The Environment of the Economy

No economy is a closed, autonomous universe, governed by rules independent from law, morals, and politics. Indeed, the most interesting economic questions are generally located on the borderline with neighboring disciplines. But nowhere is this clearer than in the interaction between economic processes and the natural environment.

The distinctive feature of this exchange is that it is governed not by the laws of mechanics, but by thermodynamics, particularly the law of entropy, according to which the quantity of free energy that can be transformed into mechanical work diminishes with time – an irreversible process culminating in “heat death.” Numerous researchers, inspired by the late Nicholas Georgescu-Roegen’s pioneering work on the relationship between economic processes and physics, tried – not very successfully – to formulate an “entropic” theory of economy and society, especially during the 1970’s.

The entropic view assumes that economic processes produce irreversible consequences because of their multiple interactions with nature. We draw from stocks of non-renewable natural resources (for example, oil and metal ores), and we deteriorate or modify the quality of other resources (for example, water and arable land) by imposing on them a rhythm of exploitation superior to their capacity for regeneration. In fact, the exploitation of non-renewable resources frees the speed of economic growth from that of ecological renewal, aggravating the deterioration of the biosphere, including irreversible climate changes.

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