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Better economics through…chemistry?

By Daniel M. Ryan
web posted March 19, 2007

Economics is in a mess, we've long been told. To the end of straightening it out, a new kind of economics is proposed, one that isn't the easiest to learn but nevertheless has a compelling beauty: chemical economics.

After all, there is a voluminous amount of knowledge of the chemical elements. Just think of the reservoirs of learning built up by the many chemists of the world over the years. Why should this great treasure-house of knowledge go to waste by confining it to chemistry?

Like chemistry itself, chemical economics is rooted in the Laws of Conservation of Mass and of Energy, as well as the Laws of Thermodynamics, except for the important difference that chemical economics works with value-thermodynamics. The two Laws of physics are applicable straight up, as should be obvious. Take a look at any good: if it is composed of two or more sub-goods, nothing physically is added to those sub-goods; they're all there. Physical fusing, if applicable, explains any difference between compound good C and its component goods K1, K2, etc. Even if it is difficult to account for any loss or gain of mass along the way, it is still possible to do so. Mass can neither be created nor destroyed; all of it can be accounted for. Chemists have known this since the eighteenth century.

The same conservation applies to the energy used to make any particular good, of course.

Where chemical economics diverges from plain physics and chemistry, though, is in the interpretation and use of the Laws of Thermodynamics. In chemical economics, they refer to the laws of value, not the content of energy, like so:

The Zeroth Law of Value Dynamics: A value-differentium between two or more goods will equalize out (most often through exchange processes but not necessarily through these means) provided that there is an unblocked channel through which such value-equalization can proceed.

The First Law of Value Dynamics: The total value in the universe is neither created nor destroyed. So, if value is actually increasing in an economy, which can be the entire global economy, then an equivalent amount of value has to be subtracted from the rest of the universe – which is, after all, a very big place.

The Second Law Of Value Dynamics: Put simply, value-entropy increases over time. This point should be fairly obvious, given the amount of waste any economy generates. It implies that no amount of economic recycling captures all of the values lost through any economic process beforehand.

The Third Law of Value Dynamics: Value-entropy is minimized in a system where all economic processes cease. To be more straightforward, an economy with no outside links to it reaches its minimal value entropy when no economic activity is undertaken. An important special case of this law is an isolated economy with a total value-enthalpy of zero; it implies that no economic activity can be undertaken in that isolated region, unless the isolation be broken somehow, and thus there is no way to create value in such an economy, ever. Generally speaking, this Law says you can never get something from nothing.

Now that the foundation has been built, the analytical tools of chemistry can be brought to bear in a more specific way. It should be clear that certain goods are not combinations of other goods; these are elemental goods. Compound goods are combinations of one or more elemental goods. Examples of an elemental good would be labour, or water, or (even more neatly!) iron or diamonds. Examples of compound goods are TV dinners, cars, or (neatly again) various grades of steel.

Chemical economics is in the stage where a periodic table of elemental goods has yet to be constructed, even though there is a definite prolegomenon to this end, in the classification of goods according to industry. This immediate lack should be of little consequence; at this stage, it's sufficient for the project to know that they are there. More immediate gains of knowledge can be yielded through analyses of economic activity, or of transfers of value-enthalpy. The construction of a periodic table can be put aside for now.

There are two kinds of economic activity, of which exchanges are an important but not exhaustive variation: exovalic and endovalic activities. Exovalic activities add (release) value; endovalic activities subtract (store) value. Because of the Zeroth Law, it should be apparent that exovalic reactions proceed spontaneously, whereas endovalic reactions do not. It's important to note that endovalic activities require a source of value at least equal to, and in almost all circumstances exceeding, the storage of value in the reaction.

This explains why savings cost, in terms of spending, and why the production of a good or service always costs, somehow. The cost has to be greater than the value added, as specified by the Second Law of Value Dynamics. We thus reach the quite mainstream conclusion that savings tend to add less to the economy than consumption does, even though exovalic reactions also increase value-entropy too. Unlike activities that store value, though, the value-entropy increases that result from exovalic reactions only increase value-entropy once; hence the tendency for consumption to be less additive of value-entropy than savings or production would be, ceteris paribus. This conclusion implies that Keynes was not wrong in his conceptions, but only wrong in his method of quantification. Chemical economics has the potential to resuscitate this important plank of Keynesian economics.

The apparent paradox that capitalistic development tends to increase the amount of value-entropy in the universe, when thought through clearly, proves not to be one. How is it possible for so many endovalic, value-entropy-adding, processes to take place in our modern economy with economic growth occurring contemporaneously? Simple: the economies being studies are not closed systems. They are not isolated economies. We find new supplies of natural resources all the time, and many of these resources exist in areas that seem to be, but are not, at a state of zero value-enthalpy. An accurate cataloguing of the "missing value," which seems to contradict the Second Law of Value Dynamics, can finally put to rest through solving one of the great mysteries of economics: assessing the value added by the Sun. The economics of the Sun is truly a question that demands an answer.

Of course, the Sun gives this value for free, a true and unthanked boon for the human race, which does reinforce the bad habit of taking the Sun for granted. The appropriate policy responses, not to mention socio-cultural adjustments, needed to wave the illusion of spontaneous productiveness away are beyond the scope of this paper, as well as being beyond the reach of the author's present ration of funding. ESR

Daniel M. Ryan is a regular columnist for LewRockwell.com, and has an undamaged mail address here.


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