Necessity of Conserved Quantities for Axiomatic Completeness of Classical Economic Theories

TL;DR

This paper argues that the axiomatic completeness of classical economic theories depends on the inclusion of conserved quantities, specifically energy, linking economic trade phenomena to physical laws.

Contribution

It demonstrates that incorporating the law of conservation of energy is essential for the axiomatic completeness of trade theories like comparative advantage.

Findings

Trade cannot exist without energy conservation laws.

Inclusion of physical principles enhances economic theory rigor.

Economy requires at least one zero-sum parameter for trade phenomena.

Abstract

Many economic theories have been introduced over the course of history to articulate our understanding of the economy. Classical theories by Adam Smith and David Ricardo's Comparative Advantage have been foundational for the last century's work. Improvements have been achieved over time, incorporating insights from many disparate fields of study: contemporary frameworks like Behavioural Economics and Information Economics, which incorporate psychological insights and deviation from rational decision-making and insights from network theory and how the information flow affects the market behaviour, respectively. In this paper, I motivate the necessity of incorporating insights from Physics, and also show that trade as a phenomenon described by the comparative advantage theory cannot exist without the law of conservation of Energy, and incorporating this law leads to axiomatic completeness of the theory. Further, I also argue that while the economy is not a zero-sum game in terms of wealth, it does require at least one associated zero-sum parameter for trade and economy as phenomena to exist.