Systemic Exchange Value

Some Preliminary Signposts towards a Thermodynamic Theory of Value, Production, Information and Circulation

Setting the Scene (and a little warning): The warning is: this article is I think fairly ‘heavy going’ and is the basis of what may become a more ‘academic’ piece. The paper forms the foundations of a series of shorter pieces, which I will be publishing over the next while as they are tidied up, that draw on the conceptual foundations worked out in this paper and which not only introduce the key concepts but also explore aspects of the global geopolitical economy environment in thermodynamic terms. There is a short ‘op-ed’ style introduction to these ideas that is posted separately and in conjunction with this ‘heavy going’ theoretical

So what do I try to do here? In essence, this article develops some key signposts towards a theory of systemic exchange value grounded in thermodynamics, endogenous money and information theory. It conceptualises value as emerging from energy surplus - defined as available energy in potential - and circulating through production systems via monetary and informational mechanisms. Production embeds energy into use values, while circulation transforms these via exchange values, mediated by EROEI (Energy Return on Energy Invested). Money is treated as an informational claim on future energy surplus, created endogenously in anticipation of production or as a catalyst for innovation. Entropy is reinterpreted as the informational cost of sustaining material systems, linking energy, information and economic dynamics. Exchange value is shaped by the EROEI in both production and use, while information reduces entropy and enables systemic coordination. The framework presents a non-equilibrating system in perpetual flux, driven by the dialectic between entropy (disorder, degradation) and adaptive efforts to increase EROEI_u through information-led optimisation. This integrated framework explains how digitalisation, data, and payments systems can optimise energy and monetary flows, offering a unified, thermodynamically coherent model of value production and circulation.

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1. Introduction

This is an evolving work of theoretical bricolage. It explores the interaction of economic circuits of production and circulation as value flow networks, and their intersection with thermodynamics and information theory. The work is exploratory, and draws from a diverse set of intellectual traditions and provocations.

Let me set the scene, autobiographically so to speak.

Back in 1990, I was completing my honours thesis at Griffith University. A member of the postgraduate cohort was an older guy, John by name, who’d come from the oil and gas industry. He was working on his PhD. In conversation, he mentioned his work and the one thing that stuck in my mind - and has done so for the past 3-plus decades, was the idea that there’s a given amount of energy in the universe and energy is what we call ‘value’. At the time, it didn’t make much of an impression on me, as I was working on Chinese Marxist political economy, focused principally on the role of ‘markets’ in ‘socialist transition’. This was framed as ‘the primary stages of socialism’. In any case, the idea that energy and value were coterminous more or less gestated in the far recesses of my mind. In time, I began to distill, crudely, the conditions-precedent of a functional society to the following proposition: all functional societies provide food for people and fuel for machines. I ran a ‘creativity festival’ in regional Australia about a decade ago, with the theme ‘ food, fuel, finance’. I guess that pretty much sums it up. In essence, it was a formulation that implied the idea that at the heart of social-economic systems is energy. Steve Keen’s work on energy further ignited my thinking on these themes, and Nate Hagen’s extensive body of reflections prodded me along. What follows is my own preliminary exploration of the issues through lenses that make sense to me, and which draw on a diverse intellectual pedigree. Keen’s much pithier and visually impactful formulation is ‘capital without energy is a statue, a person without energy is a corpse’.

In more recent years my work has focused on supply chain networks, principally conceptualised in terms of circuits of value flow in which material transformation flows are the counterpart of payments. In this circuit of production, payments and exchange, information or to be more precise, data ecologies, bridges the domains. In this environment, money qua means of payment is an endogenous system feature whose principal function is being a unit of account and means of payment. The work, much of it by way of peer reviewed academic publications, can be found here.

These early provocations - energy is value - and more recent work on the role of information systems, data ecologies and supply chain value flow systems seemed to call out for an attempt at systemic integration and exposition.

So, here goes.

