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Understand Everything Fundamentally, The entropic force is fundamental

Economics / Economic Theory Nov 23, 2011 - 07:04 AM GMT

By: Shelby_H_Moore


Best Financial Markets Analysis ArticleHistoric and recent scientific developments add to our understanding of how the entropic force from physics may govern everything in nature, including ecosystems and economics. This can be applied to fundamental analysis of potential political outcomes, macroeconomics, and paradigmatic epochal shifts, e.g. the current shift from the industrial to the knowledge age.

The following actionable points will be explained.

  • Due to Coase�s theorem, the EU crisis (and China and USA) will resolve in more gold and silver fiat price inflation, not the deflation of unsocialized defaults. This will continue until the global financial system is backed with gold.
  • Passive investing (bonds) are peaking and when the global reserve sovereign bonds ultimately die, i.e. US Treasuries, the �wealth� in the current system will disappear (or be severely devalued or constrained to devaluation by capital controls), and the global financial system will be restarted with gold backing. Thus, the only way to short US Treasuries in the end game, are physical precious metals.
  • We are entering the end of the passive capital intensive industrial age, and the beginning of a knowledge age. This will require changing your thinking about what �investing� means.
  • Resource shortages are the symptom (effect) of society�s ubiquitous pooling of capital, and not a fundamental cause of the current crisis. Resource needs will be resolved by the coming knowledge age. Arguably, this pooling of capital was perhaps necessary during the capital intensive industrial age.

Europe will not disintegrate

Coase�s theorem says that an inefficient internal order will continue for as long as there remains an unavoidable frictional barrier insulating it from the more efficient external possibilities. The fundamental reason the EU crisis will not result in a disintegration of the union, at least not until its people significantly abandon collectivism, is that organisms which are unable to comprehend the mechanism by which they are consuming resources faster than their ecosystem can replenish, thus are unable to stop the mechanism before they perish. So the implosion of the friction and thus the order only occurs when they perish, because they will continue to repeat the mechanism which they do not understand to be a cause of their suffering. This can be verified in a petri dish, as an organism will reproduce until it consumes all of its food or oxygen. Due to the lack of a pre-frontal cortex, it is unable to comprehend the connection of reproduction to unsustainability. Unfortunately, even though humans have a pre-frontal cortex, they do not comprehend that debt, insurance, bonds, fractional reserve money, and centralized governance, cause the demand (and thus production) of resources to be overconcentrated in sectors of the ecosystem that create a less productive future. In the next section, I will explain that these financialization mechanisms cause collective failure and thus demand ever increasing centralization (i.e. �too big to fail�), because from their inception they all pool capital. Thus they are always collectivism.

�It amazes that otherwise bright people can�t understand the simple concept that economic collapse doesn�t convert collectivists into anarchists.�

Thus the people are blind to the mechanism which is enslaving them and reducing their prosperity. Thus, since they will not change the mechanism, centralization of governance will grow stronger from the current financial crisis, and will diminish only when the involved organisms perish. Entropy is continuously culling the center of the bell curve so that knowledge can advance. I make no political judgment when I state factually that these mega-death cullings take many forms, e.g. abortions kill 42 million annually, it is reasonable to assume birth control probably more than that, some statistics claim that governments and wars have killed a couple 100 million in the past century, totalitarianism (the political end of pooling resources) kills millions, drugs and medications probably kill millions, cancer rates are double in the �developed� world (the countries with financialization), and arguably GMO food may add to that. I am not making a political judgment on reproduction, rather to state the fact that actuarial economics are constrained and politically intractable without a sufficient population of youth. And as will be explained with the entropic force, it is the antithesis of knowledge formation, to a have uniform (replicated) social action.

�Currency wars are like [...] slap wars, trade wars is where the knives come out.�
�Currency wars > trade wars > hot wars.�

Europe is predominantly retirees (low or negative birth rates exacerbate this), that own various european country bonds via their retirement plans. If interest rates go up, the bond values decline, and their retirement is toast. The politics is to appease subconscious denial, which is why you see Merkel talking tough and simultaneously making gradual steps towards centralized printing and fiscal controls. The savers want to penalize the non-savers, under some illusion that they can convert the non-savers, but they don�t accept culpability for causing the problem with a collectivist form of saving. If the collectivist non-savers were converted to collectivist savers, then who would borrow? Illogical.

