Tuesday, February 23, 2010

Newton on Economics

"Economic concepts have strong relationships similar to heat flow. Thermodynamics is to physics as accounting is to economics, the inexorable and indefatigable bookkeeper. ... Remember that the government had nothing to do with the ending the Enron scandal; they did not discover, report or stop it. ... Energy and accounting are governed by rigorous mathematical relationships. Thermodynamics is relentless in accounting for energy flow, unflinching, the purest of truths. ... The starting point for most thermodynamic considerations are the laws of thermodynamics, which postulate that energy can be exchanged between physical systems such as heat or work. ... A law of physics is a thing of beauty. It exists for all people, all cultures, all colors, and all creeds. it is the most undiscriminating thing possible. ... Unlike mathematics which has the concept of proof, a law of physics is only postulated to be true. It is accepted as true if it has been verified by sufficient experimentation. As long as is has never been shown not to be true, that is to be false, it will be accepted as a 'law.' ... Primitive man tied a variety of tricks to get around the binding of the Creator's will which made real physical law. Magic was postulated. Magic was simply physical law subject to change based on some social rule that was subordinated to the will of man. Magic would give us magicians, sorcerers, demons, et al. That would be abhorrence to the Creator, and thus is not allowed. ... Back to the physics: thermodynamics was one of the first scientific products of the industrial age. ... The inexorable nature of this energy accounting system or balance sheet is that matter and energy can neither be created nor destroyed. They are equivalent thanks to Einstein's famous formula. The first law is what Milton Friedman canonized with his famous 'there is no free lunch' statement. ... Physics is the same everywhere. Mars, Andromeda, Iran and North Korea. It does not respect ideology. This puts constraints on the state. Austrian Economics [AE] is where these constraints are applied. Like Thermodynamics, [AE] is a qualitative theory, that is, it is expressed in inequalities, not exactitudes. It bounds behavior but does not proscribe details, it provides limits. ... The [Fed] has only one tool: currency creation. When they perform this magic act at the behest of the political elite it is called a stimulus. When you and I do this it is called a crime: counterfeiting. ... Thermodynamics bounds the work done by physcial processes. [AE] bounds the work done by economic processes. Life exists on Earth because the Sun continually pumps energy into the physcial world we live in. This provides the thermodynamic input into all the biological systems that transform the energy into physical work, chemical work (metabolism and excretion) all running downhill and increasing entropy. The contninuous input from the Sun more than compensates for the entropic loss which is why biological systems persist over long periods of time. ... The net result of a Central Bank, fractional reserve banking system, and a fiat currency is an entropic--based reordering of the system in favor of the elite and against the masses. They get more useful work and we get more entropy. ... Socialist societies continually misallocate resources by the use of rationing coupons instead of money. Rational calculation cannot occur since there is no meaningul pricing mechanism. Entropy increases until eventually no work is done at all", George Giles at Lew Rockwell, 26 January 2010, link:

Ludwig Von Mises and Oskar Lange debated this in about 1930. Economic calculation is impossible under socialism. CV Myers also wrote about money as if it was congealed human effort.


Anonymous said...

"...Economic calculation is impossible under socialism..."

Is this a back-handed swing at Pres-O and his efforts to "governmentalize" most sectors of the economy?

Anonymous said...

really appreciate the connection you make between 'reality' and perception as it is exempliefied in physical law and our new, increasingly magical financial beliefs.