Anthony Lewis
- Jan 1, 2023
- 8 min read

Money: The Root of all Good

By Dr Anthony Lewis, Chair of Windsor Humanists and Chair of the South Central England Humanists Network.

In this article, Anthony explains that a revolution is currently under way in how we understand money. Like evolution, which overcomes entropy to create increasingly complex life forms, our money-based economy is an 'entropy reduction system' which turns information into the products and services which drives human flourishing.

Ever since childhood I've been fascinated by the simple question - what is money? I've always wondered why those with an education, or with sought-after skills, earn more than those without. Our understanding of what money is is currently undergoing a revolution. This revolution links money - this rather abstract social construct - to information science, traditional physics, and to the very fundamentals of life on earth. But first, let's have a brief overview of the history of money.

Historian Niall Ferguson considers money to be the most important invention humans have ever made. Archaeologists have found evidence of its use in early prehistory when we were still living a hunter-gatherer existence. It's now so ubiquitous most of us hardly notice it - until something goes wrong or until we do not have enough of it for our needs, or expectations. Ever since we noticed that other people had stuff we wanted, and we had stuff which they wanted, humans have been trading. Most of us love to haggle and secure a good bargain. It's almost a basic human instinct. Some academics argue that language developed in large part to facilitate bartering and exchange activities and to help create peaceful relations with neighbouring tribes. Niall Ferguson in his book The Ascent of Money (2008) describes how bartering activities led to the development of rudimentary money systems across nearly all early civilisations, often driven by the emergence of farming surpluses which had to be managed and recorded. Various materials have been used as money such as salt in Rome or clay tablets in Mesopotamia. Our modern, sophisticated money system is the result of ten thousand years of experimentation, evolution, trial and error, and regular booms and busts.

"The value of money reflects the sum total of cumulative trust present in our societies at any given point in time."

Money is, first and foremost, a means of exchange - a system of ‘delayed bartering’. Richard Dawkins, in The Selfish Gene, described money as 'a formal token of delayed reciprocal altruism’, Accepting money tokens instead of tangible goods is risky. We have to rely on the promise that others will accept these inherently worthless tokens later on for the goods or services we want. Money links human beings together in a complex web of mutual benefit and trust. It liberates us to specialise in what we're good at producing, and buy everything else we need. This represented a huge step forward for humanity, from an existence focussed on subsistence and trying to do everything for ourselves towards one of specialisation and expertise, resulting in surpluses which could be spent on the development of culture and art. So rather than ‘money being the root of all evil’ (as St Paul is often misquoted - see note below), money is a tool for fostering co-operation and peace, with its value reflecting the sum total of cumulative trust present in our societies at any given point in time.

The money system has evolved from a simple means for the exchange of goods and services to a system for valuation and a store of value - or what we now call (financial) wealth. The modern money system provides us with the means to manage economic uncertainties and future risks. This has been achieved through repeated innovations throughout history such as the invention of banking in Italy during the Renaissance, the invention of the limited liability company in the Netherlands, and the creation of insurance and bond markets in the UK to name just a few. Money as a store of wealth liberates our children from child labour so that they can be educated instead, it enables us to build up pension pots to support ourselves in old age, and it protects us from life ups and downs - at least to some extent. These benefits are so far-reaching we often fail to recognise the huge common good provided by a stable money system.

A revolution in our understanding of money, and its nature, is under way

Money today is increasingly held and transacted as bits and bytes of data stored on hard disks rather than physical notes and coins. The Covid pandemic accelerated the move to a cashless society because physical money in circulation was perceived as an infection risk. And it is this development which underpins the revolution which is currently under way in our understanding of what money is. It has given scientists the opportunity to apply information theory which was pioneered by Claude Shannon and Warren Weaver in their seminal book The Mathematical Theory of Communication which was published over seventy years ago. Shannon's Entropy Equation is one of the mathematical concepts which led directly to the creation of the digital communication systems which now form the backbone of the internet.