Thus, the savers are blind to the fact they too are collectivists. Productive europeans (e.g. Germans) want to have a fixed interest rate return by loaning money to less productive sectors who can buy their exports. Now they want to deny they are subconsciously in support of money printing, because they also don�t want their fixed income to disintegrate (even though it will be debased either way). Due to the psychological phenomenon of �false attribution error� (i.e. blaming the stone that one tripped on, a form of cognitive dissonance), they want to be the victim who will spank and control the bad PIIGS, via increased centralized control. Neither the savers nor the borrowers are the victim, they all are collectivists and being culled by the entropic force. Note, Germany�s debt ratio is as bad as the USA and Canada.

Fiscal centralization to come next (link explains how), with copious money printing and centralized rationing (i.e. austerity and/or price controls). The recent health care legislation in the USA, is price controls and rationing. The only prosperous fix for health care, was to eliminate insurance a priori so that individuals could maximize and individualize their preparations for aging. I will explain that pooled savings, i.e. insurance, is collectivism and thus automatically wasted.

My outlook is optimistic, in that those who understand how to avoid collectivism, facilitate maximum knowledge formation and efficiency of market fitness, will prosper and (they and their offspring will) survive entropic culling.

Did Adam Smith know entropy?

Free market (i.e. anarchist) capitalism didn�t fail, rather the world has been doing collectivism, which leads to socialism as we now see occurring. Adam Smith was advocating collectivism when he wrote in the Wealth of Nations, that tax should be apportioned relative to income.

Perhaps Adam Smith was blind to the mechanism of his �invisible hand�. This fundamental concept is the entropic force, that 99.9% of the people in the world don�t grasp.

��not one man in a million will detect the theft.� �John Maynard Keynes
�It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.� �Henry Ford

For nature to provide the highest efficiency possible and thus maximize production, it requires the maximum degrees-of-freedom. This concept is very, very difficult for people to fully grasp. Imagine you lowered the degrees-of-freedom of your limbs, by tying your hands to your feet. Or glue your tongue to your lip. Imagine your car had less degrees-of-freedom of motion, by lacking a reverse gear, you would have to drive around the block in order to go in the reverse direction. Imagine a bicycle chain that had most of its degrees-of-freedom (i.e. the links) frozen with rust, thus could not perform its function. Imagine gluing all the bristles of a brush together and trying to comb hair or clear sawdust from a perforated surface.

Lowering the number of actors that can move independently, and/or the range of motions, causes the system to be less efficient at production. The monolithic (i.e. uniform) system is unable to fit itself optimally to any future task, because the reduced independent possibilities in the system has reduced its adaptability for fitness. In fact, potential (i.e. future) energy is the degrees-of-freedom, e.g. the gravitational potential energy of an object on the ground is 0, because the object is blocked from falling closer to the center of the earth, i.e. the degree-of-freedom to fall does not exist.

I theorize that the principle of market fitness can be applied to economic ecosystems. The key insight is that debt, insurance, bonds, fractional reserve money, and centralized governance, are all forms of pooling the management of capital. When the decisions about the allocation of resources become centralized, the number of independent actors and thus degrees-of-freedom are reduced. Thus the market is not able to most efficiently adapt and fit to maximizing production.

Most people think that if capital is put into production, that is maximizing production. They fail to understand how the degrees-of-freedom have been reduced and how this prevents optimal production. A simple example of instead of a free market of independent actors acting in their individual self-interest to provide optimal fitness and thus pacing demand to maximize life-of-asset utilization. Instead, the �command� of resources (i.e. debt) steals demand from the future, to maximize the speed of production of steel infrastructure, thus causing wasted steel factories that sit idle in the future, as China is racing to do now.

Click here (read to end of the linked page) to more deeply understand how debt, bonds, and insurance result in economic failure. Ditto the Iron Law of Political Economics on government and taxation. Government in USA has bloated from 12% before 1930, to more than 50% and perhaps as high as 75+% of the economy.
�Elephant: A mouse built to government specifications.� �Lazarus Long

Centralization is blind and unfit

Perhaps one of the most difficult concepts for humans to grasp is that when we violate the free will of another person, by locking them into a future promise, we have destroyed some of the degrees-of-freedom that the ecosystem needs to optimally adapt to the change that continuously ripples around in a myriad of complexity. Due to Hardin�s law, the butterfly effect, and the law of unintended consequences, top-down control can �never do only one thing�. This is why laws and regulation are never solutions, instead they contribute to economic failure and increased size of government. Ultimately, Glass-steagall didn�t work because it didn�t prevent the people from doing collectivist finance and thus the forces of collectivism overwhelmed it politically. Returning to Glass-steagall, or even eliminating the banksters, aren�t solutions because they won�t eliminate the fundamental force of collectivism due to the popular demand for debt, bonds, insurance, and centralized governance.