What follows is a conceptual scaffolding for a thermodynamic theory of Systemic Exchange Value (SEV). This theory:

• re-conceptualises use value and exchange value as energetic phenomena;

• embeds money as an information-encoded, endogenous claim on future surplus energy; and

• Interprets information (via Shannon) as the optimisation of entropy within energetic systems.

The argument challenges marginalist price theory, offering instead a materialist-energetic alternative that understands production, circulation, and pricing as governed by entropy, energy flows and dynamic feedback loops grounded in physical systems.

The paper lays out the conceptual frame layer by layer, or circuit by circuit.

• Section 2 outlines the key theoretical concepts associated with thinking energy as value. This is the material and thermodynamics foundation of the economic system. This section also re-conceptualises energy surplus as (AEP) in the context of entropy constraint.

• Section 3 discusses money as an endogenous information-encoded claim on embedded energy. This extends to briefly considering credit creation in the context of Embedded Energy circuits and digitalisation of money. Questions of investment as an induced activity are considered in this section.

• Section 4 extends this discussion to explicitly introducing a unified energetic-information system frame anchored in Shannon’s notion of information as entropy management. This section also discusses explicitly the relationship between digital payments and energy circulation.

• Section 5 pulls some threads together to enable a discussion of the dynamics of surplus energy, endogenous money and temporal dynamics of profit and wages.

• Section 6 introduces the problem of maladaptation, exploring how misallocation of monetary flows toward low-EROEI sectors undermines system-wide adaptation.

• Section 7 explicitly summarises some of the principal theoretical implications of this discussion.

• Section 8 extends the conceptual framework to signpost some policy and systemic strategic implications.

A conclusion wraps things up.

Energy is the foundation of the economic system. All socio-economic systems are energy transformation systems.

2. Energy as Value in Motion

This section introduces the core concepts for our understanding of SEV at the level of energy as value. The core theoretical concepts are:

1. Use value as Embedded Energy;

2. Exchange Value as a function of EROEI; and

3. Systemic Circulation as a dialectic involving entropy offset by EROEI enhancements.

Use Values are defined as commodities with Embedded Energy (EE), which includes both the energy physically contained in the object and the energy expended or wasted in its production and delivery. EE includes direct energy inputs (e.g., fuel, electricity) and indirect energy flows (e.g., energy used to produce capital goods, materials, and labour reproduction).

Exchange Value (EV) is conceptualised as a fungible denominator, that is, as a relative measure of EE that reflects the commodity’s capacity to circulate within a broader energetic system. EV is not arbitrary but structured by two vectors:

• EROEI_p: Energy Return on Energy Invested in production; and

• EROEI_u: Energy Return on Energy Invested in use (i.e., the energy productivity during the consumption or application of the use value).

Thus, Exchange Value is determined by the joint function EV = f(EE, EROEI_p, EROEI_u), modulated by competitive dynamics and the availability of alternatives.

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BOX: Some Real World Examples

Let’s illustrate these core theoretical observations with some real life examples.

Firstly, consider energy fuel sources. Coal embodies high immediate energy density but comes with lower EROEI over time due to pollution, health effects and environmental degradation. Solar energy, while requiring high upfront investment, offers higher long-run EROEI_u through lower marginal costs, distributed production and long-term renewability.

In SEV terms, solar energy vectors may have lower exchange value per joule in the short run (due to capital intensity) but higher systemic value due to long-term productivity and low waste.

Secondly, consider the contrast between gasoline versus electric machines. A gasoline-powered machine may seem cheaper in EV terms but has lower EROEI_u due to inefficiency and fossil fuel depletion. An electric machine powered by solar-derived energy offers higher productivity per unit of embedded energy and thus holds a higher relative exchange value in SEV terms.

Thirdly, think about nutrition and food systems. Foods with higher nutritional content (i.e., higher usable energy content) require greater EE to produce (e.g., protein-rich foods), but they offer greater EROEI_u and systemic benefit. Junk food may be cheap in conventional price but low in EROEI_u.

