Macroeconomic Dynamics in a finite world: the Thermodynamic Potential Approach

TL;DR

This paper introduces a thermodynamic model of Earth's socio-economic-natural systems, emphasizing energy-matter flows, resource depletion, and entropy to analyze sustainability and long-term evolution.

Contribution

It presents a novel thermodynamic framework integrating natural resource depletion, recycling, and waste production into macroeconomic dynamics.

Findings

Intensity and friction are key factors for sustainability.

The model confirms the impact of resource depletion on economic dynamics.

Thermodynamic potentials effectively capture natural and socio-economic interactions.

Abstract

This paper presents a conceptual model describing the medium and long-term co-evolution of natural and socio-economic subsystems of Earth. An economy is viewed as an out-of-equilibrium dissipative structure that can only be maintained with a flow of energy and matter. The distinctive approach emphasized here consists in capturing the economic impact of natural ecosystems being depleted and destroyed by human activities via a pinch of thermodynamic potentials. This viewpoint allows: (i) the full-blown integration of a limited quantity of primary resources into a non-linear macrodynamics that is stock-flow consistent both in terms of matter-energy as well as economic transactions; (ii) the inclusion of natural and forced recycling; (iii) the inclusion of a friction term which reflects the impossibility of producing goods and services in high metabolising intensity without exuding energy and matter wastes; (iv) the computation of the anthropically produced entropy as a function of intensity and friction. Analysis and numerical computations confirm the role played by intensity and friction as key factors for sustainability. Our approach is flexible enough to allow for various economic models to be embedded into our thermodynamic framework.