�We don't realize we are stealing from each other (and ourself) via failure of fitness when we pool and centralize our capital with debt, bonds, insurance, and centralized governance, then we are astonished that the system steals, express consternation, deny culpability, and thus reach for �solutions� which are more of the same poison.�

It is impossible for any decision maker(s) to view the free market from above and understand what it is doing, because the individualized complexity of dynamic adaption can not be characterized by any aggregate computation. To know what a colony of ants are doing, you must look at all of them, and in real-time, as they are continuously adapting to new tasks. The scientific method from which all computational models derive, is based on the ability to sample the real world and state that the sampled signal matches the expected result of the model�s computation. However, the fundamental Shannon-Nyquist theorem states that due to aliasing error, the actual signal can never be known until infinite samples have been taken (infinite duration or infinitesimal period), regardless of a pre-filter.

Thus, computational models are only 100% guaranteed valid for the past, and the future is never exactly the same. It must be this way, otherwise we wouldn�t exist, because knowledge formation would stop. Pick any color you like, and imagine everything was that color. We would see nothing. There would be no gradations of color, thus everything would appear to be one blob of color. We would not visually exist. Now imagine that everything in the universe could be pre-computed, so there is no actual change from the equations, because all would be known in advance. Thus no new knowledge could be created. Thus we would just be robots in a pre-computed stage show, without free will and the ability to create knowledge. We wouldn�t exist any more than animated characters on the computer do. Knowledge formation wouldn�t exist.

Tangentially, the statistical predictive limitations of the scientific method, and the ability of human knowledge to adapt, is why I and many thousands of scientists rationally and strongly object to the statistically invalid prediction of peak energy and anthropogenic global warming. Please read the entire page at the links before forming your opinion. These mass hysterias are just another example of the people blaming something other than their own culpability of using debt, bonds, insurance, and centralized governance.

�Tangentially, the concept of infinity exists, because without it, change wouldn�t exist and thus we wouldn�t exist, at least not in the sense of continuous knowledge formation and free will. The universe is infinite, because knowledge is. I theorize that there is no edge of the universe, it wraps back onto itself in infinite possibilities, i.e. disorder (which is the dark matter known to exist in our universe). In terms of the abstraction of space-time, this means that as one travels in any �direction� of space, over time the possibilities �ahead� are increasing. Traveling faster than the speed-of-light, one would be in the dark matter �granularity� of the universe.�

In 1856, German physicist Rudolf Clausius stated what he called the �second fundamental theorem in the mechanical theory of heat�, that the entropy of the universe tends to a maximum (and a lack of specific conditions, e.g. open, closed, or isolated, to which this statement applies). Entropy is disorder, which means the number of independent possibilities or actors in the system, i.e. the degrees-of-freedom. Scientists long ago knew that the degrees-of-freedom in the universe are trending to increase overall.

I assert that Coase�s theorem is just the way entropy always increases, by employing temporary local orders to thresh out global fitness. Sub-systems that are partially closed (there is no perfectly closed system) may exhibit reduced degrees-of-freedom, but these local increases in order are logistic, meaning that due to Coase�s theorem, they grow in an S curve exponentially, stagnate, and then disintegrate, as they are inefficient and eventually the mechanism which is propping up the internal inefficiency succumbs to the external universal entropic force. That universal entropic force is the maximum independent possibilities, i.e. maximum knowledge and optimal fitness. Now you know the basis for the economic wisdom of �go forth and multiply�! More actors leads to more opportunities to produce knowledge, i.e. more opportunities for individualized adaptation and thus better fitness. Imagine if I wasn�t born, who would explain this to you? This is an example of why the aggregate statistic of "g" in IQ, is an inaccurate measure of knowledge formation.

;@Shelby: my less than $100 computer (in 1990s dollars) because the economies-of-scale are increasing. In short, all profits are derived from the knowledge portion of the business�

�So this requires those who produce knowledge must be wealthier than those who don�t, otherwise these economies-of-scale (driven by a large population and the declining costs of physical production) are wasted in the collectivist redistribution scam.

