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Theory of Capital in Relation to the Laws of Thermodynamics

Mieczyslaw Dobija 

Cracow University of Economics (CUOE), Rakowicka 27, Kraków 31-510, Poland

Abstract

At the beginning of time, Prime Energy began Her labour creating Universes - matters and spirits and laws of their evolution towards societies of human beings. Therefore all creatures are energetic by nature and must maintain an adequate level of energy's concentration to continue their life in their existing shape. Energy is a fundamental concept of contemporary sciences. Economics have to follow this way in order to join to other sciences in creating intellectual capital indispensable for successful development of economy.

In economic language, capital is an economic power, although academics have not been fully aware of this connection. Much trouble with real economies, and economic theories as well, has its roots in the lack of reconciliation of the energy concept in physics and economics. Capital, in the sense of being used to "do something"", is analogous to the property in physical science that is labelled as "energy". Energy is often defined as "the capacity to do work" and thermodynamics is the field, in which the applications of energy and heat are thoroughly studied. Therefore thermodynamics provides us with a useful premises for understanding capital.

Both thermodynamics laws apply in economics. The first law is a fundamental of the duality principle and "double-entry" concept used in accounting systems. The second law of thermodynamics is a key to understanding the properties of energy taking into regard its unavoidable diffusion. Dispersion of capital in the context of economic activities produces risk that manifests itself in reality as the cost of risk. Human capital as ability of doing work is transformed into value of products by labour, but a serious part of it disperses by heat. This is the reason of using concepts of present and future value in economic considerations and estimations.

Free, dynamic market assigns for successful workers, entrepreneurs and investors a premium for risk in order they could maintain their capital intact at least. Thus the rate of diffusion of capital influences the size of the risk premium because it must be sufficient to cover the rate of dispersion. Therefore the second law of thermodynamics predetermines an existence and a size of the risk premium. The risk premium is an essential economic constant, which shapes interest and discount rates, wages and salaries, prices of goods, and rate of returns under conditions of free market exchanges. Preventing to the random dispersion of capital by well arranged management system an economic unit can create profit by limiting costs of risk and saving partly the market risk premium. The risk premium is a benchmark for fair, just prices. An estimated size of the risk premium is 8% of initial capital assuming an average risk level.

 

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Presentation: Oral at 2 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych", Plenary session, by Mieczyslaw Dobija
See On-line Journal of 2 Ogólnopolskie Sympozjum "Fizyka w Ekonomii i Naukach Społecznych"

Submitted: 2006-02-02 11:36
Revised:   2009-06-07 00:44