The Science of Economic Growth: Part 1
This is a multi-part post on the science of economic growth. Standard economic theory has failed miserably to define the source of economic growth, which means it is impossible for it to provide rational policies to restore economic growth. This series of posts defines a scientific theory of the source of economic growth.
Since economics is the study of how man meets his needs, the paper will first examine the nature of man. Man is like other life forms in that he is subject to laws of evolution. Evolution is the result of entropy. However, it is not absolute entropy but what is defined herein as biological entropy that controls life forms. The paper starts with an examination of biological entropy.
Every species has unique features that allow it to compete in its evolutionary struggle. Homo Sapiens ’ unique feature is their ability to use their rational mind to alter their environment or invent. If humans did not invent, then the study of economics would be the study of human evolution.
The defining condition of most life is that it exists in the Malthusian Trap, which is the forcing function of evolution. An important question is whether humans can escape the Malthusian Trap. The Malthusian Trap is the result of biological entropy, which implies diminishing returns. Escaping the Malthusian Trap requires humans to overcome diminishing returns. Whether humans can invent their way out of diminishing returns is explored.
The paper shows that the answer to this question is that it depends. If large groups of humans invent quickly enough, then humans can permanently escape the Malthusian Trap. However, it is clear that in a technological stagnant environment, humans will eventually fall back into the Malthusian Trap. This leads to more mainstream economic questions, such as whether inventing is endogenous or exogenous? The paper shows that it is clear that inventing is endogenous. Another more mainstream economic question that is examined is whether dissemination of new technologies is inhibited by property rights in inventions? This question logically leads to the question of whether perfect competition or monopolistic competition encourages economic growth? The paper shows that incentives are not only necessary for the creation of new technologies, but for the dissemination of new technologies and that perfect competition destroys technology creation.
These ideas are then applied to an understanding of the Industrial Revolution, which was the first time that large groups of humans escaped the Malthusian Trap. It is shown that the Industrial Revolution, which was really a constant invention machine, occurred because of specific incentives for ordinary people to invent.
Finally, given the central role of invention to economics the paper examines whether there are any natural laws that apply to inventions. Six natural laws of invention are presented.
How Does Entropy Apply to Life?
Life requires energy to exist because of entropy. Otherwise a living organism could just not expend energy and it would live forever. This setups a struggle between organisms and between species for energy sources, which forms the basis of evolution. According to Peter A. Corning in “Thermoeconomics:
Beyond The Second Law” the idea that evolution and entropy are related has been long recognized. This connection has been espoused by Jean Baptiste de Lamarck, Herbert Spencer, Ludwig Boltzmann, Alfred Lotka, and Erwin Schrödinger, in his book What is Life? However, Corning warns us about confusing energy entropy, information entropy, and physical order. Keeping this in mind, we need to define entropy in a consistent manner. As used herein entropy does not mean information entropy or physical order or strictly energy entropy, which I will call absolute entropy. Entropy means biologic entropy or the ability of an organism or a species to extract useful energy from their surroundings. While this is related to absolute entropy in that it is about extracting useful energy, what matters in biology is the organism’s ability to extract energy from its environment to sustain its life not the absolute amount of useful energy available. For instance, a buffalo (Bison) standing on a vein of coal in an open pit mine is surrounded by useful energy or low absolute entropy. However, the buffalo cannot turn the coal into useful energy for itself and if there is not any grass or sage around, it is an area of high biological entropy for a buffalo. Let’s explore this idea of biological entropy in more detail. When a bison dies it has not reached a point of maximum absolute entropy, its carcass may still provide useful energy for vultures, mountain lions, and people. Despite this, the bison’s biological entropy has reached a maximum, meaning its biological entropy has increased to a level that it no longer is alive.
On an individual organism level I define maximum biological entropy as the point at which the organism dies. Many things can cause the entropy of an individual organism to reach it maximum and organisms use a variety of mechanisms to overcome biological entropy. Plants create useful energy by photosynthesis. They convert carbon dioxide into sugars (energy) using light. They use this energy to reduce their biological entropy. Animals eat plants or other animals and use the energy to reduce their biological entropy. Note that when animals eat plants or other animals, they are increasing the biological entropy of the plants and animals they eat. Thus, there are two general mechanisms that increase the biological entropy of life forms: internal and external. Internal mechanisms are those that result from the failure to consume enough calories (energy) and aging. Animals require oxygen, water, and food, in that order, to survive. Without oxygen, the animal cannot oxidize enough sugar (fat, protein) to survive – overcome biological entropy. Without water, the animal’s cells are unable to absorb energy and expel wastes. Aging is a process of increasing biological entropy. This is caused at least in part by disorder in genetic information. This genetic disorder results in the organism not being able to create enough useful energy to survive or increasing the amount of energy necessary to survive. External mechanisms include being eaten or attacked by other living organisms, diseases, accidents (for animals), and the elements.
In general, living organisms use energy to overcome biological entropy first and then to increase their size. However, some animals also create simple shelters or seek shelter to ward off the biological entropy increasing effects of the elements and predators. Rain, sun, hail, snow, heat, and cold all contribute to the increase in biological entropy of living organisms. Life has two main methods of overcoming the effects of the biological entropy: 1) food (energy) consumption and 2) shelter creation (inhabitation).
A species of life becomes extinct when the species as a whole reaches a certain level of biological entropy either because it cannot consume enough energy or because external mechanisms increase its biological entropy to reach the extinction level. The biological entropy level at which a species becomes extinct is the maximum biological entropy for the species. A species reaches the Malthusian Trap when increases in population of the species results in the total required energy (food) to support the population being greater than the supply of food. Most life forms exist in the Malthusian Trap, most of the time, including humans until the Industrial Revolution.
It is widely known that Malthus’s Essay on the Principles of Population influenced Charles Darwin and shaped his ideas on evolution. Darwin himself recorded in his 1876 autobiography the following:
In October 1838, that is, fifteen months after I had begun my systematic enquiry, I happened to read for amusement ‘Malthus on Population’, and being well prepared to appreciate the struggle for existence which everywhere goes on from long-continued observation of the habits of animals and plants, it at once struck me that under these circumstances favourable variations would tend to be preserved, and unfavourable ones to be destroyed. The results of this would be the formation of a new species. Here, then I had at last got a theory by which to work.
Evolution is then a way of selecting species or variations on species that have low biological entropy and causing those species with high biological entropy to go extinct. The limited amount of food (energy) for each species ensures that evolution is a dynamic ongoing process. The variations are the result of sexual recombination of the parent’s genes and mutations in the organism’s genes. The unique feature of humans is that they alter their environment to fit their needs, they do not just rely on genetic variations that allow them to better adapt to their environment. The way humans do this is by inventing, which will discuss more in the next section.
 Corning, Peter A., Thermoeconomics:
Beyond The Second Law, Journal of Bioeconomics, Journal of Bioeconomics, Vol. 4, No. 1. (1 January 2002), pp. 57-88, p. 58.
 There are few exotic life forms that do not need oxygen, but all require energy to overcome entropy.
 BNET, Physiological Effects of Dehydration: Cure Pain and Prevent Cancer, http://findarticles.com/p/articles/mi_m0ISW/is_2001_August/ai_78177228/, 10/6/10.
 Hayflick, Leonard, Entropy Explains Aging, Genetic Determinism Explains Longevity, and Undefined Terminology Explains Misunderstanding Both, PLoS Genetics, http://www.plosgenetics.org/article/info:doi/10.1371/journal.pgen.0030220, 10/7/10.
 The Autobiography of Charles Darwin, location 680-686, by Charles Darwin (Mar 17, 2006) – Kindle eBook
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