The propaganda about overpopulation is merely the calls of passive capital for a bailout from the knowledge age. But no one can bail them, game over, check mate. Do they even know what time it is?�

Theory of everything

Some recent developments are giving foundational support to my theoretical application of an entropic force to general ecosystems, e.g. macroeconomics. In 2010, Erik Verlinde derived the fundamental equation of gravity from the equations of entropy, which startled the scientific community and caused significant debate. This is related to a theory of everything that in my spare time, I had been independently developing and writing about since about 2007. There are some recent scientific discoveries in the past few months that are baffling scientists. I theorize that dark matter is interacting with neutrinos to explain recent measurements of neutrinos traveling faster than the speed-of-light, that I had predicted from my entropic theory of the universe (read the entire linked page).

I see a strong possibility that as gravity and inertia are shown to be fundamentally congruent with an entropic force, that it isn�t much of a stretch to derive Maxwell�s equations for electromagnetism. Already every natural science has some formulation of thermodynamics or entropy incorporated. I applied the entropic force (in the form of Coase�s theorem) to the macroeconomic analysis of the EU crisis.

Passive vs. active capital

I have achieved 180-degree positive insight, since my consternation and �fight-or-flight� instinct writings near the market bottom in late 2008 and early 2009. And I now understand that the solution is not hard money, because throughout history such honest weights and measures will always be subverted by the popular demand for pooling resources (even the Byzantine empire succumbed). Passive capital is the problem, i.e. debt, bonds, and insurance. In the Coasian Theory of the Firm, it is the lack of degrees-of-freedom in the production of knowledge, that creates a power vacuum, that demands the management of a corporation and thus demands passive capital.

Socialized failure is averted and capital is optimally allocated when capital is individually active, i.e. actively managing your capital at risk, not �guaranteed� fixed income. At least in case of government bonds, there is no instance in history where that �guarantee� wasn�t eventually debased and/or defaulted. Risk is a necessary ingredient of competition and knowledge formation. In my idealistic vision, large corporations will rarely exist and knowledge eventually becomes fungible money. In such an idealistic future (see next section), we will carry our stored capital� our brain. Since this essay is already quite lengthy, rather than repeat all the discussion on this concept, I will link to the context of my discussions.

�Japan faced one big problem. They invest all their money in bonds��

�Passive capitalism (i.e. investment in usury bonds) is more Ponzi slavery��

�render passive capital (i.e. bonds and debt) useless, by making knowledge fungible��

�Knowledge formation is not about how much passive capital (i.e. stealing via malinvestment cycles of redistribution of wealth) society throw at a problem set, but rather is driven by entropic efficiency��

�passive capital, meaning where our past effort extracts captive market rents on the future efforts of others, simply for doing nothing but carelessly (i.e. passively with guaranteed return) loaning digits which represent that past effort (or guaranteeing ROI with monopolies, collusion with the government, etc)��

�if the people demand debt and bonds, they also implicitly demand fractional reserve banking and a govt backstop��

�passive capital is depleting because the only way to increase your stored assets capital is to invest it at risk (not fixed income��

�death of the industrial age and passive capital seeking to increase market share to compensate��

�passive capital (shareholders, stored money, usury finance) is peaking and will decline, with active capital (knowledge) taking a greater proportion of the value created��

�debt, returns (interest rates) tend to be low, and attract passive capital that isn�t being paid enough interest to justify the effort to know much about the individualized (i.e. diverse or unequal) circumstances that determine the productivity that results from debt. In other words, debt does not encourage the highest performing R&D projects, and thus disincentivizes knowledge formation, and results in a dumber and lower productivity society. As explained in the prior section, this effect proliferates as additional low producers jump on board to borrow to produce to supply consumption of the pre-existing low producers, and this repeats ad infinitum until the economy implodes. Debt is clearly a scourge and parasite on society that wastes (misallocates) capital to the lowest producers, even incentivizing both savers and borrowers to apply less effort to maximizing production��

Golden knowledge age

In the discussion of the prior section, I suggested that the industrial age, and thus passive capital, is dying. Thus I view this financial crisis as a natural transition to new epoch, and as a momentous positive opportunity. I see many signs (e.g. the 3D printer) that it is being replaced by an incipient age of active capital, with an acceleration of knowledge formation. This is primarily being driven by the internet, i.e. networking effects (best to search the linked page with Ctrl+F for all discussion of �Reed�s law�). As with any nascent exponential phenomenon, the mainstream won�t notice its full impact until its visibility is widespread.