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The SEV model presents economic activity as a system of energetic circulation, analogous to Marx’s “capital as value in motion.” In this system, Use Values embody EE and circulate in exchange for fungible Exchange Values, which in turn serve as signals and incentives for the production, distribution and transformation of new Use Values. Energy is ever-present in the system. Only its form and concentration change. The systemic objective, though not a pre-ordained teleological outcome, is to:

1. Increase EROEI_p in production;

2. Increase EROEI_u in use; and

3. Create systemic abundance and resilience.

At the core of the SEV framework is a dialectical tension: the system is both constrained by the entropic nature of energy and driven toward abundance through the strategic behaviour of economic agents. In this context, abundance is not a mere increase in volume but an expansion of usable, high-EROEI energy forms that increase the EROEI vector across both production (EROEI_p) and use (EROEI_u).

Crucially, the vitality of the system - namely, its capacity to renew and expand energetic potentials - depends on the presence of alternatives and the competition to mobilise them. If exchange value is determined by the relative EROEI_p and EROEI_u of energy-embedded commodities, then in a context devoid of competition and one in which there are few not no alternatives, agents are incentivised to restrict access to higher EROEI options in order to preserve or inflate exchange values.

This dynamic is structurally identical to rentier behaviour in monopoly markets but grounded in thermodynamic fundamentals rather than market frictions alone. Without competitive pressure, energetic rents are extracted and innovation is suppressed. The system becomes parasitic rather than generative. The SEV framework thus establishes energetic multiplicity and competition as necessary conditions for abundance; the absence of energetic multiplicity and competition undermines the prospects for abundance.

A critical refinement in the proposed thermodynamic theory of production and circulation concerns the relationship between energy surplus and entropy. Traditional economic interpretations of surplus often imply a persistent, positive stock - an accumulation of resources above subsistence levels. However, when considered through a thermodynamic lens, this notion requires revision. In physics, and particularly in the second law of thermodynamics, entropy represents the tendency of energy to disperse into less ordered, less useful forms. This universal constraint implies that all energy transformations inevitably lead to some degree of degradation in the capacity of energy to do work.

From Surplus to Available Energy in Potential (AEP)

To reconcile this reality with the idea of surplus, we propose a shift in conceptualisation: energy surplus should be understood as “Available Energy in Potential” (AEP) - that is, the portion of embedded energy in a system that remains available for useful transformation before it is dissipated as waste heat or entropy.

This concept serves as the energetic precondition for the realisation of Energy Return on Energy Invested in use (EROEIᵤ). Rather than treating surplus as an inert stock, AEP highlights the dynamic, time-sensitive nature of useful energy. It points to the technological, infrastructural and systemic conditions under which embedded energy can continue to circulate and enable productive work.

Surplus Energy, Entropy and the Meaning of Abundance

Within the thermodynamically grounded framework of systemic energetic circulation, it is essential to move beyond static or vague definitions of “energy surplus” common in conventional economic thought. In classical and neoclassical economics, surplus is often treated as a residual output after inputs are accounted for, typically in terms of labour and capital. However, in a system governed by thermodynamic laws, such formulations are inadequate.

Entropy introduces an unavoidable transformation and degradation of energy quality over time. All energy conversions in production or consumption entail a degree of irreversible loss, which undermines any simplistic notion of surplus as a net positive remainder. Therefore, we propose a refined and dynamic conceptualisation:

Surplus energy should be understood as Available Energy in Potential (AEP) - that is, the quantity of energy at any given moment in time that remains usable for productive or transformative work, after accounting for entropic dissipation.

This reconceptualisation achieves several key clarifications:

• Surplus is not static: It is not a fixed quantum but a function of time and thermodynamic transformation;

• Surplus is contextual: It depends on the capacity of the system to convert and use energy effectively (EROEI_p and EROEI_u); and

• Surplus is a vector of potential action: It represents the scope of feasible productive activities a system can sustain.

This leads us to a grounded, systemic definition of abundance in economic and ecological terms:

Abundance is the quantum of Available Energy in Potential (AEP) at a given moment in time.

