Monthly Archives: March 2013

Laws Of Conservation In Economics

A useful feature of physical systems is that they obey conservation laws that are useful and important properties of those systems. The conservation of mass and energy is probably the best known of the conservation laws, a unit of mass directly translates into energy and back. It’s elegant but applying conservation laws to economic systems simply does not make sense.

Economic systems are much different from physical systems in a number of key ways and are simply not comparable. What’s part of an economic system at one point is not necessarily at another point. People are constantly joining the labor force and exiting it, populations is decreasing or increasing, capital depreciates and new investment is made, preferences change and money is created out of thin air. Since all of these variables are dynamic and have no definite relationship to each other. This is a trend that is being seen in econophysics unfortunately, and it is wrong.