The document critiques economic theory for neglecting environmental impacts and emphasizing equilibrium despite nature's constant disequilibrium. It discusses the laws of thermodynamics and how economic activities lead to the conversion of low entropy resources into high entropy wastes, highlighting the inherent inefficiencies of the current linear economic model. To address these issues, the document advocates for a shift toward a circular economic system that recycles waste and utilizes renewable resources.

1. Georgescue Rogen
Prof. Prabha Panth,
Osmania University

2. Limitations of Economic Theory
 Georgescue-Roegen pointed out some important
defects in Economic Methodology.
 Led to neglect of environmental effects
 Physical Laws have been neglected.
 Therefore, environmental crises that accompany
economic activity are ignored.
 But Natural Resource Depletion and Pollution are
inbuilt with economic activity.
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3. Main Criticism against Economic
Theory:
 Role of the physical system:
Economic system is a sub-set of the environment.
 Concept of Equilibrium:
Economics gives too much importance to
equilibrium conditions.
But in Nature, there is always disequilibrium, for the
natural state is always in disequilibrium.
• Disequilibrium is based on the physical laws of
thermodynamics.
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4. The Laws of Thermodynamics:
1. The First Law of Thermodynamics:
 According to the First Law of Thermodynamics,
Matter and Energy can neither be created nor
destroyed.
 Economic ‘production’ only converts one form of
Matter into another, with the help of Labour.
 All economic goods remain temporarily in use,
before being disposed off as wastes.
 Wastes still exist in the environment, but in a
different form.
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5. Natural resources and capital are not
substitutes, but complementary in
production.
 More production and consumption, more
depletion and more pollution.
 Linear movement of resources.

Natural
resources
Economic
goods
Wastes
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6.  To include environmental factors in
production, the production function
should be depicted as:
Q = f(L, KM, KN)
 Where KM is man-made capital and KN is
natural capital.
 Only then will the role of natural resources
in production be taken into account.
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7. 2. Second Law of Thermodynamics:
The Entropy Law:
 Entropy is a measure of disorder in a
thermodynamic system.
 For example, heat moves by itself from a
hotter to a colder body.
 Energy in a piece of coal is low entropy,
more order, available for use.
 If burnt, the energy and all material in the
coal is spread out, high entropy, not
available for use
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8.  The Entropy Law states, “In a closed system,
the use of matter energy causes a one-way
flow from low entropy resources to high
entropy resources – from order to disorder.”
 If a piece of coal is burnt, the total amount
of energy and material in the coal is
converted into different forms – heat, light,
ash, CO2, CO, SOx and so on.
 All these materials were inside the coal in an
ordered form. Now they are dissipated in a
disordered form.
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9.  When all these were concentrated in the
coal, the energy was available for use –
 it is “bound energy”, and has low entropy or
disorder.
 But once the coal is burnt, all the molecules
are distributed in the environment in
different forms,
 and are unavailable for use.
 This is high entropy or disorder.
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10.  Economic activity therefore converts low
entropy resources into high entropy
resources;
 It converts natural resources into pollution
and wastes.
 Therefore more the production and
consumption, more natural resources will
be converted into pollutants.
 This is a natural part of economic activity,
not due to inefficiency in production or
consumption.
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11.  Georgescue-Roegen points out the
following:
 Total energy cannot be recycled to do
work, since the original components are
lost during use.
 If pollutants have to be recycled, more
energy and resources are needed, creating
more environmental problems.
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12.  Economic activity has converted circular
environmental systems into linear systems, from
natural resources to wastes.
 Pollution and wastes are not due to inefficiency
of production, but inherent in economic activity
due to the laws of thermodynamics.
 The stock of low and available entropy resources
on Earth is limited.
 This is getting converted into unavailable energy
and wastes
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13. Solution:
 He therefore suggests that economic-
environmental activity should be circular.
 At present, the system is linear, from natural
resources to wastes:
 Natural resources
Economic Goods
Wastes
 Instead technology should change, so that it
becomes a circular system,
 Only then can the Earth’s resources be
sustained over time
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14. Equilibrium of Economy and
Convert from
Environment
Natural
Resources
Pollution
Economic
Goods
linear system
to circular
system.
All wastes and
pollution
should be
recycled,
This can be
reused in the
economy
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15.  Change of energy technologies from Non-
renewable resource based to Renewable
resources techniques.
 This will preserve non renewable resources,
 Lower production, so there is lower disorder
and pollution.
 All wastes to be recycled.
 The economic system can then continue
without environmental problems.
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