Abundance, then, is not a matter of commodity quantity or consumer choice. It is the real-time measure of a system’s thermodynamic health and productive potential. The vector dynamics of EROEI in production (EROEI_p) and in use (EROEI_u) determine not only the emergence of exchange value but also the systemic trajectory towards abundance or non-abundance or, even, collapse.

In conditions of constrained alternatives or monopolised energy access, economic actors may be incentivised to restrict AEP, reducing system vitality. In contrast, under conditions of open competition and innovation in energy vector development, the system tends toward increasing AEP, driving technological evolution and fostering abundance.

This reformulation aligns surplus energy with both thermodynamic constraints and the informational dynamics of energy systems, providing a more rigorous and operationally meaningful category for economic analysis. In this thermodynamically grounded framework, surplus energy, understood as AEP, is not merely an abstract residual of output over input. It is the material precondition that underpins the very possibility of wages and profits. See Section 5 below for more discussion on wages and profits.

This leads to two key observations:

1. Abundance is a system outcome, not an equilibrium state, under specific conditions. It emerges from energetic diversification and competition, not from static optimisation under constraints; and

2. The system is most alive, that is most dynamically productive, when energy alternatives exist and agents compete to realise new, higher-EROEI configurations. In such a setting, exchange values tend to decline per unit of energy use value as abundance increases, redistributing value toward innovation and coordination rather than scarcity rents.

This stands in stark contrast to neoclassical equilibrium frameworks where scarcity underpins value. In the SEV system, abundance becomes the higher-order attractor, provided the conditions of openness, innovation and systemic competition are sustained.

3. Money as an Endogenous Information-Encoded Claim on Embedded Energy

Money as a Unit of Energetic Account

In this energetic value system, money is reconceptualised as a fungible claim on embedded energy (EE), expressed through exchange value (EV). Drawing on the endogenous money tradition (Moore, 1988; Wray, 1998; Graziani, 2003), I posit that:

• Money is not a store of value per se, but a dynamic informational medium;

• It records and facilitates the circulation of use values (UV) derived from embedded energy, evaluated in terms of their energy return on energy invested (EROEI). In this sense, it is a unit of account and medium of payment; and

• This aligns money with Shannon-style information theory, where money compresses and communicates claims on future energy flows. I will return to this in the next section.

Credit Creation and the EE Circuit

Endogenous money theory emphasises that money is created through lending, in response to productive needs - not by prior savings. Within our framework:

• Credit Ct is issued to finance production of high EROEI use values (UV).

• Money M circulates as a tokenised EE claim.

• Debt is extinguished when UVs are sold and exchange value EV is realised.

This energetic money circuit can be expressed as:

Ct → Mt → EE → UV → EV → Debt Repayment_Ct

This is structurally identical to the systemic exchange value (SEV) circuit discussed earlier, highlighting that money is a transitory claim on EE-in-motion.

Digitalisation and Monetary Efficiency

Digitalisation of payment systems, including blockchain and AI-driven credit scoring, enhances monetary velocity and reduces the total MM required to circulate a given stock of UVs. Specifically:

• Faster payment systems lower working capital needs and storage requirements; and

• This reduces the energy costs of operating the monetary system itself.

Hence, increasing velocity (e.g., through digital payments) decreases the energy embedded in money system operation, making the system more energetically efficient. Money, in this framework, is:

• An endogenously issued token that encodes expected EE-derived value;

• A medium that accelerates circulation of UVs while minimising systemic energy costs; and

• A device that compresses and communicates complex energetic information, linking present commitments to future energy returns.

This reconceptualisation extends endogenous money theory into the thermodynamic domain, offering a new paradigm for evaluating monetary and credit systems based on physical and information-theoretic foundations.

Entropy is an endemic feature of the material world.

4. Energy, Information, and Shannon’s Theory: Toward a Unified Energetic-Informational System

In the contemporary economy, data and digitalisation are increasingly central to production and exchange. These phenomena are not immaterial abstractions; they are energetically instantiated systems that demand energy to operate but also enhance the efficiency of energy use across sectors. This section integrates Claude Shannon’s theory of information with the EROEI-based systemic value framework, creating a thermodynamically grounded theory of economic organisation and transformation.

