An economic analogy to thermodynamics

Abstract

We develop analogies between economic systems and thermodynamics, and show how economic quantities can characterize the state of an economic system in equilibrium. We argue that just as a physical system in thermodynamic equilibrium requires a nonmechanical variable (the temperature T) to specify its state, so does an economic system. In addition, both systems must have a corresponding conjugate quantity, the entropy S. We also develop economic analogies to the free energy, Maxwell relations, and the Gibbs–Duhem relationship. Assuming that economic utility can be measured, we develop an operational definition of an economic temperature scale. We also develop an analogy to statistical mechanics, which leads to Gaussian fluctuations.

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