One of the more depressing moments of the 2024 election, for me, was the Walz-Vance VP debate. Walz was defending expertise and experts generally—not only scientists but also economists and “national security folks”—against Trump’s authoritarian megolamania. Vance replied by skillfully turning to the utterly disastrous free trade deals and their “expert” stamps of approval:

TIM WALZ: Look, if you’re gong to be President, you don’t have all the answers. Donald Trump believes he does. My pro tip of the day is this, if you need heart surgery, listen to the people at the May Clinic in Rochester, Minnesota, not Donald Trump…

NORAH O’DONNELL: You have a minute.

JD VANCE: Governor, you say trust the experts, but those same experts for 40 years said that if we shipped our manufacturing base off to China, we’d get cheaper goods. They lied about that. They said if we shipped our industrial base off to other countries, to Mexico and elsewhere, it would make the middle class stronger. They were wrong about that…And for the first time in a generation, Donald Trump had the wisdom and the courage to say to that bipartisan consensus, we’re not doing it anymore.1

If your livelihood, or your entire town, had been devastated by “free trade” deals then you may have heard Vance say just two things: “they lied” and “we’re not doing it anymore.” Walz’s appeal to economic expertise became a self-defeating appeal to the status quo and the dogma of the powers that be.2

Much could be said of this exchange. My interest for now is the bind that Walz put himself in with his “trust the experts” line thanks especially to the discipline of economics. The “experts” were wrong but they very effectively served corporate interests, and since then they have offered working people no reason to trust them.

But a number of economists have never accepted the orthodox methods and theories. Some did take the side of labor unions and the left who opposed free trade deals like NAFTA. The argument has always been that corporations pursue these trade deals in order to beat down labor’s share of income and to break the unions.

James Galbraith is among those critical voices in economics, and as a leading heterodox economics he certainly understands the importance of transforming his discipline (see his recent INET commentary). That is one reason why his latest book, co-authored with mathematician-economist Jing Chen, is so important.

Life out of equilibrium

Galbraith and Chen’s Entropy Economics: The Living Basis of Value and Production sets out to displace mainstream economics. Mainstream economics, as Galbraith and Chen seem never to tire of repeating, is out of step with reality and actually functions more like ideology than science. Their goal is to develop an economic theory that is consistent with fundamental life principles, including basic physics and biology.

The concept of equilibrium “forms the foundation of the established economic theories” (1). Equilibrium is where supply meets demand—as represented by a deceptively simple graph as the point at which one line, which represents supply, crosses a second line, which represents demand. Equilibrium implies a state of balance between supply and demand.

The problem?

In economic theory, the free-market, perfectly competitive equilibrium is the optimal state. In thermodynamics, a system reaches equilibrium at the maximum entropy state, which is death. In economic theory, nonequilibrium (and imperfect-market equilibrium) is away from the optimal state. In thermodynamics, a system is alive only when the system is in a nonequilibrium state. (4)

The implication is that “standard economic theory is not compatible with the physical theory of life” (4). The ideological component of orthodox theory is that it portrays market outcomes as “optimal” while pro-social policies appear from the start as “distortions.”

The book is obviously ambitious. The argument seems to lean heavily on Jing Chen’s work on the thermodynamics of social life, which he has developed in publications over the previous two decades (see here and here for summaries of his work). Entropy Economics, like Chen’s earlier work, rests on the most abstract properties of systems: to grow and reproduce, energy intake has to exceed energy expenditure, and all organisms have evolved ways to achieve this end (see Chen’s 2015 book Unity of Science and Economics).

One might expect Galbraith and Chen to present a theory of capitalism that does not contradict basic principles of physics or biology. But what they do is present a set of very abstract properties of systems—physical, biological, social. They continually move back and forth between these very different topics, looking for meaningful analogies that can guide one’s understanding of various societal questions (international trade policy, electoral politics, etc.).

Their examples are usually valuable and quite interesting, and the book ultimately engages with some challenging ideas (of interest to a more narrow audience). The inherent shortcoming of this work is that the profound differences between economic systems are not adequately treated, if at all. In the end, there is a serious and unacknowledged tension between their goal of challenging orthodox economics as a governing ideology and their method of treating economics at the highest level of abstraction.

Economic orthodoxy

Galbraith and Chen begin their engagement with mainstream economics by discussing a landmark, 1954 paper by Arrow and Debreu. The paper is said to provide a proof of the existence of general equilibrium. It’s titled “Existence of an equilibrium for a competitive economy.” Hold your excitement—by “existence,” what the economists mean is that a system of equations can be constructed so as to have a certain kind of formal solution (for which supply meets demand and all markets clear, symbolically). One just has to be willing to make the right “assumptions.”

