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MiS Preprint
76/2006

The thermodynamical approach to market

Dimitry A. Leites and Victor Sergeev

Abstract

The book gives an explanation of several intriguing phenomena, providing new insights and answers to some deeply vexing questions.

Why the economic "shock therapy" implemented in Eastern Europe was doomed to a failure whereas the approach adopted by China and Vietnam should inevitably lead to economic growth (damped, perhaps, by corruption and inconsistencies)?

Why some restrictions imposed on markets are dangerous? Politicians (and laymen) usually believe that the more restrictions you impose on the society, the easier it is to govern. The reality seems to be more subtle. Some restrictions are necessary for the markets to function. However, restrictions on salary, for example, seem to always result in unemployment, as a simple "spin" model shows. Evidently, optimizing freedom is an equilibrium problem, and none of the extrema is devoid of danger.

Why should crooked dealings be prevented? While honesty has a price, the the dishonest market collapses. What is a reasonable rate of taxation, if any such exists? Other questions abound, raising many points of interest.

Appendices contain an essay which informally can be entitled "Why mathematics and physics major should study economics" and a deep mathematical paper summarizing a century long study of nonholonomic systems (such as ideal gas or market economy) in the quest for an analog of the curvature tensor in nonholonomic setting.

Received:
Aug 22, 2006
Published:
Aug 22, 2006
MSC Codes:
82B30, 91D10
Keywords:
thermodynamics, market equilibrium, econophysics

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Preprint
2006 Repository Open Access
Victor M. Sergeev and D. A. Leites

The thermodynamical approach to market