Economic theory has become stuck in subjectivism and settled for decades. Isolated attempts to explain the nature of value in new ways have yet to lead to a breakthrough. Behavioral economics is flourishing, but it completely sidesteps the question of the nature of value. Fortunately, physics and biology are coming to the rescue.The marginalist revolution explained
how we choose, but never answered the question of
why we assign value to things in the first place. If we view a person not as a "set of preferences," but as what they truly are — an open thermodynamic system — the formula for value takes on an entirely different, physically grounded form.
In 1776, Adam Smith formulated the classic paradox of value: water is essential for life but costs pennies; diamonds are useless but cost a fortune. Classical economics wrestled with this for over a century until, at the end of the 19th century, the marginalists — notably Menger — declared: "
value exists only in the mind of the evaluating subject and is inseparable from a specific act of choice at a specific moment."
At that point, economic thought settled for decades, and isolated attempts to explain value through energy or information have so far led nowhere. From every department and textbook we are told: "
Value is in the mind of the consumer", while economists have moved on to mathematical modeling of demand curves. But such an answer is very limited, as it describes the
mechanism of evaluation without explaining its
nature. Why does a living being develop a "preference" at all? How do people and businesses try to create and assess value without understanding its nature?
Let us conduct a thought experiment and attempt to derive a theory of value from scratch, relying not on economic dogma but on logic, the laws of physics, biology, and information theory.
Enemy Number One: EntropyFrom the standpoint of the second law of thermodynamics, any closed system tends toward chaos and decay. A living organism is a miracle precisely because it is an open system that temporarily and locally resists this rule. As Erwin Schrödinger brilliantly observed in 1944 in his work “What Is Life?”, a living organism sustains itself by continuously extracting negentropy (negative entropy) from its environment.
For a living being, entropy is not an abstract concept from a physics textbook. It is the structural breakdown of cells and, ultimately, thermodynamic equilibrium with the environment — in simple terms, death.
Consequently, any biological need is an attempt to acquire negentropy, i.e., the opposite of entropy. Food, water, shelter, medicine, education — all these are tools that reduce chaos in the system. But what is the bottom line when we defeat entropy?
Curiously, virtually any economic good goes through the same logical chain. People seek to obtain money in order to exchange it for certain resources. Resources expand capabilities. Capabilities increase resilience to uncertainty. Resilience preserves the survivability of the system, its future. Therefore, if we consistently ask the question "what for?" with respect to any good, we arrive again and again at the same category — the preservation of the future and the opportunities within it.
Time as the Sole Absolute CurrencyMoney is a social construct, a fiat abstraction, and is not an object of consumption in itself. The only non-renewable and absolute resource for maintaining the physical existence of any subject is the time of its functioning.
The struggle against entropy is not an end in itself. It is a way to buy time. When you purchase insurance, get a vaccination, or simply go to sleep, you are not adding a single second to your current sensation of "now." You are buying a guarantee that you will have a "tomorrow." You are investing resources in preventing the complete nullification of the subject.
If we accept this idea, we arrive at a logical conclusion: the objective
value of any good in the universe
equals the expected amount of time the system would have lost had it not used that good to fight entropy. We value a good not for what it "gives" us, but for the specific loss of future that it prevents. For a system, preserving itself is far more important than acquiring something, because a living system has a wide range of potential acquisitions, while an acquisition that does not reduce the risk of the system's destruction is useless.
The Future as a Category of ValueHowever, if we say that value is simply "time," we encounter an ontological error. Time itself is neutral. A stone exists in time for billions of years, but does that have "value" for the stone? Time is merely a unit for measuring the future.
That is why it is more accurate to conclude that
value is preserved future.
The future is a category that exists only for a system possessing the capacity for choice. It is not merely "later"; it is a field (space) of potential choices, experiences, and actions. When we say that a good or service has value, we mean that it preserves for us this space of possibilities (T – preserved future). Such a space is characterized by the probability distribution of the realization of those possibilities (P – the probability that a particular scenario will occur).
