Validity of Thermodynamic Models in Economics

Papers and monographs in ecological economics include references to Georgescu-Roegen's works on the thermodynamic nature of economic scarcity. Based on qualitative reasoning lacking precise definitions of thermodynamic systems and boundary conditions Georgescu-Roegen formulated several conclusions concerning long-term sustainability and suggested "the 4th law of thermodynamics" being an altered version of the classical 2nd law of thermodynamics. Despite an almost unanimous negative perception of the "4th law", Georgescu-Roegen's thermodynamic analogy for scarcity is still widely cited in ecological economics, which may be considered equivalent to implicit acceptance of this contradictory statement.This example demonstrates that care must be taken when using thermodynamic models and concepts outside the context of thermal processes. It is particularly difficult to ensure the validity of the thermodynamic method in softer sciences. Neglect of the difference between the thermodynamic description of thermal processes and a thermodynamic analogy may camouflage the false validity of the analogy. In social sciences, mistaking descriptive thermodynamic analogy for a rigorous model may be harder to spot because softer sciences tend to work with descriptive concepts more often. The resulting notions and quantities, such as the material entropy, must be analyzed critically and, in some cases, redefined based on the careful consideration of their connection with thermodynamics.The example of thermoeconomic optimization shows that incorporation of thermodynamics into economic analysis without redefining basic thermodynamic concepts is more methodologically consistent and transparent