In 1944, Erwin Schrödinger, the founders of quantum mechanics famously said “life feeds on negative entropy”. Negative entropy was in his words “ a measure of order.”

“just as a living organism attract a string of negative entropy to offset the increase in entropy it generates in life, so as to maintains itself at a stable and low entropy level.”

In the context of the capitals, negative entropy is the value in use in a capital that is available and accessible for use by an individual or corporation. Negative entropy is the part of a capital that is used by the system to grow and flourish. In other words, its that part of a capital that is available and accessible to do work.

But it wasn’t always negative and a source of value in use.

Negative entropy was once positive entropy. Again, in the context of the capitals, positive entropy represents the value in use in a capital that is becoming unavailable for use to a specific individual or corporation. It’s the part of a capital that is becoming use less to a system and becoming use full in the environment. Negative entropy has many disguises, wear and tear, erosion, inflation and as I will explain in this part, exchange.

What is exported by an system and is unavailable for use by that system enters the environment as positive entropy but exits as potential negative entropy - available and accessible energy. The positive entropy of one open system becomes the negative entropy upon which other systems feed to maintain existence and thrive. In this sense, one person’s entropy is another person’s energy.

Though, sometimes positive entropy is just positive entropy. If the entropy that makes its way into the environment is not available or is inaccessible to another system, it retains its character as positive entropy. Importing it will not offset increasing entropy within that system. Rather, it just adds to and accelerates the positive entropy within that system. Adding positive entropy to a system that is already generating positive entropy on its own is a form of starvation or worse.

In nature, it’s hard to imagine a system existing that simultaneously exports its negative entropy - the energy that’s available and accessible and imports positive entropy - energy that is unavailable and inaccessible. Such a system would offend the second law of thermodynamics. But in contemporary capitalism, for individuals and corporations this unnatural phenomena has taken over market exchanges.

Exchange, mediated by the market, is a process whereby counter parties substitute capitals. Though we don’t associate the second law and its measure, entropy with market exchange, the process fits squarely in the science. Exchange being one of the key mechanisms by which individuals and corporations export their positive entropy (use less capitals) and import negative entropy (use more capitals) from their stakeholders. Despite this process being fundamental to life, the process by which entropy is swapped is all but ignored by modern economics.

And whilst, Schrödinger and Priogine’s physics of existence play no role in economics, economics plays a significant role in proving physics right. Individuals and corporations blindfolded by formally invalid economic assumptions and cast in their immutable roles as either profit or passion maximisers, feed almost indiscriminately on positive and negative entropy. Oblivious to the magic of entropy discussed in part 16 and the dangers of exporting and importing the wrong kind of entropy, they engage in a combination of what I describe as natural and unnatural exchange. Smith’s twisted invisible hand weighing the scales in favour of the unnatural variety.

Natural Exchange

An exchange is natural if, by virtue of the exchange, each actor exports their positive entropy in the form of a low quality/high entropy endogenous capitals ( internal capitals that have limited use) and import negative entropy in the form of a high quality/low entropy exogenous capitals ( external capitals that have more use). For a refresher on these concepts read here.

In the simplest terms, what”should” drive supply is not demand but entropy. As value in use become less accessible to one person it becomes more available to another. This is the science behind the old saying “one person’s trash is another person’s treasure”. Each party’s entropy becoming the other party’s energy

The exchange is natural because it’s consistent with the elemental mechanics of life. After the exchange of capitals the individual or corporation experiences an increase in available value in use and have greater capacity to effect change. For an individual, that means they have an increase ability to flourish . And, for a corporation or other social institution, this means two things. First, having access to greater value in use it is more likely to exist. And, having satisfied that existential threshold, the increase in value in use is then more likely to flourish and empower others to flourish.

Natural exchange is what I described in part 16 as symmetric disequilibrium.

For a market to work systemically, each counter party must bring to market their lower quality/higher entropy capitals (what Schrodinger called positive entropy) in the hope of exchanging these for higher quality/lower entropy capitals (negative entropy) or symmetric disequilibrium. Each party receiving through the act of exchange more value in use than they expended.

Symmetric disequilibrium is perhaps unique to humanity. As Smith remarked “dogs don’t exchange bones”.

Unlike nature, the faculty of reason and the tendency of humanity to co-operate enables individuals to control the timing of entropy. Rather than wait for positive entropy to take its inevitable course, individuals and corporations can effectively speed the process to their advantage through exchange. Accelerating a collapse in available value in use in one capital (positive entropy) by exchanging it for a capital with more available value in use (negative entropy). Whereas life feeds on negative entropy, individuals and corporations feed on collapsing capital gradients triggered by exchange.

