As an analogy with similar terms such as “astrophysics” or “biophysics” to describe
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applications of physics to different fields, econophysics is an interdisciplinary research fields that applies physics methods for solving problems in economics and market behavior. In this research, we used thermodynamics to study properties of complex market behavior of distributed capitalism.
2.1 History of econophysics
In 1870, French-Italian civil engineer Vilfredo Pareto did a dissertation on ‘The Fundamental Principles of Equilibrium in Bodies’, and two decades later, came be believe that people in socioeconomic systems are types of ‘vibrating’ molecules governed by rational mechanics, the study of forces of equilibrium and movement - general equilibrium theory in economics is based on the physical concept
of mechanical equilibrium.
In 1929, Italian engineer and theoretical physicist Ettore Majorana completed his MS in physics under Italian theoretical physicist Enrico Fermi. He wrote his ‘The Value of Statistical Laws in Physics and Social Sciences’, wherein he derives a radioactivity and quantum mechanics based theory of sociology. Majorana based on nuclear decay mechanisms, gleaned the tentative view that social theory is not the result of
deterministic causal mechanism, but rather of indeterminism, a role of the dice so to speak, in the same way that the energy emission of radioactivity is unpredictable. That is, Majorana clearly elaborated the unpredictability of Social Science and treat
statistical mechanism as solution.
The term “econophysics” was coined by the theoretical physicist Eugene Stanley, at the conference Dynamics of Complex Systems held in Calcutta in 1996, to describe the large number of papers written by physicists in the problems of markets.
Econophysics was started in the mid-1990s by several physicists working in the subfield of statistical mechanics. Unsatisfied with the traditional explanations and
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approaches of economists - which usually prioritized simplified approaches for the sake of soluble theoretical models over agreement with empirical data - they applied tools and methods from physics, first to try to match financial data sets, and then to explain more general economic phenomena. Libb Thim (2013) gave an introduction and history of evolution about field of econophysics based ‘econoengineering’ with focus on the nature of economic behavior.
In econophysics, the random use of powerful equations by physicists to construct and attempt solutions on economic problems has recently been dubbed 'toolism'. Most of studies use these powerful equations just to solve specific problems rather to find a theory indispensable to the whole structure that it has to be put in its place.
2.2 Market behavior and thermodynamics
The origin of thermodynamics is in the 19th century when practitioners, engineers and scientists like James Watt (1736–1819), Sadi Carnot (1796–1832), James Prescott Joule (1818–1889), Rudolph Clausius (1822– 1888) and William Thomson (the later Lord Kelvin, 1824–1907) wanted to understand and increase the efficiency at which steam engines perform useful mechanical work. From the very beginning, this endeavor has combined the study of natural systems and the study of engineered systems – created and managed by purposeful human action – in a very peculiar way, which is rather unusual for a traditional natural science such as physics.
Not surprisingly then, the laws of thermodynamics were found by economists to be concepts with considerable implications for economics.For instance, economists like Kenneth Boulding (1966), Robert Ayres and Allen Kneese (1969), and Nicolas Georgescu-Roegen (1971) turned to thermodynamics when they wanted to analyze economy-environment inter-actions in an encompassing way, and analytically root the economy in its biogeophysical basis.
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In a first step, the Materials Balance Principle was formulated based on the
thermodynamic Law of Conservation of Mass (Boulding, 1966; Ayres and Kneese, 1969; Kneese et al., 1972). In view of this principle, all resource inputs that enter a production process eventually become waste. By now, this is an accepted and undisputed piece of resource, environmental and ecological economics.
At the same time, Georgescu-Roegen (1971) developed an elaborate and extensive critique of economics based on the laws of thermodynamics, and in particular the Entropy Law, which he considered to be ‘the most economic of all physical laws’
(Georgescu-Roegen, 1971, p. 280). His contribution initiated a heated debate on the question whether the Entropy Law – and thermodynamics in general – is relevant to economics (Burness et al., 1980; Daly, 1992; Kåberger and Månsson, 2001; Khalil, 1990; Lozada, 1991; 1995; Norgaard, 1986; Townsend, 1992; Williamson, 1993;
Young, 1991; 1994).While Georgescu-Roegen had, among many other points,
formulated an essentially correct insight into the irreversible nature of transformations of energy and matter in economies, his analysis is to some extent flawed by wrongly positing what he calls a ‘Fourth Law of Thermodynamics’ (Ayres, 1999). It may be for this reason that the Second Law and the entropy concept have not yet acquired the same undisputed and foundational status for resource, environmental and ecological economics as have the First Law and the Materials Balance Principle.
But as Georgescu-Roegen’s work and the many studies under his leadship have shown, the Entropy Law, properly applied, yields insights into the irreversible nature of economy-environment interactions that would be not available otherwise
(Baumgärtner et al., 1996). Both the First and the Second Laws of Thermodynamics therefore need to be combined in the study of how natural resources are extracted, used in production, and give rise to emissions and waste, thus leading to integrated models of ecological-economic systems (e.g. Baumgärtner, 2000a, 2003, 2004, 2005;
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Faber et al., 1995; Perrings, 1987; Ruth, 1993, 1999; Annila and Salthe, 2009).
2.3 Distributed capitalism
Zuboff and Maxmin (2002), in their book "The Support Economy", elaborated that firms no longer "create" value; they can only strive to realize the value that already exists in individual space. In this way, distributed capitalism further expands the concept of ownership. In contrast to managerial capitalism, distributed capitalism means that ownership and control are dispersed, shared by individual end consumers.
And, in Zuboff's article (2010) , "Creating value in the age of distributed capitalism" , she further explained the distributed capitalism which encompasses the myriad ways in which production and consumption increasingly depend on distributed assets, distributed information, and distributed social and management systems.
The convergence of Communications and Energy Regimes created industrial revolutions. In the book "The Empathic Civilization", Jeremy Rifkin (2010)
considered the latest phase of communication and energy regimes - that of electronic telecommunications and fossil fuel extraction - as bringing people together on the nation-state level based on democratic capitalism, but at the same time creating global problems, like climate change, pandemics, and nuclear proliferationin. Rifkin predicted that the new global economy will be based upon renewable energy, which is called as distributed capitalism because these energy sources are dispersed rather than centralized. They are best controlled by individuals or small communities. This will entail a very different power structure from fossil fuel, financial capitalism and the new structure is networked and decentralized.
Further described in Rifkin's book (2011) “The Third Industrial Revolution”, a more distributed and collaborative industrial revolution is forming, and leading to a more distributed sharing of the wealth generated. In industry after industry, network-based
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innovations are competing with markets and challenging proprietary business operations.