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Conservation laws, financial entropy and the eurozone crisis

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  • Cockshott, Paul
  • Zachariah, David

Abstract

The article attempts of apply econophysics concepts to the Eurozone crisis. It starts by examining the idea of conservation laws as applied to market economies. It formulates a measure of financial entropy and gives numerical simulations indicating that this tends to rise. We discuss an analogue for free energy released during this process. The concepts of real and symbolic appropriation are introduced as a means to analyse debt and taxation. We then examine the conflict between the conservation laws that apply to commodity exchange with the exponential growth implied by capital accumulation and how these have necessitated a sequence of evolutionary forms for money, and go on to present a simple stochastic model for the formation of rates of interest and a model for the time evolution of the rate of profit. Finally we apply the conservation law model to examining the Euro Crisis and the European Stability pact, arguing that if the laws we hypothesise actually hold, then the goals of the stability pact are unobtainable.

Suggested Citation

  • Cockshott, Paul & Zachariah, David, 2013. "Conservation laws, financial entropy and the eurozone crisis," Economics Discussion Papers 2013-36, Kiel Institute for the World Economy (IfW).
    • Handle: RePEc:zbw:ifwedp:201336
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    References listed on IDEAS

    as
    1. Adrian A. Dragulescu & Victor M. Yakovenko, 2002. "Statistical Mechanics of Money, Income, and Wealth: A Short Survey," Papers cond-mat/0211175, arXiv.org.
    2. Drăgulescu, Adrian & Yakovenko, Victor M., 2001. "Exponential and power-law probability distributions of wealth and income in the United Kingdom and the United States," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 213-221.
    3. Diniz, M. & Mendes, F.M., 2012. "Effects of taxation on money distribution," International Review of Financial Analysis, Elsevier, vol. 23(C), pages 81-85.
    4. Lefteris Tsoulfidis, 2002. "Values, prices of production and market prices: some more evidence from the Greek economy," Cambridge Journal of Economics, Oxford University Press, vol. 26(3), pages 359-369, May.
    5. Adrian Dragulescu & Victor M. Yakovenko, 2000. "Statistical mechanics of money," Papers cond-mat/0001432, arXiv.org, revised Aug 2000.
    6. Wright, Ian, 2005. "The social architecture of capitalism," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 589-620.
    7. Ingham, Geoffrey, 2004. "The nature of money," economic sociology_the european electronic newsletter, Max Planck Institute for the Study of Societies, vol. 5(2), pages 18-28.
    8. Engelbert Stockhammer & Erik Klär, 2011. "Capital accumulation, labour market institutions and unemployment in the medium run," Cambridge Journal of Economics, Oxford University Press, vol. 35(2), pages 437-457.
    9. Petrovic, Pavle, 1987. "The Deviation of Production Prices from Labour Values: Some Methodology and Empirical Evidence," Cambridge Journal of Economics, Oxford University Press, vol. 11(3), pages 197-210, September.
    10. Ian Wright, 2008. "The Emergence of the Law of Value in a Dynamic Simple Commodity Economy," Review of Political Economy, Taylor & Francis Journals, vol. 20(3), pages 367-391.
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    More about this item

    Keywords

    entropy; conservation-law; financial crisis;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises

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