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The Nature of Capital: Understanding Energy, Thermodynamics, and Uncertainty in the Economy

This research explores the concept of capital and its connection with energy, thermodynamics, and uncertainty in the economy. It delves into the laws of thermodynamics and their manifestation in economic systems, as well as the nature of risk and the role of the risk premium in investments. Additionally, it discusses the sources of income and the cost of labor, highlighting the relationship between labor and money units. This study provides insights into the dynamics and equilibrium of capital in a profit-creating system.

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The Nature of Capital: Understanding Energy, Thermodynamics, and Uncertainty in the Economy

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  1. THE NATURE OF CAPITAL Mieczysław Dobija http://ssrn.com/author=518110 Cracow University of Economics

  2. What is capital? „When economists reach agreement on the theory of capital, they will shortly reach agreement on everything. Happily, for those who enjoy a diversity of views and beliefs, there is very little danger of this outcome. Indeed, there is at present not even agreement as to what the subject is about…”Ch. Bliss [1975]

  3. What is capital? Outstanding and astute research has been carried out by P. Mirowski [More Heat than Light. Economics as Social Physics: Physics as Nature’s Economics, 1989] on the appearance of energetics metaphors and concepts in the economic thought.Much on the subject has been said but the idea of capital still remains tangled, unsolved and not clear.

  4. What is capital? Capital is an ability of doing work.ENERGY is the ability to perform labour.Value is concentration of capital in objects.

  5. What is capital? Since capital can be discerned as ENERGY, it has to fulfill the LAWS OF ENERGY. 1st Law of Thermodynamics:„energy neither arise from nothing, nor disappears” 2nd Law of Thermodynamics:„energy spontaneously disperses and does not keep its concentration forever”

  6. How does Thermodynamics manifest itself in economy? 1st Law of Thermodynamics in economy:„it is the source of Duality Principle and Debit – Credit Rule” 2nd Law of Thermodynamics in economy:„capital tends to disperse if not restrained;concentration of energy does not maintain its value in time”

  7. How does Thermodynamics manifest itself in economy? 2nd Law of Thermodynamics in economy reveals itself as Uncertainty2nd Law is also arrow of time. This is also the fundamentals for understandig the nature of percent and profits. RISK versus Uncertainty

  8. Towards model of capital The result of diffusion of initial capital: Ct = C0· e – s · t s = coefficient of dispersion But who would like to invest if his/her initial capital would deteriorate ???

  9. CAPITAL EQUILIBRIUM PRINCIPLE EFFECTIVE MARKET = the market which grants each investor an adequate risk premium. Ct = C0· e E (s) · t

  10. Whatisthesource of theriskpremium? It is Nature; the Earth and the Sunshine Economic constant of potential growth p = E(s) = 0.08 [1/year] (8%)

  11. Model of CAPITAL in DYNAMIC EQUILIBRIUM Ct = C0·e [ E (s) – s ] · t Through labour and good management, one can change that dynamic equilibrium in a profit creating system. Ct = C0·e [ p – s + M ] · t

  12. Nature of Income • Periodic income is determined by the formula, that describes some essential sources of income: • Income = ΔC = C1 - C0 = C0 (p – s + M) • Thus, the sources of income are the initial capital working by year in form of business activities, the destructive processes hidden in Nature, free market, constant p, and clever management.

  13. What is labour? Labour is always a transfer Labour is the transfer of HUMAN CAPITAL into products. Labour is therefore the expense of personal human capital.

  14. Labour in physics

  15. Labour in economy Labour = Power x time3 kWh = 300Watt x 10 hoursLabour in physics means cost of labour in economyCost of labour = productivity coefficient · time of labour · social usefulness coefficient What is labour unit? What is money unit?

  16. Let us say: An employee has worked for 200 hours. His pay is $3 000 per monthThe pay of CEO is $5 000. Thus wpc = 3/5.What is his cost of labour? Cost of labour = productivity coefficient · time of labour · social usefulness coefficient Cost of labour = 3/5 · 200 hrs · 1 Cost of labour = 120 labour units $ 3 000 = 120 labour unitsConlusion:Labour unit is money unit

  17. Wage payables Wage receivables Wage payoff Wage payable 6/8 * 10h = 7.5 l.u. Wage receivable 6/8 * 10h = 7.5 l. u. 6/8 * 10h = 7.5 l.u. 3.5 l.u. Products 6/8 * 10h = 7.5 l.u. 3.5 l.u. Labour costs l.u.=wp*h Three Account Model of Monetary Economy

  18. The risk premium is an economic constant • What is a constant in sciences? • The risk premium is the constant • We do not need to predict it • It does not change in time • Economic policy criterion • The risk premium in human capital consideration • The risk premium and fair compensations

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