There are laws (observations, actually) that describe the way that things behave in the physical world.  The First and Second Laws of Thermodynamics are good examples.  They deal with the facts that we can't get more useful energy out of a process than we put into it (First Law) and that, in practice, we can't get even that much (Second Law).

Cars are a good example.  We put energy into them in the form of fuel and we get energy out of them in the form of speed.  When we compare, in equivalent units, the energy that's inherent in the fuel to the energy that's inherent in the speed, then we find that there's less energy in the speed than there was in the fuel.  We can attribute the difference to such things as mechanical friction and air turbulence.  Part of the energy in our fuel must be used to overcome such things.  The energy that's left after that is used to produce the speed.  We accept the difference because the smaller amount of energy that's inherent in the speed is more useful to us than the larger amount of energy that's inherent in the fuel.

The Laws of Thermodynamics also explain why perpetual motion machines can't work.  For example, if we use an electric motor to turn a generator, then we can't expect the generator, by itself, to produce enough electricity to keep the motor running.  The best that we can expect, ideally, is to break even.  That's the First Law of Thermodynamics.  However, if we consider the unavoidable inefficiencies that are inherent in the system, then we'll come out behind.  That's the Second Law of Thermodynamics.  To get as much electricity out of the generator as we put into the motor, additional energy must be added from some other source.

Economics

I propose that there are also laws (observations again) that describe the way that things behave in the economic world.  The First and Second Laws of Economics (as I shall call them) are analogous to the First and Second Laws of Thermodynamics.  The First and Second Laws of Economics deal with the facts that, on the average, we can't get more value out of a transaction than we put into it (First Law) and that, in practice and on the average again, we can't get even that much (Second Law).

A purchase in the grocery store is a good example.  We put value into the transaction in the form of funds and we get value out of the transaction in the form of groceries.  If we could precisely compare, in equivalent units, the value that's inherent in the groceries to the value that's inherent in the funds, then we'd find that there's less value in the groceries than there was in the funds.  We can attribute the difference in value to such things as the costs of operating the lights in the store and of paying the salaries of the people who work there.  Part of the value of our funds must be used to pay for such things.  Thus, only a portion of the value in our funds is available to pay for the groceries.  More generally, the value of the funds that we trade for our groceries must
 
 
 
 
 

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The First and Second Laws of Economics also provide a good reason why interest-bearing transactions cannot increase the total value of the funds in the economy.  For example, if people deposit funds into interest-bearing accounts in banks, then we can't expect the accounts, by themselves, to produce more value in funds than the people put into them.  The best that we can ideally expect is that the value of the funds in the accounts will remain constant.  That's predicted by my First Law of Economics.  If we consider the costs of operating the lights in the banks and of paying the salaries of the people who work there, and recognize that such expenses must be paid from the deposits in the accounts in the banks, then we will understand that the value of the funds in the accounts will be reduced.  The accounts might contain more dollars but those dollars will represent less value.  That's the grim reality of my Second Law of Economics.  To get as much value out of the account as we originally put into it, additional funds would have to be added from some other source.

Legerdemain

Such differences are more obvious in physics than they are in economics.  The reason is that, in physics, the amount of energy per unit of measure is constant from time to time and from place to place.  A joule is always the same amount of energy, whether it's inherent in a quantity of gasoline or in a quantity of speed.  In economics, however, the amount of value per unit of measure isn't constant.  A common unit of measure is the dollar but the value of a dollar keeps changing.  When we deposit some dollars into an account and get a greater number of dollars back, then we think that we've received more value.  Actually, we've been deceived by the change in the value of the dollars.  We've received more dollars but we've received less value because the value of the dollars decreased.  In the long run, we can't get more value from interest-bearing transactions than we put into them.  When we try to do so, then we're trying to run an economic perpetual motion machine.  The only way to get more value is to work and create the value.  The machine itself won't produce the value for us.
 
 
 
 
 
 
 

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In theory, it's possible to accurately compare the value that's inherent in the groceries to the value that's inherent in the funds that we traded for the groceries.  The trick is to understand the value objectively instead of subjectively.  That means that we must distinguish between the actual value of something and how desirable or useful it is to us.  Generally, what we buy isn't equal in objective value to what we paid for it.  What we buy is only more useful or desirable to us than what we paid for it.  I believe that there is such a thing as objective value, or value in equivalent units.  We just haven't figured out how to measure it.  If we were to use an objective unit of measure, instead of dollars, then the measurement of objective value might not be as difficult as it is at present.  If we ever learn how to precisely compare the values of different things using a unit of measure that has constant value from time to time and from place to place, then we will have transformed economics from legerdemain into science.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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