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Entropy Economics: The Living Basis of Value and Production
Economists dream of equilibrium. It’s time to wake up.
In mainstream economics, markets are ideal if competition is perfect. When supply balances demand, economic maturity is orderly and disturbed only by shocks. These ideas are rooted in doctrines going back thousands of years yet, as James K. Galbraith and Jing Chen show, they contradict the foundations of our scientific understanding of the physical and biological worlds.
Entropy Economics discards the conventions of equilibrium and presents a new basis for thinking about economic issues, one rooted in life processes—an unequal world of unceasing change in which boundaries, plans, and regulations are essential. Galbraith and Chen’s theory of value is based on scarcity, and it accounts for the power of monopoly. Their theory of production covers increasing and decreasing returns, uncertainty, fixed investments over time, and the impact of rising resource costs. Together, their models illuminate key problems such as trade, finance, energy, climate, conflict, and demography.
Entropy Economics is a thrilling framework for understanding the world as it is and will be keenly relevant to the economic challenges of a world threatened with disorder.
In mainstream economics, markets are ideal if competition is perfect. When supply balances demand, economic maturity is orderly and disturbed only by shocks. These ideas are rooted in doctrines going back thousands of years yet, as James K. Galbraith and Jing Chen show, they contradict the foundations of our scientific understanding of the physical and biological worlds.
Entropy Economics discards the conventions of equilibrium and presents a new basis for thinking about economic issues, one rooted in life processes—an unequal world of unceasing change in which boundaries, plans, and regulations are essential. Galbraith and Chen’s theory of value is based on scarcity, and it accounts for the power of monopoly. Their theory of production covers increasing and decreasing returns, uncertainty, fixed investments over time, and the impact of rising resource costs. Together, their models illuminate key problems such as trade, finance, energy, climate, conflict, and demography.
Entropy Economics is a thrilling framework for understanding the world as it is and will be keenly relevant to the economic challenges of a world threatened with disorder.
248 pages, Hardcover
Published January 16, 2025
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193 people want to read
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Displaying 1 - 5 of 5 reviews
January 3, 2025
I am in the middle of trying to pull together some more coherent thoughts on this but I might as well write something.
Galbraith and Chen have worked together for years now and much of this work is based on prior work Chen (and also Galbraith, with Chen) has published in prior works like Physical Foundations of Economics. What is most important in here are the entropy theory of value and the production theory proposed. The former was already fleshed out, the latter is much newer, though building on a similar grafting of the simple firm-level economics of "fixed cost", "variable cost" framing that we are all familiar with.
Chen & Galbraith are building on a small but significant literature on Biophysical Economics that has been around for awhile but has often lacked the analytical formalism that they are proposing in particular with their theories of value & production, these are the most significant -- and that they back them up with some initial examples.
The other important bit about this book, in my view, is that Galbraith is attaching his name here. So far, Biophysical Economics has not had people with already-built reputations within economics really staking their reputation on it. The field was mostly populated with outsider academics from other disciplines and peak oil enthusiasts (the peak oiler's, Charles Hall, and some others were more or less the only people you could find who would talk about things like EROEI/EROI, which they also do in here).
An interesting piece I wish to read more about was their conflict with the Sante Fe/complexity economics school. It seems to me like an interesting vein to mine to clarify some epistemological issues around modeling and assumptions, the role of complexity, and the relationship between complexity and entropy. They are both staking some claim on dissipative systems and so, what gives?
Entropy Economics is part of a lineage that goes back to Ilya Prigogine and his "dissipative systems", and on to touching other thinkers such as Tainter, too (if not explicitly than implicitly). I'm personally excited to see some increased legitimacy of this subfield, but I have some reservations as well. Crucially, in my view, Chen and Galbraith make two major mistakes: (a) they are too quick to attribute too wide an array of phenomena to their theories of value and/or production without providing mechanisms of how exactly they apply, we are simply told "its obvious" when it is not always necessarily the case -- or sometimes hand-waving away extenuating circumstances, and (b) their is a fatalism that is present not only in this work but in much of the Biophysical Economics literature, a message that everything dies, everything runs its course and a complete lack of serious distinction between physical eventualities and avenues for real agency and autopoietic. Where is the line drawn between the possible and impossible, between the purely thermodynamic and the social space of potential? We don't know, Chen and Galbraith devote very little time to exploring this question -- and I would say neither does the rest of the literature -- which is of utmost importance, because it tells us what we can, and maybe what we should do, in the realm of political economy. Seeing is simply not enough.
Biophysical & entropy economics seems to me to be useful, and to have produced some parsimonious models, but it needs to find and clarify it's scope in relation to the social and cultural world.
