THERMOECONOMICS - Vocat International Ltd

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28 Copyright: John Bryant, VOCAT International Ltd 2012, for personal use only. Figure 5.15 Annualised changes (4-quarter moving averages) in output value G, nominal money stock N, and the negative of interest rates (3-month Treasury rate). On balance, it appears that the relationship of interest rates to change in output value is stronger than that to money balances. Similar in construction to equation (4.25), chapter 4 for the production function, the following relationship is proposed to connect interest rates to both output G and entropy s: “In an economic system, the difference between the rate of change in output value flow G and the rate of change in the Index of Money Interest I is a function of changes in money entropy generated or consumed.”
Copyright: John Bryant, VOCAT International Ltd 2012, for personal use only. This is expressed as: ⎡ = f ⎢k ⎣ ds money ⎛ dG dI ⎞⎤ ⎜ − ⎟⎥ ⎝ G I ⎠⎦ money (5.21) where dI/I is the short-term interest rate i at any point in time. And k is the assumed ‘productive content’ of money. The inference of equation (5.21) therefore is that an economic system will tend to operate with an entropic difference, positive when expanding and negative when contracting. A nil value would occur when output value rate of change is matched by interest rates. A highly positive value would equate to an economy seeking to maximise expansion, without being checked by interest rates. A negative value would equate to high interest rates coupled with low or negative output value growth. Returning to our money analysis, if further we assume that the productive content k of equation (5.21) is equal to unity (£1, $1 etc), and the elastic factor θ at equation (5.20) is absorbed into the entropy change ds, then equation (5.21) becomes: ds money dG dI − G I = (5.22) In this equation the rate of change in the cumulative interest index I is a function of the rate of change in output value G, but is negatively related to change in money entropy. Further, by substituting in the general money equation (5.3): dG ⎛ dP dV ⎞ ⎛ dN dT ⎞ = ⎜ + ⎟ = ⎜ + ⎟ G ⎝ P V ⎠ ⎝ N T ⎠ we can derive a number of other relationships, of which the following is an example: dN N ⎛ dI dT ⎜ − + ds ⎝ I T = money ⎞ ⎟ ⎠ or: 29
Page 1 and 2: THERMOECONOMICS A Thermodynamic App
Page 3 and 4: Contents Preface 1 Introduction 1 1
Page 5 and 6: Preface This book, first published
Page 7 and 8: Copyright: John Bryant, VOCAT Inter
Page 33: Copyright: John Bryant, VOCAT Inter
Page 49 and 50: INDEX Copyright: John Bryant, VOCAT
Page 51: Copyright: John Bryant, VOCAT Inter

THERMOECONOMICS - Vocat International Ltd

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