## Economics and Nature’s Laws

## Source details

**Canonical URL:** [Economics and Nature’s Laws](https://www.imf.org/en/publications/fandd/issues/2025/06/book-review-economics-and-natures-laws-vivek-arora)

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## Bibliographic details
- Authors: VIVEK ARORA
- Published: May 20, 2025

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### Overview
- Review of Entropy Economics: The Living Basis of Value and Production by James K. Galbraith and Jing Chen.
- Publication details cited in the review: University of Chicago Press, Chicago, IL, 2025, 248 pp., $35.
- Review author: VIVEK ARORA, deputy director in the IMF’s Middle East and Central Asia Department.
- Review date: June 2025.
- Review framing: presents the book as proposing a radically different approach to economic theory—“entropy economics”—grounded in the laws of thermodynamics and a biophysical view of economic activity.
- Note: “Opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.”

### Key arguments and theoretical claims
- Core thesis: mainstream economic concepts (marginal utility theory of value, market equilibrium, steady state) are set aside in favor of “entropy economics.”
- Entropy economics premise:
  - Economic activities resemble biological and mechanical activities.
  - The laws of thermodynamics are central: energy can never be created or destroyed, only transformed; entropy tends to increase unless regulated.
  - Regulation functions analogously in economics as in mechanical and biological systems: to keep resource flows within a system’s capacity to handle them safely and sustainably.
- No equilibrium in real life: systems, including economies, are constantly changing under physical and biological laws in a world of finite resources.
- Role of technology: technology can improve only the way natural resources are combined; resources are the ultimate constraint on goods and services an economy can produce.
- Structure of advanced systems: advanced societies and systems are costly to set up (high fixed costs) but can run relatively smoothly if established well (low variable costs).

### Implications and applied conclusions drawn in the review
- Institutional and regulatory implications:
  - A stable, effective financial system must be under the jurisdiction of an independent regulator to ensure each element is well managed.
  - The international economic system, built with high fixed costs to run smoothly with low variable costs, would be costly to replace if it broke down.
- Trade implications:
  - Tariffs on products involving one big producer and one big consumer can shift wealth from producing countries to consuming countries and influence the distribution of jobs across borders.
- Energy and technology implications:
  - Skepticism of renewable energy based on natural resource requirements to deploy renewables.
  - Example: electric cars emit no carbon in use, but producing their batteries involves enormous fixed costs, such as pollution and the depletion of natural resources.
- Macro-social projections noted as the book’s conclusions:
  - Human survival and prosperity depend entirely on the availability of natural resources (“low entropy” energy sources).
  - Modern industrial economies make costly and heavy use of resources, contributing to waste, a warming climate, rising seas, and falling human fertility.
  - Given limits on available resources, and mitigation potential of policies and new energy sources only “up to a point,” the future of human society is one of:
    - smaller populations,
    - shorter lifespans,
    - lower fixed costs and higher variable costs,
    - harsher inequalities.

### Strengths, limitations, and readership guidance
- Strengths highlighted:
  - Provocative, biophysical perspective that connects economic dynamics to physical laws.
  - Draws implications across growth, trade, development, finance, pensions, and climate with often startling results.
- Limitations and cautions:
  - Scientific terms are not always defined; meanings must be inferred from the text or found elsewhere.
  - Intellectual framework can be sometimes puzzling.
- Reader recommendation: despite difficulties, readers “should persevere” and will be enriched by the perspective.

*Source: F&D Magazine book review “Economics and Nature’s Laws,” June 2025.*

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_Source: https://www.imf.org/en/publications/fandd/issues/2025/06/book-review-economics-and-natures-laws-vivek-arora_