The Quest of Economic Temperature

Matthew Yen, Daming Zhang  
(Department of Industrial Technology, California State University, USA)

Abstract: Temperature is the vital sign of life. So is the “economic temperature” a vital sign of economy. The concept of economic temperature has been around in history since the time money used for trading. Nonetheless, economists and scholars struggled with the basic definition of economic temperature.

Mathematic modeling and quantitative analysis are essential tools for modern economic analysis. Without clear definition of economic temperature, theoretical discussions are severely handicapped. Recent development of econophysics are appealing because of the well-established mathematic formulation, particularly, thermodynamics. However, the lack of clear definition of economic temperature greatly hindered econophysics discussions and application. 

The Law of Supply-and-Demand and the Law of Ideal-Gas have shared hyperbolic form. Money system and ideal gas are “working-media” or “agents” in economic system and mechanical system respectively. Therefore, the shared forms are not only mathematically intriguing but also bearing theoretical significances. A definition of “Economic Temperature” based on these two well-established laws opens the door for broad-spectrum economic applications.

Key words: economic temperature; law of supply-and-demand; econophysics; ideal gas law, entropy

JEL codes: B400