Energetic Finance

I’ve been thinking about this idea for a few weeks, thinking about the current financial system, trying to figure out why it’s failing and how not to reproduce the errors of the past in the next one. And since I don’t trust politicians to step back and find that sort of radical creative solution, I thought “hey! why not share it with everyone on the Internet? Maybe it will ring a bell and create a debate.”

I’m a scientist, you know. Well, I’m not a mathematician or physicist, going crazy about equations and theorems. In fact, I’m a computer scientist, so I tend to see the world through models. In computers, you know it’s impossible to reproduce reality as it is. First, as a scientist you humbly know that it’s impossible because our perception is too limited to get a grasp on it. But also because computers are even more limited in the way they can represent the world. In a computer, there is no such thing as infinity or continuity. Computers are finite and discrete. So every programming project starts with thinking about a model to represent the local problem at hand (finitely) in a way that computers can understand and work with (discretely). The result of this process might not be ideal, but it doesn’t need to be. It just has to be good enough. And if it’s not, then we develop new tools and technologies to increase the complexity of our models and get them closer and closer to reality, even though we know that we will never get there. In mathematics, we call that an asymptotic trend.

Now of course there can be a lot of different models to represent the same system, the idea being to map concepts from the system onto concepts from your model, apply the rules inside your model, and extrapolate what is happening in the system based on that.

Now let’s say the global financial system is a closed physical bubble. In this bubble, there is matter and there is energy. Let’s say matter is everything we produce or extract, be it services, goods, food, etc. Then like in every physical system, there are a lot of different sorts of energy.

There’s kinetic energy, energy created by mass in movement. Kinetic energy is progress, be it social, technical, that is everything that makes our lives easier and buys us some time to do more stuff.

There’s mechanical energy, created by forces. Mechanical energy is work.

There’s potential energy of gravity, energy accumulated by a mass that lifts up. Potential energy of gravity is global intelligence, understanding of the world around us.

There’s electric energy, that needs wires, connections to flow. Electric energy is the social connections between people.

There’s magnetic energy, created when magnetic fields move around one another, especially electromagnetic fields created by the flow of electric energy. Magnetic energy is happiness, well-being.

There’s chemical energy, stored and contained within matter, released by chemical reactions with matter and other forms of energy involved. Chemical energy is innovation.

And last but not least, there’s thermal energy, heat, that you can inject into a system to increase its entropy. Heat is money.

Now given this mapping, there is one fundamental rule to remember about a closed physical system: nothing’s lost, nothing’s created, everything’s transformed. You can turn energy into matter and vice-versa, which also means that you can tranform one kind of energy into another.

So what does the current financial system look like? Globalization is a very complex system and since we were not able to handle this complexity, we created a model to represent it, to approximate it. Now I don’t pretend to be an economist, but the way I see it, this model is very simplistic: people work to turn services and goods into money, and that money is supposed to create progress. In terms of our model, this can be translated like this: we combine matter and work to produce heat, that is supposed to make us move forward.

Now I see several problems with that. First, it looks a lot like what an old steam engine does, a very old-school way to move, so “first-industrial-revolution”. Second, it’s not efficient at all, because a very important part of the heat we produce is lost into the atmosphere and in friction. And last but not least, I used “supposed to” on purpose: what’s the point in moving forward when it’s perfectly warm right where we are?

But wait a second! Where are people in my model? Well, the way I see it, people are the complex machines (remember, it’s a model!) that accelerate the transformation of matter into energy, of one sort of energy into another one, beyond what would happen if the whole system was left alone. People are colliding molecules, power plants, engines, stars. But we are also parts of the whole system, which means we can’t evade the fundamental rule of conservation: we need matter and energy for our own consumption in order to do what needs to be done. In other words, only a fraction of what comes in actually goes out. Otherwise we would be a 100% efficient engine, the myth of perpetual movement.

And in my humble opinion, that is exactly what we are pursuing in vain, which explains why our financial system tends to neglect people so much, leave them out of the equation.

Now don’t you think this model is a little too approximative? I think it is. And as a scientist, when my model fails, I analyze why it failed and I use that to build a more complex model that is closer to the real system. What this means is that the next system will have flaws, it might create other crises, but it should hold better and by the time it fails, we will have gone further, we will understand our world better, we will have progressed.

Now what will the next model look like? Well, obviously it should stop neglecting all those different forms of energy. Happiness, progress, social connections, innovation, they should all become integral parts of the equation, they should even be favored over the highly inefficient and misleading thermal energy. And we should all remember, that since nothing’s created and nothing’s lost, if we steal something on one hand, sooner or later, we’ll have to give it back. And if we artificially create energy where it doesn’t exist, the equation will balance itself and evacuate that surplus, sometimes violently.

Now this is just my own personal, humble and limited understanding and reflexion. I’d be very curious to know what YOU think. Where are the flaws in my model? Do you see examples of where the mapping works or doesn’t work? What should be the main rules of the next model?