An Entropy Theory of Value

Abstract

More than half century ago, Shannon's identification of information as the reduction of entropy greatly clarified the meaning of information and established information theory as a science. Since all human activities represent extraction and transformation of low entropy from the environment, it is natural to relate economic value to low entropy. However, some conceptual difficulties prevented the development of an entropy theory of value. In this work, we identify economic value as the reduction of entropy mathematically and explore the relation between physical entropy and economic value. In the process, we show how the detailed investigation of information theory, thermodynamic theory and the theory of evolution resolves the conceptual difficulties that confound us for many years. The entropy theory of value, by establishing the theory of value on the firm foundation of thermodynamics, greatly clarified many fundamental issues in economic theory and human activities.

Keywords: value, entropy, information

JEL Classification: A10, B41, D80, Q40