Time, then, appears not as the essence of value, but as its natural unit of measurement. We cannot measure the "volume of the future" in abstract units (we do not know exactly how many emotions, events, or discoveries await us). Therefore, we use time as a universal ruler. "This device will save me an hour a day" means that it not only saves me an hour of my future, which I could convert into other experiences, but it rescues me from the irretrievable loss of an hour that I could potentially turn into a wider field of possibilities for preserving myself as an integral system.
At the same time, utility does not disappear; it changes its status. Utility is not the source of value, but a subjective indicator of value. It plays the same role for the economic agent as pain and pleasure do in biology: it helps to roughly estimate the impact of events on their future.
Emotions as an Evolutionary User InterfaceA reasonable objection arises here. If everything boils down to thermodynamics and time, why don't we walk around with calculators, counting joules and hours of life? Why do we buy works of art, branded goods, or play video games?
The answer lies in cognitive biology. Nature did not equip us with built-in entropy meters. Instead, it created a
subjective evaluation interface. Hunger, cold, fear, passion, a sense of beauty, a striving for meaning — these are not magical "spiritual" entities. They are evolutionarily formed algorithms, indirect markers that signal to the system: "Do this! It reduces entropy and buys you opportunities by saving time!" or "Flee from this! It threatens your existence! It limits your freedom — i.e., your field of choice."
Even complex social constructs — status, identity, meaning — are tools for long-term survival. They enhance our ability to influence the environment and, consequently, increase our chances of survival in a complex social setting.
This interface is imperfect, however, because it was shaped by biology mainly in conditions very different from those of modern life. The modern market has learned to "hack" it. Fast food provides a powerful dopamine response (an illusion of entropy reduction) but leads to diabetes (an increase in entropy). Social networks offer a surrogate for social recognition but burn up hours of real time. What economists call "irrational behavior," and with which behavioral economics is partly concerned, is in fact a malfunction of the evaluation interface. But it is more accurate to speak not of a "malfunction" but of an incomplete match between the environment in which this interface was formed and the one in which we now live.
The Value Formula: Time × ProbabilitySummarizing the above, if we combine thermodynamics (time) and cognitive science (agency/choice), we can formulate what may be called the
Probability-Time Theory of Value (PTTV).
The true value (
V) of any good for a subject is a function of two variables:
V = T × P
Where:
- T (Time) – the future, measured in objective units of time, that the system would lose if it did not make use of this resource (i.e., if it did not increase its ability to resist entropy and preserve functionality).
- P (Probability) – the probability that, without this good, this future will not be realized (depending on context, the subject's field of choices, and opportunity costs).
It is crucial to understand that value is not what you gain, but what you
do not lose by using the resource. The system does not strive to maximize something, but to minimize dissipation and preserve structure. The loss of future is an increase in entropy. Value is that which reduces this entropy or prevents it from growing, to put it in the language of physics.
As a result, the new, elegantly simple value formula instantly resolves a host of pseudo-paradoxes in economic theory.
When a Paradox Is Not a ParadoxLet us recall the "paradox of water and diamonds." The objective biological usefulness of a glass of water is constant: it amounts, conditionally, to roughly 4 hours of the body's functional life. This value does not change, whether in a metropolis or in a desert, all else being equal.
Why, then, is one ready to give all the gold in the world for this glass in the desert, while in the city it costs pennies? The answer lies in the fact that value is not an acquired future, but a future saved from loss.
In the city, the opportunity cost of obtaining water is negligible. If you do not buy this particular bottle, you can simply walk ten meters to a water cooler or turn on the tap. The probability (P) that your future will collapse precisely because of the absence of this particular glass approaches 0%. Consequently, its value (V) for this bottle is minimal.
In the desert, the situation is radically different. There are no alternative ways to obtain water. The harm from the absence of this glass is the loss of all future time (death). Here, the probability (P) of non-realization of the future without this resource approaches 100%.
At the same time, willingness to pay (the market price) is not the value itself. It is
a measure of the system's perceived critical dependence in a given context. We make a deal to exchange a resource that is "useless" under the given conditions (gold) for the only one that guarantees the continuation of time, because without it the
T multiplier (future) zeroes out the entire equation of existence.
