I think I’m on to something here…

Some people search for the equations that can relate the different natural forces (gravity, electromagnetic, etc…) I have long been searching for the connection between business and engineering. Last night I was in my Thermodynamics class and I came up with an interesting way to link the two.

Accounting, and perhaps Economics in general, is a monetary (single/multi variable?) version of Thermodynamics.

Think about it! Both are based off of obtaining equilibrium, and both obey general laws.

The first law of Thermodynamics states dU=dQ + dW
Basically, that there is a delicate balance of Energy, work, and Heat.

The second law of Thermodynamics, as I understand it, states that energy types within a system will naturally balance themselves.

Thermodynamics is all about balance.

Accounting is also about balance. But instead of balancing Heat, Energy, and Work, we’re balancing Liabilities, Assets, and Productivity.

Economics brings in supply and demand, micro and macro markets, and opportunity costs. Thermodynamics has energy supply and demand between phase transitions, closed and open systems, and phase diagrams that allow for individual variable changes to obtain changes of state.

I think someday a direct correlation could exist. Just like between Mechanical and Electrical (F=ma…. V=IR) I think that there might be a perfect crossover between accounting (ultimately economics) and thermodynamics. The goal? perfect quantification of managerial decisions using equations from engineering.

I’m going to work on this some more. If anyone is willing to help me do some research, I’d greatly appreciate it. I really think I have something here.

13 comments on “I think I’m on to something here…”

  1. Paul Reply

    Unfortunately I believe that you can’t break the laws of Thermodynamics, while Accounting laws are constantly being broken by greedy jerks. They call it “creative” accounting. Imagine the hell on earth that would spawn from Creative Thermodynamics.

  2. shamus Reply

    ahh, but most of the “creative accounting” is actually following rules and guidelines, just determining the best ones to give the larges perceived present value.

    i.e. how to capitalize/depreciate an asset, or how to juggle money between subsidiaries to make it look like gains, or write offs.

  3. shamus Reply

    I believe there are many engineers who have discovered similar links, they end up doing things like managing hedgefunds, so yes I’d like to help research this further : )

  4. Roland Reply

    I think what he means (and I agree) is that the laws of thermodynamics are unbreakable laws of phsyics that determine how physical (electrical/chemical/etc) processes work. The ‘laws’ of accounting/economics are merely guidelines that show the best way to do things. Sure, people break the (legal) laws of accounting, but although they might be still following the guidelines, you could also make decisions such as “sell all my stock for $1 per million items” which would bankrupt you in no time. I’m not sure how you can equate situations like that to thermodynamics. There’s no way to ignore the laws of thermodynamics and do something stupid (e.g. you can’t decide, “OK I’m going to burn some coal but not produce any heat – the energy is just going to disappear”). I guess the point I’m trying to make is that physical (elec/chem/etc) reactions are all governed entirely by thermodynamics – free will does not come into it, whereas accounting & economics only adheres to the same principals by choice and different things can happen based entirely on what people decide they want to do.

  5. Aaron Reply

    “The goal? perfect quantification of managerial decisions using equations from engineering.”

    I think the relationship between economics and mechanical engineering is simply the application of the principle “energy going in = energy going out + friction”. Saying that physical equations can be used to predict economic phenomena is quite a stretch. They may use similar mathematics (geometric and arithmatic relationships, power series, etc.) but saying one is inspired or derived from another is wrong.

    For instance, the F=mA:V=IR just demonstrates that they are both direct relationships. Nothing less, nothing more. You can’t say that one was derived or inspired by the other. They are both derived and inspired by math.

  6. Kurt from Work Reply

    I’m sitting here listening to Rage Against the Machine while reading the comments, and I can see RAtM doing that.

    “Yo, F**k Einstein! We took Nothing and Made Energy! E=Mc2 My Ass! ” Then they would rock so hard the Moon would explode.

  7. ben Reply

    So, having spent the last two weeks doing intense economics and accounting… i have this to add.

    Accounting, there’s no way around the rules (without breaking the law, but you’d have to assume no law breaking)

    Economics is all about predicting peoples reactions… and there’s no real way to do that scientifically. You can’t quantify something, and when you do think you find a law it’s usually broken.

    For example, inverted yield curves… the yield on a long term bond should never be less than the yield on a short term bond issued by the same lender because, by definition, you’re assuming more risk on a long-term bond than a short term bond. Yet recently they’ve inverted.

    Even further, inverted yeild curves supposedly indicate impending recession… but not this time?

    So applying exact formulae to economics is silly, but the ideas are very applicable with a constant caveat to the fact that often the market decides to behave erratically.

    And being a hedge fund manager would be sweet, I’m interested… since I’m not a “sophisticated investor” so I legally can’t invest in them.

  8. Sanderonomics Reply

    Dude the only thing you’re on is some sort of drug that makes you think that this is a really innovative idea. Yes, things are balanced: It’s the way EVERYTHING works. Electricity is the same way, so is mechanical energy, food energy, Kurt’s current weight vs. the instantaneous rotational velocity of the earth, ecosystems, the battle between good and evil in most comic books, fire, the tides: Ebb and flow, supply and demand, cause and effect, input and output, congratulations on being the LAST person on the planet to realize that if such substantial things weren’t all in some semblance of balance the universe would explode.

  9. ben Reply

    Were you born a douche bag, or did you have to take a correspondance course?

  10. steve Reply

    i think the reason why macro economics fails to predict or explain just about anything, is that it tries to do what you talk about, thinking about economics purely as markets and equilibriums.
    when in fact it has more to do with the integration of 6.6 Billion people’s actions to try to maximize their own situations often, probably usually in spite of going against a monitary maximization.

    plus we have nothing close to a capitalist system anywhere.

  11. steve Reply

    its a giant rat race, of respect, of getting ppl of oposite sex, of getting power, advantage… moral superiority.. etc. etc.
    rarely does it allign itself with the commonplace macroeconomic ideals.

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