gotten it right.
What can Thermodynamics ever have in common with Economics? The key understanding is that an economy operates within the environment, is therefore a part of the environment. The environment is specified by the laws of thermodynamics, the observable relationships between matter and energy. Much economic theory either ignores the environment or attempts to view the conomy containing the environment as a component variable. Steve Keen asserts these views are entirely wrong. He states (paraphrased):
The economy is a component of the environment and subject to the same physical laws that define the environment.
Here is the summary description provided by Prof. Keen on YouTube:
What is “value”? I take the question back to the basics of how is it that we can produce a net output? The answer has to be consistent with the Laws of Thermodynamics, and on that basis, every school of thought from the Neoclassicals to the Marxists, is wrong. I introduce a new production function in which energy plays an essential role. I’ve previously posted a video on this topic, but this is my first presentation of the concepts to a group of students.
Source: YouTube
