Money and Negative Entropy

Someone asked:

Can you please explain the concept of negative entropy as it relates to money and the economy.

Briefly, negative entropy is the ability to extract work from a process. Or, in other words, it is a synonym for energy. The difference is subtle - energy is like an undifferentiated stem cell, while negative entropy can also represent that energy transformed into physicality, say a bone cell.

The relationship to money is that money represents an investment of energy that has been given form. For example, if you walk into a store and see a screwdriver on a shelf, it represents the energy of all the processes, all the inputs, used to create it. We can say, after a lot of analysis, that it took X amount of energy to create that screwdriver. Because of the second law of thermodynamics, only a fraction of the energy X actually is embodied in the screwdriver as negative entropy. The rest was spent to positive entropy. And that fraction of X, say A, is the thermodynamic efficiency of creating a screwdriver.

So if, for example, 1 dollar is set to be 1 MegaJoule and it takes 3 MegaJoules to create the screwdriver, the cost of the screwdriver is 3 dollars. The *price* is set by supply-demand, and in a competitive market should be close to that cost. If A increases, so it now only takes 2.6 MegaJoules to create the screwdriver, the negative entropy embodied in the screwdriver remains the same but the cost decreases. So the cost of the screwdriver in dollar terms drops to 2.60 dollars.

In contrast, imagine that 1 MMBTU of natural gas is flared. No useful work is performed, and the entire negative entropy of the energy is converted to positive entropy. Dollar value of the process outcome is zero.