What Kind of Sustainability for the Economy? Entropy and Financial System

Savvas Zachariadis () and Georgios Makris
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Savvas Zachariadis: University of Macedonia
Georgios Makris: University of Macedonia

A chapter in Building Resilience Through Digital Transformation and Sustainable Innovation, 2025, pp 181-204 from Springer

Abstract: Abstract The contemporary growth pattern is related to the desired term of sustainability. The latter could be broadly defined as the simultaneous achievement of GDP growth, social cohesion, and environmental protection. In practice, nevertheless, the above sustainability constitutes an important challenge or even utopic. The targets are often contradictory, or one cannot assure the other’s pursuance. Certain fundamental drawbacks have impeded the progress in economics. An eloquent example is the disinclination to acknowledge the boundaries of economic activity. Traditional theories pay little attention on stylized facts on economic growth and environment in terms of available energy. The perpetual exponential economic growth conflicts with the restraints on energy limitations. These have been established by the two physical laws of Thermodynamics. The First Law of Thermodynamic states that total energy is preserved. Economics is a social science in compliance with physical laws. This implies that excessive use of resources may lead to stagnation or even degrowth. The above view introduces no novelty since the roots could be traced with the Second Law of Thermodynamics, or the entropy law. It refers to finite natural resources, whenever organized systems are progressively moving towards the disorder state and simultaneously are transforming their free energy to bound energy. The generalized principle of entropy is applicable to natural systems but also to economic systems. Many models accentuated growth perpetuity, but stagnation, recessions, and crises comprise frequent phenomena at the international economy. This immanent direction of the economy is not easily detectable but moves imperceptibly to growing entropy. Consequences become evident at later stage when natural restoration is unfeasible and economic recovery too costly. This paper brings together the entropic challenges with sustainability. It reports the historical development of the entropy concept linking it with the contemporary sustainability challenges. By entropy is not only ascribed the natural resources scarcity but also any kind of excessive use, practice, or policy with eventual potential threats for stagnation. A representative example is witnessed in the function of financial system, where more emphasis is given. The financial sector in its broadest sense has increasingly infiltrated into the functioning of real economy systems. Therefore, it is difficult to establish a separation among them, as the financial system affects the way economic systems produce and manage natural resources. Entropy law operates ineluctably as for the matter transformation, but for economic systems there are margins to resist against entropy by their own means, linking their readiness to this scope. Thus, the restructuration towards sustainability encompasses a sound update of various interacting factors, processes, behaviours, and perceptions which altogether form the economic system. The actual question is whether there could be real hope for sustainability and in what terms. The financial system could be endogenously directed to the emergence of new structural socio-economic conditions ensuring the necessary investments that would allow sustainability.

Keywords: Sustainability; Entropy; Resources; Energy; Financial sector; G01; B26; Q01 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-031-90054-9_12

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DOI: 10.1007/978-3-031-90054-9_12

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