The Arrow-Debreu paper presents the set of assumptions that are needed for an equilibrium solution to exist. Two of their assumptions are presented as key theorems. Their first assumption or “theorem” is that everyone taking part in this economy is supplied with a bit of everything.3 By everything they mean any and every thing that could be sold: “a positive amount of every commodity” (279).

As Galbraith and Chen write,

In effect, the Arrow-Debreu model indicates that equilibrium only occurs in a system in which no one needs to do anything. Production and consumption play no role in the existence of an equilibrium…[it] has nothing to do with market competition or profit maximization. It is present from the beginning. (11)

The assumptions were chosen precisely because they were able to provide the desired result. For the non-economist especially, this can hardly inspire confidence.

Just for fun, here’s another assumption given by Arrow and Debreu. This one proclaims that there is no scarcity, instead, there is an abundance of everything:

[Assumption] V asserts that it is possible to arrange the economic system by choice of production and consumption vectors so that an excess supply of all commodities can be achieved. (Arrow and Debreu 280, emphasis added)

So not only shall everyone own some of everything,4 but also there shall never be scarcity. I would like to add that there shall be no hardship suffering either!

No one is seriously entertaining the possibility that these “assumptions” may be true. They are just falsehoods that where were introduced to obtain the desired conclusion.

The economics of biology

Galbraith and Chen’s use of the concept of “fixed investment” provides a nice entryway to their own way of thinking about economic systems. Or rather, it shows that they have an economic way of to thinking about systems.

A simple organism is easier to maintain than one that is large and complex, but the larger organism may be more stable and exhibit a longer life span. Stability and longevity require complex regulatory mechanisms and these use energy; that energy use is a “fixed cost” of the system.

A downside of making large fixed investments (e.g., in a powerful muscular and skeletal system) is that the system is more vulnerable to changes of circumstance. Viruses evolve far more quickly than mammals. Likewise, human beings per se may survive a changing climate but our current global economic systems are another matter. The relative rigidity of global food systems render society dependent on our familiar climate. The economic system, with its many regional production complexes that evolved over decades and centuries, is liable to collapse as the climate changes (a point the authors expand upon somewhat in their concluding chapter).

From these fragments, one can start to piece together Galbraith and Chen’s political viewpoint. Many of the social conditions enjoyed by the rich countries of the world require high fixed costs. To have an educated populace capable of filling many technical roles in the production system requires a fixed investment in a public education system. Or on inequality: a high level of inequality is destabilizing. The level of inequality is a basic property of any economic system. One should prefer, rationally, to regulate the level of inequality to maintain systemic stability and to suppress parasitic activity (as Galbraith has written of elsewhere, such as his 2008 book The Predator State).

After dealing with the Arrow-Debreu model, Chapter 1, “Economics without equilibrium,” reviews some prevailing ideas from systems theory. These are among the ideas that mainstream economics is using to account for some of the obvious deficiencies of general equilibrium models. For one, Galbraith and Chen take on the Santa Fe School of economists and scientists who seek to join some tenets from mainstream economics to ideas about physical systems. One of those concepts is that of a complex structure (and fractals), such as the way a large mineral crystal—often beautiful for their striking patterns and other visual properties—can emerge from basic chemical structures under certain environmental conditions.

The Sante Fe school proceeds as follows:

There is an underlying observation: complex structures exist, which would not arise under the assumption of a perfectly competitive market. The questions then become, How did they arise? What properties do they exhibit? (Galbraith and Chen, 17-18)

Santa Fe researchers use simple models (statistical models and cellular automata) to show how complex structures could possibly arise “from free association” (17), as in the mainstream theory of markets. They call the emergence of complex patterns from the interaction of simple elements “self-organization.” Galbraith and Chen respond:

But living organisms do not grow from the interaction of freely associating, self-organizing atoms, molecules, or cells. Living organisms grow according to plans. They first make an appropriate choice of fixed investment—they choose materials they can work with, and then they assemble those materials according to blueprints that have been well tested over time. These blueprints are encoded in genes…Maintaining the balance between structures and inputs is the task of living. When it breaks down, life ends. (18)

Here we how see the authors are developing their own economic perspective on biology and life processes. As usual, they transfer their biological lessons back to society:

Human societies follow the same principle. They develop, over time, a system of laws, regulations, and institutions, which transcend the life spans of any individual in the social system.

Their argument here is typical of the book in various respects. It exemplifies the kind of insights the book offers, the biting criticisms of orthodox economic thought, and the somewhat wide ranging background research that seems to have gone into the arguments. The example also has a certain lack of concreteness that is surprisingly sustained throughout the book.

