Scilight Press

The process of creating goods and services, measured by their value, is considered a process of creating complexity. This allows us to consider the production system as an open thermodynamic system, and to develop a simple heuristic model of the production process. The model includes three production factors: the index of complexity of production equipment (physical capital K), human activity (labour L), and the substitutive capacity of equipment (substitutive work P). The thermodynamic approach also needs in technological characteristics of production equipment, such as labour requirement λ and energy requirement ε, which indicate the amounts of labour and energy required to operate production equipment. By applying thermodynamic principles, we can understand how labour can be replaced by capital and derive the production function with four different formulations. Two of them are known and used by researchers for interpretation the production phenomena; the thermodynamic approach provides some foundation for economic theory, allowing us to decompose unambiguously the growth rate of output over technological level and the growth rates of production factors. The introduction of substitutive work as a factor of production and the technological characteristics of capital expands our ability to simulate and analyze production processes.