Mainstream economics today is based to a large extent on bad ideas. Economic concepts, from foundational issues like markets, supply and demand and “free trade”, to money and finance, lack any systematic awareness of the physical process of production or the implications of the Laws of Thermodynamics for those processes. A corollary, almost worthy of being a separate bad idea on its own, is that energy doesn’t matter (much) because the cost share of energy in the economy is so small that it can be ignored e.g. . The so-called “production functions” used by all schools of economic thought that build growth models omit any necessary role for energy, as if output could be produced by labor and capital alone—or as if energy is merely a form of man-made capital that can be produced (as opposed to extracted) by labor and capital.
The essential truth missing from economic education today is that energy is the stuff of the universe, that all matter is also a form of energy, and that the economic system is essentially a system for extracting, processing and transforming energy as resources into energy embodied in products and services. This is a thermodynamic process, as the Rumanian economist Georgescu-Roegen said half a century ago (Georgescu-Roegen 1971). The economic process is subject to both the first law of thermodynamics (conservation of mass/energy; nothing can be created or destroyed) and the second law of thermodynamics (increasing entropy; all transformation processes are irreversible). The “first law” implies that the notion of “consumption” as applied to products is misleading: material transformation processes unavoidably generate large quantities of material wastes or residuals {Ayres, 1969 #284;{Ayres, 1989 #424}. Some of those wastes are merely inconvenient but others are harmful or toxic. The second law says that energy becomes less useful (exergy is destroyed) by every action.