Entropy economics

The core of their proposal for “entropy economics” is a theory of value. Why are some goods more valuable than others? Just where does their value come from? More concretely, why did my bread cost twice the price of a dozen eggs? Or, why did my loaf of bread cost as much as half of my hourly wage?

Galbraith and Chen have an entropy theory of value. In keeping with the theme of the book, they relate the value of goods to the most fundamental life processes.

Entropy is a slippery concept.5 It also has a simple mathematical formalism. These qualities together make it tempting to apply to all sorts of subject matters.

To start, you might describe entropy as the degree of disorder in a system. An ordered system exhibits patterns. Imagine you release smoke from a candle into a glass container. As the smoke first rises into the glass, the smoke forms a line, maybe with some slight curvature—that is a highly ordered arrangement of molecules. You close the container and the smoke dissipates throughout the glass. You can no longer see a pattern apart from the nearly uniform presence of smoke throughout the container. That is a classic example of how things move from order to disorder; from a low-entropy state to a higher-entropy state; from imbalance to equilibrium.

Thermodynamics teaches that systems tend towards higher-entropy states, and that order tends to break down absent some forceful intervention (which can provide a temporary fix at best). Like trying to contain smoke just by cupping it with your hands, the energy in any system will tend to dissipate. One has to work to maintain any kind of order, including the life of any biological organism.

This insight leads Galbraith and Chen towards an energy-centric perspective on life and systems. They want you to pause and see everything around you either as energy that is flowing or else energy that is temporarily captured and stored as a physical object (wood, paper, wheat, meat, oil, batteries, etc.).

A common way of thinking about energy (thermodynamics), they say, is to concentrate on the end-state of equilibrium or maximum entropy (such as after the smoke line has dissipated throughout the container). But they want us to think much less of the end-state so we can concentrate on the process of life. The physics of life can sound a bit Buddhist because it is all about tapping into the flow of energy:

The second law [of thermodynamics] is often understood from an equilibrium perspective, where maximum entropy is a state of equilibrium. This view renders entropy as an image of waste and death. However, from the nonequilibrium perspective, the entropy flow—manifested in heat flow, light flow, electricity flow, water flow, and many other forms—is the fountain of life. Every organism needs to obtain resources for survival. (64)

With their attention trained on energy and resources, entropy serves as their abstract measure of energy concentration:

Since, for survival, all living organisms need to tap into the entropy flow, entropy is a natural measure of value for living systems, including human beings. (64)

A high-quality energy source is one that contains a high concentration of energy. A highly concentrated form of energy is a “low-entropy resource,” the kind of thing that requires a great deal of effort to produce (whether it be a biological, geological, or human process of production). Such resources are “scarce.”

But after all of this consideration for the physics of life processes, what Galbraith and Chen actually present is a theory of market exchange value that hinges on scarcity. The entropy theory of value is really a scarcity theory of value, which is nothing new (as they gladly acknowledge and discuss). It means that sellers in a market can charge more for scarce goods than for goods that are more abundantly available. What they contribute is to codify this idea using the mathematical formula for entropy.

They start with a simple entropy-based formula for value and then expand on it to show that you can plug-in values for a variety of variables to consider an array of factors (like fixed and variable costs, revenue, and uncertainty), yielding results that look sensible. I will skip those details and move on to some general thoughts on the book.

Capitalism and human labor

Entropy Economics has much to say about markets and “returns” on investments (e.g., the energy returns enjoyed by a growing biological organism) but rarely (ever?) do the authors distinguish substantively between “returns” in capitalism (profit) and physical returns (energy). The two are not the same at all. A production facility can be non-viable as capital and also perfectly productive as a physical system. Factories often shut down, becoming nearly worthless scrap yards, despite the productive capacity of the plant and its workers. Entire regional production complexes have met this fate.

My feelings on this aspect of the book are twofold. For one, it is quite bold that the book offers a treatment of economic principles that is not limited to the capitalist economy. The principles they discuss are supposed to be helpful to anyone thinking about economic planning, whether that be a capitalist firm or a household or a public entity. “A good theory,” they say, “should give results that most businesses and households can understand and find intuitively clear” (159). We desperately need economic principles and theories that are not constrained by market-worshiping dogma. Galbraith and Chen bring this home by concluding with a discussion of climate change, demography, and their rather dismal perspective on the prospects of a serious renewable energy transition.