Energy and Information as Entropy Management

Shannon (1948) defined information as the reduction of uncertainty, formalised through the concept of entropy. Entropy, in this informational sense, parallels thermodynamic entropy: it measures disorder or randomness within a system. Economic actors constantly seek to reduce uncertainty in order to make efficient use of resources - in particular, energy.

In our theoretical system, embedded energy (Use Value) enables action, and information enables the optimisation of how that energy is deployed, thereby increasing EROEI in use (EROEI_u). Just as energy reduces physical entropy, information reduces systemic entropy, allowing for more productive use of energy with fewer losses.

Data Systems as EROEI Enhancers

Digital infrastructure, from sensors and communication networks to AI and predictive analytics, requires energy to build and operate (EROEI_p). However, its primary function is to organise systems, enhance decision-making, and optimise flows. This contributes to higher EROEI_u across the system, for example:

• Supply chains become more responsive and efficient;

• Transportation reduces empty miles and fuel waste;

• Agricultural systems optimise water, fertiliser, and energy input; and

• Health and education systems deliver outcomes more efficiently.

Thus, data systems increase the EROEI vector not by increasing the numerator (energy output) per se, but by reducing energy waste and entropy, particularly on the use side.

That said, not all data successfully increases the net EROEI vector. Information systems are often presumed to be immaterial and inherently efficiency-enhancing. In reality, they consume energy (informational EROEI_p) and only contribute to system viability if they reduce entropy or increase productivity (informational EROEI_u). If the energy cost of an information system exceeds its contribution to reducing entropy or improving EROEI, then it represents a thermodynamic loss. Informational viability must therefore be assessed case by case, with consideration of the value and complexity of the governed system. Systems with low exchange value or low systemic impact should not bear high informational overhead.

Digital Payments and Energy Circulation

The function of digitalised payments can also be seen in thermodynamic-informational terms. Money in our framework is a fungible token of relative embedded energy, a form of exchangeable entropy-reduction claim. Payments systems enable the coordination and circulation of Use Values.

Digitalised payments systems:

• Speed up circulation of Exchange Values;

• Reduce transactional uncertainty;

• Minimise the energy intensity of trust, verification, and recordkeeping; and

• Lower the stock of “resting” money needed in the economy (e.g., working capital, buffer stocks).

In Shannonian terms, a high-efficiency digital payments network compresses and transmits information more cleanly and quickly, enabling smoother coordination with lower energetic overhead.

Toward a Unified Theory of Value

This synthesis allows us to propose a unified energetic-informational theory of systemic value. The key propositions are:

1. Information (Shannon) and Energy (thermodynamics) are linked through entropy;

2. Use Values are embodied energy systems; their value is determined by their EROEI profile in production and use;

3. Exchange Value is an informational representation of the intersection of relative energy efficiency in production and energetic potential, requiring efficient signalling systems to coordinate;

4. Data and Digital Systems function as entropy reducers - they are high-leverage, low-mass systems that maximise EROEI_u when correctly designed; and

5. Monetary Circulation and digitalised finance are forms of informational entropy compression and transfer that affect the speed and structure of energetic value flow.

This integrated view radically diverges from traditional general equilibrium theory. Rather than prices emerging from marginal utility and supply-demand curves in a frictionless market, value emerges from the thermodynamic and informational characteristics of the system. This includes the capacity of agents to reduce entropy and increase productivity through better information and energy vector use.

Implications for System Design and Policy

Understanding information and data through this thermodynamic lens allows for new strategic priorities in system and infrastructure design:

• Digital public infrastructure becomes an energy transition tool;

• AI deployment becomes an EROEI optimisation mechanism;

• Data ownership and governance become central to the fair allocation of informational entropy-reduction capabilities; and

• Energy and data policy converge: energy-efficient information systems are part of the energy transition, not separate from it.

Energy, information and entropy are intertwined drivers of system change.