Understanding what I am doing might spawn insight into the types of investments to seek. I am currently creating a new computer language, Copute. This is to be a fundamental technological advance in computer science that will enable uncoordinated software development to cooperate without being bound into referentially dependent spaghetti, to eliminate this friction which prevents individual developers from competing with corporations. This could potentially impact the world significantly because soon every human will have an Android hand-held computer, and each could be a potential knowledge creator. There is already an insufficient supply of computer programmers, and the demand could increase radically, if the vision of uncoordinated development is correct. Juxtapose this against the massive unemployment sweeping the globe, even millions of college graduates in China. The world needs programming to be as easy as writing HTML.

In every field, software is the encoding of past human knowledge� knowledge which is always changing. Remember from above that knowledge is dynamic and always improving, so there will always be new software to write� Bill Joy and Ray Kurzweil are wrong. A necessary ingredient for knowledge formation is the freedom-to-change (adapt). A technology such as Copute, in theory could free knowledge encoders from referential traps that bind them (lower degrees-of-freedom) to dependent history. Tim Berners-Lee created the World Wide Web, when he launched the hyperlink that enabled uncoordinated development of interconnected web pages. In the Coasian theory of the firm, the corporation must exist where necessary to manage gridlock (dependencies) that would otherwise be created by uncoordinated individuals, e.g. an individual abandons a task and no one else can figure out the unfinished work.

I am also doing some initial planning for contributing to the fledgling online education revolution. Public education and debt-inflated college education are dying, because they pool resources and thus stagnate optimal fitness of knowledge formation. Steve Forbes says education is the least free market. If only the Occupy Wallstreet students realized they are suffering from �false attribution error�. Bill Gates says the future is

  • automated instruction is optimal because can rewind, learn at own rate, scheduling benefits, privacy, etc.
  • content will never get old
  • mainstream teachers are using it to flip the role of the classroom, such that now the instruction (of past knowledge) is done at home, and the homework (the new knowledge formation) is assisted by roaming teacher whose time is freed up to give more personalized instruction.
  • technology has removed the dehumanizing portion of learning (one-size fits all classroom instruction where kids just listen, don�t interact, don�t create knowledge) into a humanizing social experience in the classroom, where they form their dynamic knowledge. Every human is unique and will create unique manifestations of problem solving, i.e. there will never be an exact copy of you and your life�s accomplishments.
  • unequal rates of learning are addressed
  • global one-world classroom, because students can interact from all over the world (removing the barriers to trade, i.e. Coase�s theorem).

All of the above are increasing the degrees-of-freedom in the free market of education.

By Shelby Henry Moore III

short bio, I have published articles on,,, I am the sole or contributing programmer of numerous (some million+ user) commercial software applications, such as Corel Painter, Cool Page, WordUp, Art-O-Matic, etc.. I have an education in engineering and math.

Disclaimer: My writings are my personal opinions, not to be construed as statements-of-fact. Do you own research. Licenses to think and communicate have never interested me too much, so I am not a licensed research, journalism, investment, legal, nor health professional. Please consult the proper authorities for all matters covered in my writings. I disclaim all liability for what you do after reading my writings. No one can predict the future, and if there is a physical world investment that never loses value, I haven't found it yet in my 44.1 years here on Niribu.

© 2010 Copyright Shelby Henry Moore III - All Rights Reserved

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Shelby Moore ("author of this article")
23 Nov 11, 13:35

Much thanks to Nadeem for publishing this article.

Partially due to my late edits, some key links in the article were not included.

For example the text in the first bullet point, "deflation of unsocialized defaults", should be linked to the following explanation of why socialize defaults will cause continued monetary inflation:

Also I assume that to minimize the length of the article which is already quite lengthy, Nadeem was not able to include all the images. Or perhaps it was due to copyright concerns (although my use of linked thumbnails is allowed under fair use policy at least in the USA where I am a citizen). Those who wish to see the images, may view my self-hosted copy:

This is very likely to be my last writing at any financial site. And this is very likely to be my last comment at any financial site. I hope all the readers understand the severity of the inflation threat ahead. Imho, readers are well advised to stick with Nadeem's analysis of the inflation threat, as he seems to understand that the govts won't stop socializing the defaults.

Also the new Disclaimer that I am now putting on all my writings, was not present in the version Nadeem published, so please consider it added with this comment as follows.

Disclaimer: The above expressed opinions and citations are my own and not necessarily endorsed by this site. My opinions and citations are shared as alternative perspective for your entertainment only. I cannot prevent you from deeming that my essay is educational. I am not a professional advisor, thus I claim safe harbor and I am not responsible for any outcomes, mental state, decisions or actions you experience or make after reading this essay or cited sources.

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