However, Entropy Economics jumps so quickly from biology to capitalist investment that the differences between them are never really discussed.6 The “value” of energy to an organism, the “value” of a stable livelihood to a person, and the expected “value” of an investment to a capitalist are all rather different kinds of value. When a physically very productive factory, which also provides good jobs, is shut down by investors because the expected profits are no longer attractive, these various kinds of “value” stand in direct conflict with one another.

Others have drawn from physics while also giving capitalism a sturdy treatment. Classical Econophysics (2009) shows how the concept of entropy can help us understand production and value. As they note, sources of energy come and go — horses have virtually disappeared from the production process since their replacement by modern energy sources, for example — but the number of human beings in production has only increased with every technological revolution. Why is that? Because it takes not just “structure” or “work” in the abstract but purposeful, conscious labor to counter the tendency of physical systems to break down or change direction. Without human labor, many things can be and are produced, but without human labor production won’t yield the products that we envision.

Laws of Chaos (1983) by Emmanuel Farjoun and Moshé Machover also comes to mind as an important precedent for both econophysics and Galbraith and Chen’s non-equilibrium economics. Farjoun and Machover argue that capitalism could never reach a stable equilibrium. It is precisely the inequality of actual and expected profits rates across economic sectors — the entropy gradient, as Galbraith and Chen would call it — that drives new investments. Even if an equilibrium state were somehow obtained, it would quickly be disrupted by the search for new, more profitable lines of investment. (The best business strategy, from that business’s own point of view, will disrupt the foundation of current market conditions and ruin or antiquate competing investments.)

This constant movement of capital across economic sectors should, as Adam Smith and Karl Marx argued, cause profit rates to balance out on average. But the average is not a destination that one can reach someday (as if you might encounter “the average man” out on the street). The average rate of profit is more like an emergent (and moving) center of gravity around which there is constant, chaotic fluctuation. To speak of markets in this way, however, requires a theory of capitalism as a system with its own “laws of chaos.” (These points are all expanded upon further in Anwar Shaikh’s magnum opus, Capitalism. I touched on Shaikh’s theory of “real competition” in a post on realism.)

As much as I really enjoyed reading Entropy Economics and appreciate their perspective, I wish they would have more clearly distinguished between “systems” in general and the properties of the particular system of global capitalism that happens to govern the production and distribution of goods today.

References

Arrow, K. J. & G. Debreu (1954). Existence of an Equilibrium for a Competitive Economy. Econometrica 22(3): 265—290.

Cockshott, W. P., A. Cottrell, G. J. Michaelson, I. P. Wright, & Y. M. Yakovenko (2009). Classical Econophysics. Routledge.

Farjoun, E. & M. Machover (1983). Laws of Chaos: A Probabilistic Approach to Political Economy. Verso.

Farjoun, E. M. Machover, & D. Zachariah (2022). How Labor Powers the Global Economy: A Labor Theory of Capitalism. Springer.

Galbraith, J. & Chen, J. (2025). Entropy Economics: The Living Basis of Value in Production. University of Chicago Press.

Shaikh, A. (2016). Capitalism: Competition, Conflict, Crises. Oxford University Press.

Notes

  1. Walz responded that he agrees with Trump’s critique of the free trade deals and then charged Trump with creating “the largest trade deficit in history.” But no one could possibly confuse his running mate for a labor candidate. His performance in the debate was nothing like the fiery speech I heard him deliver to an audience of union members shortly before the debate. ↩

  2. As Arrow and Debreu put it: “every individual could consume out of his initial stock in some feasible way and still have a positive amount of each commodity available for trading in the market” (270). ↩

  3. Arrow and Debreu present an alternative to the theorem that Galbraith and Chen critique here. The alternative is supposedly more plausible but amounts to the assumption of full employment, which is quite similar to assuming equilibrium. It is surely not a feature of our reality. ↩

  4. The concept of entropy is part of thermodynamics, information theory, and probability theory. Quanta Magazine has some great writing on the evolution of the concept of entropy and conveys how difficult, or completely impossible, it is to separate entropy or probability from the perspective one has or from the information one has. ↩

  5. Galbraith and Chen are very much flirting with an explicitly reductionist standpoint, the belief that society can be understood by examining the molecules that people are composed of. Consider the following passage: “The chemical properties and biological functions of DNA and RNA show that fixed cost, uncertainty, and duration are intimately correlated in biological systems. They also show that economic properties of living systems, including human societies, are ultimately derived from physical and chemical properties of molecules” (140, emphasis added). In their view, institutions and social arrangements are able to moderate or regulate social systems, but my impression from the text of the book is that institutions only do moderate or regulate what are naturally-derived laws. Their energy-based account of the crises of capitalism likewise contains a strong dose of environmental-determinism. ↩