Galbraith and Chen have worked together for years now and much of this work is based on prior work Chen (and also Galbraith, with Chen) has published in prior works like Physical Foundations of Economics. What is most important in here are the entropy theory of value and the production theory proposed. The former was already fleshed out, the latter is much newer, though building on a similar grafting of the simple firm-level economics of "fixed cost", "variable cost" framing that we are all familiar with.
Chen & Galbraith are building on a small but significant literature on Biophysical Economics that has been around for awhile but has often lacked the analytical formalism that they are proposing in particular with their theories of value & production, these are the most significant -- and that they back them up with some initial examples.
The other important bit about this book, in my view, is that Galbraith is attaching his name here. So far, Biophysical Economics has not had people with already-built reputations within economics really staking their reputation on it. The field was mostly populated with outsider academics from other disciplines and peak oil enthusiasts (the peak oiler's, Charles Hall, and some others were more or less the only people you could find who would talk about things like EROEI/EROI, which they also do in here).
An interesting piece I wish to read more about was their conflict with the Sante Fe/complexity economics school. It seems to me like an interesting vein to mine to clarify some epistemological issues around modeling and assumptions, the role of complexity, and the relationship between complexity and entropy. They are both staking some claim on dissipative systems and so, what gives?
Entropy Economics is part of a lineage that goes back to Ilya Prigogine and his "dissipative systems", and on to touching other thinkers such as Tainter, too (if not explicitly than implicitly). I'm personally excited to see some increased legitimacy of this subfield, but I have some reservations as well. Crucially, in my view, Chen and Galbraith make two major mistakes: (a) they are too quick to attribute too wide an array of phenomena to their theories of value and/or production without providing mechanisms of how exactly they apply, we are simply told "its obvious" when it is not always necessarily the case -- or sometimes hand-waving away extenuating circumstances, and (b) their is a fatalism that is present not only in this work but in much of the Biophysical Economics literature, a message that everything dies, everything runs its course and a complete lack of serious distinction between physical eventualities and avenues for real agency and autopoietic. Where is the line drawn between the possible and impossible, between the purely thermodynamic and the social space of potential? We don't know, Chen and Galbraith devote very little time to exploring this question -- and I would say neither does the rest of the literature -- which is of utmost importance, because it tells us what we can, and maybe what we should do, in the realm of political economy. Seeing is simply not enough.
Biophysical & entropy economics seems to me to be useful, and to have produced some parsimonious models, but it needs to find and clarify it's scope in relation to the social and cultural world.
December 15, 2025
Read this because I was looking for something which addresses the problem of the labour theory of value in accounting for low-labour-high-value commodities like oil, and the entropy theory of value definitely solves that. Idk if I agree with it completely yet. Also I’ll say if u wanna understand the theory u can probs just read Jin Cheng’s article about it. Way shorter. Read that bad boy then go get drunk. #tgif.
May 24, 2025
I reccomend my short review to your attention:
https://papers.ssrn.com/sol3/papers.c...
https://papers.ssrn.com/sol3/papers.c...
March 27, 2025
Entropy Economics by Galbraith and Chen is a refreshing offering of alternative ideas to traditional economic theories. The book covers logical and mathematical problems with longstanding traditional economic theories such as the utility theory of value and the Douglass-Cobb production function. The book criticizes the assumptions, abstractions and descriptive ability of both economic theories. The book then proposes new approaches to these issues.
A scarcity theory of value is proposed where the value is determined by two parameters: the number of producers in an industry and scarcity level.
They also propose a biophysical approach to production and evolution whereby a Black-Scholes like equation is employed. The equation is simply a forward facing version of the Black-Scholes equation which consequently represents a thermodynamic process. The biophysical production theory considers many parameters such as fixed costs, variable costs, discount rate, uncertainty, duration and output.
The book gives many examples and simulations to show how changes in parameters alter the outputs of the formulas.
My only criticism would be that when the book discusses the Arrow Debreu equilibrium model they question the first theorem (proof) however they do not mention the second theorem (proof). Although they both are unrealistic I believe the book would have benefited from considering both.
A scarcity theory of value is proposed where the value is determined by two parameters: the number of producers in an industry and scarcity level.
They also propose a biophysical approach to production and evolution whereby a Black-Scholes like equation is employed. The equation is simply a forward facing version of the Black-Scholes equation which consequently represents a thermodynamic process. The biophysical production theory considers many parameters such as fixed costs, variable costs, discount rate, uncertainty, duration and output.
The book gives many examples and simulations to show how changes in parameters alter the outputs of the formulas.
My only criticism would be that when the book discusses the Arrow Debreu equilibrium model they question the first theorem (proof) however they do not mention the second theorem (proof). Although they both are unrealistic I believe the book would have benefited from considering both.
September 3, 2025
refreshing view of economics. Ideas work well with naturalistic intuition
Displaying 1 - 5 of 5 reviews