The Second Law of Economics: Energy, Entropy, and the Origins of Wealth,
It is no easy task to write a book that is targeted at a broad audience and merges essential concepts of thermodynamics, statistical physics, and economics. However, theoretical physicist Reiner Kümmel succeeds in doing just that with The Second Law of Economics: Energy, Entropy, and the Origins of Wealth. The book discusses the impact of two fundamental laws of nature—energy conservation and entropy production—on the creation and growth of wealth. For more than 30 years, Kümmel has been at the forefront of the study of economic thermodynamics, which considers the relationship of the natural sciences to economics—thermodynamics and economics are bridged by the constraints that thermodynamic laws place on natural-resources availability and economics-based environmental preservation.
In the first chapter, the author presents Abel, an observer “beyond space and time.” Like the three spirits in Charles Dickens’s A Christmas Carol, Abel guides the reader through fundamental historical scientific and technological events, beginning with the Big Bang and the evolution of life on Earth and moving to the Industrial Revolution and the rise of the semiconductor industry. He describes the development of agricultural processes, the rise and fall of civilizations, and modern-day challenges of mitigating air pollution and replacing fossil fuels with renewable energy. The chapter is short, and some discussions, such as the one about the conflict between capitalism and communism, are a bit simplistic. In discussing the development of civilizations, Kümmel borrows the approach of the marvelous book by Jared Diamond, Guns, Germs and Steel: The Fates of Human Societies (W. W. Norton, 1999). However, a more nuanced perspective would have been appropriate, since a significant number of historians have contested many aspects of Diamond’s vision.
In chapters 2 and 3, which are comprehensive and well organized, the author addresses the concepts of energy and entropy. How is energy manifested and conserved and what role does it play in creating wealth? And how can entropy production be used to determine the direction of natural processes, including those involved in generating economic goods? Kümmel describes how the balance between exergy (useful work) and anergy (useless work) sets the cost of producing something efficiently; he argues in a clear and simple way that energy conversion is an essential force in wealth creation and a force to be reckoned with in the crafting of economic policy.
In chapter 4, the main thesis of the book emerges: According to Kümmel, the second law of economics states that “energy conversion and entropy production determine the growth of wealth.” That view is in contrast with more traditional ones, including the theory that the importance of energy is proportional to the rather small share of costs in the production process. Kümmel also maintains that production is limited by the availability of energy and that the natural degradation of our environment is driven by increasing entropy. He also acknowledges that such limitations cannot always be compensated by technological progress. He illustrates his thesis by showing how specific models can quantitatively describe real data from different economic indicators, mostly concerning Germany, Japan, and the US. The short epilogue contained in chapter 5 discusses social values and presents philosophical and ethical considerations that could lead to a more sustainable and humane world. It recommends that human societies need to think seriously about the future consequences of their economic practices.
Overall, The Second Law of Economics is accessible and quite enjoyable, in part because of the subtle ironic tone Kümmel uses in some places. He points out that, for an interdisciplinary field like economic thermodynamics, even PhD scientists can make naive observations. He also illustrates the absurdity of real-estate bubbles by describing what value the Japanese emperor’s palace would have had in the 1980s. But for an interdisciplinary book, the glossary is too small. Also, in recent years countries outside the North America-Europe-Japan axis have become important players in the global economy. China is the most notable example, but others include Brazil, India, Indonesia, Russia, and South Africa. In a revised version of the book, Kümmel should apply his conclusions to those countries.
Besides physicists and economists, researchers and policymakers concerned with resource conservation and how a society should be economically organized in the future can benefit from The Second Law of Economics. After all, understanding that law now can help us guarantee the prosperity of future generations.