Econodynamics
Econodynamics is an empirical science that studies emergences, motion and disappearance of value—a specific concept that is used for description of the processes of production and distribution of wealth. Econodynamics is based on the achievements of classical political economy and neo-classical economics and has been building as phenomenological science. Econodynamics is looking for analogies in thermodynamics.
Substitutive work
The law of substitution, which is one of the main principles of econodynamics, states that, while interpreting production of value, one has to account both the workers' efforts in production of things and work of production equipment. This statement generalized the Smith-Marx’s labour theory of value. In contrast to the neoclassical economics, which developed the ideas about productive force of capital and used the value of production equipment K as a characteristic variable, a new concept of substitutive work P was introduced in econodynamics, to characterize the functional role of machinery in production processes. The quantity P serves to characterize substitution for workers’ efforts in production, and this allows dubbed it as substitutive work. One can note it is a property of capital stock K, or service of production equipment. The variable P is true work of production equipment (including animals), which substitutes for workers’ efforts and is equivalent to workers’ efforts in entire relationship, so that the production of value Y can be considered as a function of the two production factors The extension of the labour theory of value with the law of substitution allows us to formulate the theory, which, in fact, is a modification and re-interpretation of neo-classical theory of production with two production factors: labour L and capital K.
The introduction of the substitutive work P could be useful, if one can measure the quantity. Although one can easily find estimates of the total amount of primary energy carriers, the biggest interest for our aims is caused by possible assessments of the quantity of energy going to the substitution of workers' efforts in processes of the production. This is a problem, which has been considered specially. The direct methods of estimation of the substitutive work can be used for both past and future situations. For example, the total amount of substitutive work in the U.S. economy in 1999 can be estimated as 1018 J per year. It is approximately one hundred times less than total (primary) consumption of energy, which was about 97 ⋅ 1018 J in 1999. However, the amount of primary energy (energy carriers), which is needed to provide this amount of substitutive work, is about 25 ⋅ 1018 J. It is about 26% of total primary consumption of energy.
Technical progress
In contrast to neo-classical growth accounting, which measures the technical progress with the exogenous factor A(t), the technological changes are inherently contained in econodynamics. In the form of Cobb-Douglas function, equation (1) is formulated as To describe evolution of the production system, dynamic equations for variables L, P and K are formulated, while characteristics of technology are introduced, so that it came to one of the theories of economic growth—to the technological theory of social production. The set of equations determines three modes of economic development, depending on deficit of one of the factors: investment, labour or substitutive work. The changing of modes during the development reveals as short cycles in growth—the busyness cycles.
Comparison of the theory with neo-classical growth accounting gives the expression for the neo-classical exogenous measure of technical progress The exogenous neo-classical technical progress A(t) appears to be connected with the ratio of substitutive work to stock of capital P/K, which can be considered as a measure of technological progress itself, independent on the assumption made in the neo-classical theory. Sometimes it is convenient to use the non-dimensional ratio of substitutive work to labour efforts P/L as a characteristic of technological progress; this quantity can be interpreted as the number of 'mechanical workers', operating in the production processes, in line with an 'alive worker'. To the end of the last century, this ratio reaches, for example, for the USA 12. Technical progress, as an internal property of the theory, is understood as a progress in substitution of labour with work of production equipment in technological processes.
Value, Utility and Entropy
The artificial products created by humans: buildings, machines, vehicles, sanitation, clothes, home appliances and so on, can be sorted and counted, so that one consider the amounts of quantities in natural units of measurement Q1, Q2, ..., Qn and the prices of all products p1, p2, ..., pn to be given, so that one can define increase in value of a stock of products as
Due to dependence of prices on the amounts of products pi = pi(Q1,Q2,...,Qn), one can hardly expect that form (4) is a total differential of any function. In other words, one cannot say that W is a characteristic of the set of the products which is independent of the history of their creation. However, a function of a state, which is called utility function, can be introduced on the basis of relation (4). Indeed, the linear form (4) can be multiplied by a certain function, which is called integration factor ϕ = ϕ(Q1,Q2,...,Qn), so that, instead of form (4), one has a total differential of a new function
The introduced function U is called utility function (objective), taking into account that the properties of function U coincide with those of the conventional utility function, which is introduced as {subjective} utility function connected with sensation of preference of one aggregate of products as against another.
The above transformation of value to utility reminds us transformation of heat to entropy in thermodynamics. In other terms, analogy between theory of utility and theory of heat was discussed by von Neumann and Morgenstern (see item 3.2.1 of their work).
To create and support products, as far-from-equilibrium objects (the dissipative structures) as it is explained by Prigogine with collaborators the matter and energy fluxes are necessary to run through the system. In our case, energy comes in the form of human efforts L and work of external sources P which can be used by means of the appropriate equipment. Utility U is a close relation to entropy S, though does not coincides with it. Considering that changes of internal energy in production of things can be neglected, one can write a thermodynamic relation Reconciliation of the two points of view on the phenomenon of production leads to a unified picture that enables us to relate some aspects of our observations of economic phenomena to physical principles. A flux of information and work eventually determines new organisation of matter, which acquires forms of different commodities (complexity), whereby the production process is considered as a process of materialisation of information. The cost of materialisation of information is work of production system. To maintain complexity in a thermodynamic system, fluxes of matter and energy must flow through the system.
The absolute measure of value
In the Smith-Marx's theory of value, it is postulated that expenditure of labour is a source of all created wealth (products), an absolute measure of value. When one accounts the effect of substitution of labour with true work of the production equipment, one could expect, that the total amount of work on the production of value, which is the sum of properly accounted work of humans L and work of production equipment (substitutive work) P, both measured in power units, could be an absolute measure of value.
This work fulfils 'useful' changes in our environment (in the form of useful consumer goods and services), which can be estimated by production of value Y(in money units, for year, for example). Knowing work of humans and substitutive work allows one calculating the work needed for creation of wealth worth of one monetary units (energy content of monetary unit) for different countries. The assessments of 'energy content' of monetary unit for the economic systems was done for the United States and Russian Federations. The mean value of 'energy content' of dollar of year 1996 in the last years of the last century (1960 - 2000) is 1.4 × 105 J. The mean value of 'energy content' of Rouble of year 2000 is less: the mean value for the same years (1960 - 2000) is 0.1 × 105 J. The 'energy content' of the Dollar is 14 times bigger that of the Rouble, which corresponds to estimate of purchasing power of dollars in roubles.
The values of the 'energy content' of monetary unit change during the time, but an absolute measure of value appears to be some amount of energy.
There is some other approaches, which estimate 'energy content' of money unit, taking into account the assessments of the total consumption of energy (or exergy) for output, needed for production 'from the very beginning'. Such estimates includes all losses of energy during production. In this case universality is lost: these estimates of 'energy content' depend on efficiency of transformation of energy in processes of production. One can note, that our estimates of 'energy content' of a monetary unit, naturally, appears to be lower of 'the total exergy or emergy content', because substitutive work is a small part of the total of consumed energy.