When markets are viewed through the lens of the second law of thermodynamics, the free exchange of capital is logically motivated by self preservation rather than unexamined self interest. Long conceived of as a kind of scale bringing equilibrium to economies, the better truth is that markets are a kind of difference engine, capable of producing change by exploiting symmetric disequilibrium. Each actors able to maintain existence at a “stable and low entropy level” by choosing to export that which it can’t use in favor of that which it can use in accordance with the principles of value in use described in the opening chapters of this work.

The market as difference engine concept can be used to explain:

• what should come to market

• what should not come to market

• what does not come to market

• why some market exchanges produces useful change and others do not.

As far as I’m aware, modern theories of value in exchange can’t really answer any of these socially necessary questions. All they can tell you is that all things being considered equal, supply and production is a function of demand and consumption and where these two meet is the price. The rest is left for government to fix.

In the context of the Millennia Challenge, when a capital is used for exchange, natural exchange can be considered its best use.

Unnatural Exchange and False Ethics

Conversely, an exchange is unnatural if after the exchange the individual or corporation experiences a decrease in available value in use. Knowingly exchanging an endogenous high quality/low entropy or negative entropy endogenous capital for a positive entropy or low quality/high entropy exogenous capital is fundamentally at odds with the principle of life and flourishing. Unnatural exchange takes the form of asymmetric disequilibrium and even symmetric equilibrium. A state in which both parties receive less value in use than they expended in trying to capture it.

In exchange we choose the timing and the conditions under which we lose access to a capital. Get the timing wrong and you experience unnatural exchange. Voluntarily accelerating a collapse in accessible value in use in one capital exchange for something that has less value in use.

In my view, we get the timing wrong because we base choices on the wrong ethics :

• in the case of individuals, the pursuit of unexamined and inflamed passions masquerading as the virtue ethics of self interest; and

• in the case of corporations, the pursuit of profits masquerading as the duty ethics to shareholders.

False ethics distort the natural choice. For example, public corporations relentlessly pursue financial capital despite all the evidence suggesting that this has no use value to the same corporations. If it did they would keep it rather than, more or less giving it away to shareholders. The perversity is not that they give it away, its that they have made the generation of something that they don’t need or really want their purpose. It’s a logic that only an economist could agree with.

Together , guided by their deviant ethics, individuals and corporations have unwittingly formed an alliance of “lessness” . The total value in use available in society steadily reducing as each unknowingly exchanges higher quality/lower entropy capitals for lower quality/higher entropy capitals. Accelerating positive entropy and leaving society as a whole with less capacity to flourish.

Ominously, unnatural exchange can still present as growth. For example, an increase in the exchange value of all goods and services produced is not necessarily a cause for celebration. If there has been no increase in value in use, the underlying exchanges are unnatural.

This paradox is at the root of neoclassical economics. Rather than capitalize resources, it leads
to an overall decapitalisation. More money but less capacity to bring about positive change. A
paradox that eventually leads to a value crisis.

The growth in what is measurable tracking the observable decline is the capacity of an individual, corporation and society to bring about positive social change. when an individual practices unnatural exchange I describe it as “fools alchemy”. When unnatural exchange is taught in universities, incentivized by governments and practiced by individuals and corporations it becomes epoch - “the decapitalism”. A challenging phase of history marked by an increase in ephemeral exchange value and a decrease in essential value in use.

What is emerging through a detailed investigation of value in use, is a critique of modern economics with substantial explanatory power. Supply and demand, as we know it, may paradoxically be the driver of eventual and potentially, unstoppable de-growth. As use full capitals transformed into the use less capitals can not easily be re-generated back into useful capitals.

Next in the Series

In the next part in the series, I further examine the concept of natural and unnatural exchange:

• Why reason and a knowledge of the capitals illuminates the path from current unnatural exchanges to a future of natural exchanges

• How neo-classical economics promotes unnatural exchange on both the demand and supply side;

• Using exchanges of share capital, I’ll explain :

  • Natural exchange - symmetric disequilibrium or why Apple has only issued shares once

  • Unnatural exchange -

    • asymmetric disequilibrium or why public company buy backs breach the laws of nature

    • and symmetric equilibrium or why 80% of public capital raising fail.