5. Surplus Energy, Endogenous Money, and the Temporal Dynamics of Profit and Wages

In monetary production economies, the distribution of wages and profits is often misunderstood as a consequence of “real” output or prior savings. However, when viewed through the lens of systemic energy theory and endogenous money, wages and profits are better conceptualised as claims on anticipated surplus energy, facilitated through liquidity injections that occur ahead of actual production. This section formalises the dynamic relationship between thermodynamic surplus, monetary liquidity, and economic circulation.

Liquidity as Anticipation of Future Surplus Energy

In endogenous money theory, credit is issued by banks not from existing reserves, but in response to expectations of future repayment capacity. This is itself dependent on productive economic activity. In our integrated framework, productive capacity must be grounded in net surplus energy (AEP) that arises from a combination of production and potential EROEI (i.e., EROEI_p and EROEI_u). The issuance of money, then, is a monetary anticipation of future energy productivity.

This anticipatory nature implies that liquidity is not neutral but directional: it seeks out vectors of expected surplus. In effect, liquidity serves as a signal and enabler of future energetic transformations, reinforcing the alignment between financial flows and the thermodynamic structure of the economy.

Today’s Wages and Profits as Drawdown on Prior Liquidity

The money paid as wages or distributed as profits at time t is a drawdown on liquidity that was endogenously created at time t-1, based on anticipated productive capacity at time t+1. This introduces a temporal logic to economic circulation:

Liquidity injection t−1 → Production and distribution t → Surplus realisation and debt settlement t+1 ….

This structure reveals how monetary and energetic circuits intertwine: money advances production, which must yield real surplus energy to validate the liquidity's creation. When money does not advance production and net improvements in systemic AEP or reduce systemic entropy, it can contribute to systemic maladaptation manifest in reduced welfare or diminished adaptive capacity in the face of accumulating entropy.

Feedback Loop: EROEI Expectations Drive Liquidity

Banks and financial actors, implicitly or explicitly, evaluate EROEI_p and EROEI_u when assessing the creditworthiness of economic projects. High expected EROEI attracts investment and liquidity, expanding the monetary circuit and enabling more widespread exchange of Use Values for Exchange Values.

However, systemic misestimations, such as seen in asset bubbles or financial crises, result in monetary claims unsupported by real surplus energy. This disconnect triggers crises of validation, manifesting as inflation, insolvency, or stagnation.

Money as Abstracted Claim on Thermodynamic Surplus

In this framework, money acts not merely as a medium of exchange, but as an informational signal and abstract claim on future surplus energy. Each unit of money can be understood as encoding a probabilistic expectation of future access to Embedded Energy (EE), rooted in the EROEI dynamics of the system.

This interpretation resonates with both Shannon’s theory of information and with theories of fiat money as socially guaranteed liquidity. It is a signal backed by institutional credibility and future production potential.

Policy and System Stability

The sustainability of economic growth and distribution depends on the alignment between:

• Monetary expectations (liquidity injections);

• Thermodynamic feasibility (net AEP); and

• Systemic EROEI enhancement through innovation.

Policy frameworks must therefore shift from static supply-demand optimisation to dynamically managing EROEI trajectories and ensuring that liquidity creation supports real energetic transformation, particularly in sectors tied to infrastructure, digital systems, and renewable energy.

Failure to anchor liquidity in thermodynamic fundamentals results in what can be termed a monetary overhang, that is a proliferation of claims that cannot be validated by the energetic base, leading to social and economic disequilibria.

This section thus serves as a bridge between thermodynamic political economy and endogenous monetary theory, unifying energy, value, and financial dynamics into a cohesive framework. This framework therefore implies that true energetic surplus is not an absolute quantity but a function of both systemic capacity and entropy resistance. As such, the pursuit of abundance must be understood as a race against entropy, that is, a constant innovation process to increase the accessibility, longevity, and productivity of available energy vectors.