Now the "
endowment effect", where people value the same item more when they own it than when they do not, also becomes clearer — loss threatens a greater loss of future (T) with a higher probability (P) than gain safeguards against loss of future. If you are drowning and someone takes away your life preserver, it is far more valuable to you than an additional life preserver.
And the "
Giffen paradox", when a rise in the price of a staple good (potatoes or pasta) leads the poor to buy more of it, becomes clearer. The price increase reduces the probability of survival (P) for the poor person, but their budget does not allow them to buy enough meat to compensate for the drop in P. As a result, they increase consumption of potatoes (even at a higher price) in order to maintain expected life expectancy T×P at an acceptable level.
"Irrationality", such as altruism or even death for the sake of others, ceases to be irrational if we recall that the agent maximizes the aggregate T×P of the system of which they are a part (family, group, species) — this is biologically grounded altruism, beautifully described by Hamilton's theory of inclusive fitness.
Why do people simultaneously hold a deposit at 5% and a loan at 25%? From the standpoint of standard theory, this is yet another behavioral anomaly. From the PTTV standpoint, it is a rational strategy for managing entropy. The deposit functions as an insurance buffer: it increases P — the probability that the system will withstand an unforeseen shock — even if the nominal yield is lower than the cost of debt. The loan, conversely, finances an event with an objectively high T (treatment, education) at a moment when P without external resources is insufficient for its realization. This is not a contradiction in behavior; it is the simultaneous optimization of two different components of the formula V = T × P.
Why Does Economics Need a New Foundation?Mises argued that any attempts at cardinal measurement of value are logically untenable, since action always implies only an ordinal choice between alternatives, not a quantitative measurement. That is true if one forgets that humans obey the laws of physics and biology, not just psychology, and if one speaks of utility rather than value as the measure of a system's survivability. A newborn "prefers" mother's milk without having any formed preferences in the Austrian sense.
The transition from ordinalist "subjective utility" to a cardinalist probabilistic-temporal approach is not merely a semantic trick.
It is a paradigm shift.
- Explanatory power. The new approach explains why economic agents strive for utility in the first place. Any economic system exists only as long as it is not destroyed. The striving to maximize T×P is a fundamental physical imperative of any complex system.
- A new view of familiar indicators. For instance, economic crises can now be seen not simply as a "fall in GDP," but as large-scale events of entropy growth in the social system, when institutions cease to protect agents from massive losses of future time (T), and the probability (P) that these losses will become fatal rises sharply. The very race for "GDP growth" becomes meaningless if it does not increase the future of the economic system and the probability of its survival.
- Ethics and design. Understanding that emotions are merely an interface allows us to design products and institutions that do not hack dopamine loops (creating an illusion of V while actually destroying T×P), but genuinely reduce entropy and expand the individual's freedom of choice.
Attempts to apply thermodynamics to economics have been made before. In his seminal work “The Entropy Law and the Economic Process”, Nicholas Georgescu-Roegen demonstrated that economic processes are irreversible and that resources degrade according to the second law of thermodynamics. However, his theory describes the constraints of production and resource consumption — that is, the supply side. PTTV solves a fundamentally different problem: it explains the nature of subjective valuation on the demand side, deriving it from the same thermodynamic logic. Where Georgescu-Roegen asked "what happens to a resource in the process of consumption," the probabilistic-temporal concept asks "why an agent assigns value to a resource in the first place."
Thus, a human being is a thermodynamic machine that believes itself to be a machine of meanings and emotions. The entire global economy is built on serving this belief. But when we strip away the veneer of marketing and subjective preferences, what remains is the stark and beautiful physics of choice. We do not simply buy things or services; we invest resources every second in buying the next moments of our existence — in a more resilient future.
The Austrian school asserts that value is subjective and arises in the mind. Relying on logic, we propose a different interpretation: our evaluations of value are subjective, but not the nature of value itself. Just as temperature existed before the thermometer appeared and people always felt it, but that did not mean its nature was subjective, so too can value exist independently of how accurately a person is able to assess it.
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