Shannon's Entropy Equation defines the amount of information that can be contained in a message measured in bits on a computer. It is a more generalised form of Boltzmann’s Entropy Equation in physics (originally formulated by Ludwig Boltzmann in the 1870s and put into its current form by Max Planck around 1900). These two equations, which are sometimes perceived as beautiful to those with an appreciation of maths, are shown in the image. Shannon's insight has allowed scientists to link the amount of information that can be contained in a digital message to the second law of thermodynamics and the concept of entropy. The maths are beyond the scope of this short article but the importance and impact of this linkage will be enormous. It has opened up a new and exciting area of research which has the potential to revolutionise our understanding of complex dynamic systems such as evolution, DNA, economies and money. César Hidalgo, Associate Professor at Massachusetts Institute of Technology, provided an accessible and lucid summary in his book Why Information Grows: The Evolution of Order, from Atoms to Economies, published in 2015. These insights represent a huge paradigm shift from our previous understanding of how economies and DNA function.

A brief summary of César Hidalgo's and others insights

Entropy in physics is defined as a measure of the disorder of a system. Entropy is increasing inexorably in the universe - everything in it is becoming progressively and relentlessly more disordered and random. It is this that provides us with what physicists term 'the arrow of time'.

According to the Second Law of Thermodynamics, entropy in a system can only decrease with the input of energy which 'forces' it to become more ordered. Life on Earth is a pocket of order in a universe of increasing disorder. Evolution is a system for creating order out of randomness, based on the information encoded in DNA together with the energy provided by chemical reactions. And this is where we can see a direct link between the information contained in DNA and measured by Shannon's Equation, and entropy reduction as measured by Boltzmann's Equation. This is what drives the creation of all life on earth. The key insight is that more information, with a suitable source of energy, is what drives order and increasingly complex forms of life. But what's all this got to do with money?

"Money connects all of us together in a network of mutual trust and co-operation. For me, it is one of humanity's greatest inventions that, incredibly, we are still striving to understand."

Our economies operate in a similar way as entropy reduction systems, turning the information that we have about the world into useful products and services that can be used by others to improve their lives. We achieve this conversion of information into something useful through knowing what to do (knowledge) and how to do it (know-how). The ‘energy’ in the economic system that turns information into more ordered states is provided by money. We have to make a distinction between Shannon's 'virtual' information domain, represented by knowledge and know-how driven by money, and Boltzmann's 'real' domain represented by raw materials and human resources driven by physical energy sources.

The two domains are different ways to understand the same economic processes. Using these insights, researchers are developing a range of new concepts such as the person-byte, the firm-byte, and the network-byte and they have been able to demonstrate that networks of firms are hugely more valuable than the simple sum of the value of the individual firms. The chart on the left links economic complexity (the horizontal axis) to GDP per capita (vertical axis) across different countries. You can see that highly complex economies, such as the US and Japan, are in the top right quadrant whereas less complex economies, such as Nigeria and Rwanda, are in the bottom left quadrant. Much of this value is not accounted for by traditional economics. Networks of firms are geographically 'sticky' which is why it is very hard to replicate Silicon Valley or the City of London in other places.

So what is money and why do the educated and skilled get paid more?

Do we now have an answer to my childhood question - what is money? I think we're closer to an answer. Money is a social construct which is used as a token of exchange, but it is also a key part of an information processing system which converts data, knowledge and know-how into the products and services which improve the quality of human life. My second question was 'Why do those with an education or sought-after skills earn more than those without?' The simple answer is that you need knowledge and know-how to convert information into products and services. And, according to Shannon's Entropy Equation, you need money, functioning as 'virtual energy', to reduce entropy and thus to create the products and services which everyone needs and wants. Thus, those with advanced skills, better capabilities and more know-how attract more 'energy' in the form of money. In simple terms, they get bigger financial rewards for superior productivity and for turning disordered natural resources into more ordered products and services that can be used by all of us. Creating order out of disorder.

Conclusion

Money connects us together in a network of mutual trust and co-operation. For me, it is one of humanity's greatest inventions and one which we are still trying to understand. Money has huge power to enhance or destroy our lives, given its network effects. The value of money, also, is a measure of trust in society. As a result, the daily choices we make about how to earn and spend our money have powerful impacts on all of humanity and the environment. With great power comes great responsibility, so use it wisely.

Money: The Root of all Good

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