Thermodynamics Formulation of Economics

TL;DR

This paper introduces a thermodynamics-based framework for economics, defining an equation of state and laws that model economic systems using concepts from statistical mechanics and thermodynamics.

Contribution

It proposes a novel thermodynamics formulation of economics, including new laws, criteria for empirical laws, and a method to model economic equations of state with econometrics.

Findings

Defined economic equation of state using thermodynamics principles

Introduced new laws of thermodynamics for economic systems

Established a method to model economic EoS with econometrics

Abstract

We consider demand-side economy. Using Caratheodory's approach, we define empirical existence of equation of state (EoS) and coordinates. We found new insights of thermodynamics EoS, the {\it effect structure}. Rules are proposed as criteria in promoting and classifying an empirical law to EoS status. Four laws of thermodynamics are given for economics. We proposed a method to model the EoS with econometrics. Consumer surplus in economics can not be considered as utility. Concepts such as total wealth, generalized utility and generalized surplus are introduced. EoS provides solid foundation in statistical mechanics modelling of economics and finance.