## Entropy Economics — The Living Basis of Value and Production

## Source details

**Canonical URL:** [Entropy Economics — The Living Basis of Value and Production](https://www.imf.org/-/media/files/publications/fandd/article/2025/06/books-arora.pdf)

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### Summary
- The book proposes a radically different approach to mainstream economics called "entropy economics."
- It frames economic activity through a biophysical lens grounded in the laws of thermodynamics: energy cannot be created or destroyed, only transformed, and entropy (degree of disorder or scarcity) tends to increase unless regulated.
- The authors argue there is no real-world equilibrium; economies are constantly changing under physical and biological constraints and rely on finite but indispensable natural resources.
- Technology improves only the way natural resources are combined; resources remain the ultimate constraint on production.

### Key premises and arguments
- Economies resemble biological and mechanical systems: they become unstable as they expand and become more complex and require regulation to survive.
- Regulation performs in economics the same function it does in mechanical and biological systems: keeping resource flows within a system’s capacity to handle them safely and sustainably.
- Advanced societies and systems are costly to set up (in economists’ terms: high fixed costs) but can run relatively smoothly once established (low variable costs).
- The international economic system, as an example, may embody high fixed costs and low variable costs, implying it would be costly to replace if it broke down.

### Implications and conclusions
- Human survival and prosperity depend entirely on the availability of natural resources ("low entropy" energy sources).
- Modern industrial economies’ heavy and costly use of resources contributes to waste, a warming climate, rising seas, and falling human fertility.
- Given limits on available resources—and the limited mitigation possible through policies and new energy sources—the authors foresee a future characterized by:
  - smaller populations,
  - shorter lifespans,
  - lower fixed costs and higher variable costs,
  - harsher inequalities.

### Coverage of topical areas
- The book draws out implications of the entropy framework for:
  - growth,
  - trade,
  - development,
  - finance,
  - pensions,
  - climate.

### Critique and reading guidance
- The book is provocative but sometimes unfamiliar and challenging for readers:
  - Scientific terms are not always defined; meanings often must be inferred or found elsewhere.
  - The intellectual framework is at times puzzling.
- Despite these difficulties, the reviewer recommends perseverance, noting readers will be enriched by the perspective.

### Publication details
- Authors: James K. Galbraith and Jing Chen (University of Texas at Austin; University of Northern British Columbia).
- Publication: University of Chicago Press, Chicago, IL, 2025.
- Format and price: 248 pp., $35.
- Review context: JUNE 2025, F&D.

*Review by Vivek Arora, deputy director in the IMF’s Middle East and Central Asia Department.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/06/books-arora.pdf_