Capital and Discount Rates in the Context of Thermodynamic Entropy

The risk premium is a part of Efficient Market Theory. The free market yields an adequately large risk premium in order to cover the costs of risk. On the other hand, respecting in practice the adequate risk premium size (wages, prices) makes the market more efficient. Many other fields of research focus on the size of the risk premium in banking or collective bargaining between employers and employees. Risk premium is an important, measurable parameter of the economy. Capital means economic energy and value is a concentration of this energy in objects. This energy has to be measured in order to check that it is maintained and not wasted. Thus, the accounting system of measuring capital and its changes arose from the realities of everyday life and conducting business, not as a result of scientific inquiry. This is one of the reasons why understanding of the concept of capital and money is so difficult. The key to open the door of understanding of capital and value is labour - the transformation of human capital into the value of products. Yet, again, we are unable to describe labour in economics while omitting the understanding developed in physics. Capital means energy - not literally, not in the same way as the energy of the physicist and chemist - but as an analogy of the quot;energyquot; in the world of economy and finance. Human labour is the main source of this energy, which is subject to the general laws of energy flows. Value is a concentration of this analogy of energy in objects. Capital and value are measured in monetary units, and therefore monetary units are the units of energy generated by labour