We can conclude this section by observing the following:

1. No absolute surplus exists: Surplus is always conditional upon system architecture, energy vector characteristics, and entropy dynamics;

2. EROEIᵤ becomes the operational measure of energy system vitality, integrating both potential and efficiency over time; and

3. Policy, infrastructure and technological choices must be evaluated in terms of their impact on AEP and EROEIᵤ, rather than through static notions of input-output surplus or financial profit.

6. Monetary Allocation, Maladaptation and EROEI Trajectories

In systems governed by endogenous money creation, the allocation of credit reflects forward-looking expectations of value. However, systemic adaptation depends on aligning these monetary flows with sectors that yield high and rising EROEI in both production and use. When credit disproportionately supports sectors with persistently low or declining EROEI, the result is monetary maladaptation - a structural misalignment between financial commitments and thermodynamic viability.

In this condition, systemic efficiency declines. Liquidity becomes locked into value circuits that produce diminishing returns while crowding out investment in alternatives with higher adaptive potential. These include renewable energy infrastructures, digital coordination tools, high-efficiency transport, and resilient provisioning systems.

The result is:

• Reduced adaptive capacity;

• Higher entropy loads for equivalent value outputs;

• Delayed system reconfiguration and locked-in energy regimes; and

• Financial fragility due to over-leveraged, under-productive capital bases.

The long-term consequence is path dependency and structural rigidity - a form of macroeconomic entropy accumulation that resists transformation even as viable alternatives exist. Thus, the thermodynamic viability of the economy becomes hostage to its credit allocation logic. To avoid this, monetary governance must shift from demand-side volume metrics to adaptive system indicators grounded in EROEI vector analysis.

This raises the question of investment. We distinguish two types of investment flows:

1. Capacity-driven (induced) investment; and

2. EROEI-Augmenting (Innovative) investment.

The former is driven by demand-side expectations when current productive systems approach their physical or systemic limits. This can be treated as a relatively low risk activity because it operates within known system boundaries and technologies - existing EROEI levels apply. Induced investments maintain system stability and expand throughput in the short term. Thus, capacity is augmented in response to (anticipated) demand requirements. The latter is R&D and innovation-focused, targeting potential improvements to energy harvesting/conversion (raising EROEI_p), energy-use infrastructure (raising EROEIᵤ), and entropy suppression technologies (e.g., smart systems, automation and AI). Such investment activity can be said to be incentivised in environments of high entropy, as there is increased urgency, but can be suppressed due to high uncertainty unless potential losses are offset by large expected EROEI gains. EROEI-augmenting investment increases the adaptive envelope of the system, enhancing future surplus and resilience, but carries inherent uncertainty and time delay.

7. Some Theoretical Implications

This short paper aimed to flush out some concepts, and also contrast those with mainstream and other approaches. The main implications go to the following:

1. It critiques marginalism’s entire approach to price determination, by extending the insights of Sraffa;

2. It upends mainstream economics’ presuppositions about systems verging to equilibrium ceteris paribus, suggesting that on the contrary, the social-economic system grounded in thermodynamics is fundamentally in flux and non-equilibriating;

3. It adds to the critique of the Cobb Douglas production function approach to productivity, suggesting that productivity and wealth are energetic transformation and flow questions;

4. It upends mainstream conceptualisations of productivity investments and waste, by insisting that productivity is meaningful only over time;

5. It directly augments Sraffa’s notion of a standard commodity (an abstraction) with a concretised and materialist concept grounded in energy;

6. It includes information as a category of value, that is, information is grounded in energy cost and entropy reduction potential;

7. It augments endogenous money theory suggesting a need to focus on adaptive liquidity discipline rooted in biophysics and system requirements for EROEI augmentation as key areas of liquidity priority; and

8. It is suggestive of a need for a thermodynamic political economy as a broad framework.

Marginalism and Price Determination

This thermodynamically-grounded theory of systemic value upends the marginalist view that price is a result of equilibrium between subjective preferences and scarcity. Instead, price emerges from systemic material and energetic constraints, structured by EROEI dynamics, rather than from the intersection of supply and demand.

Sraffa’s critique of marginalist capital theory, particularly the impossibility of reducing capital to a homogeneous measurable quantity independent of prices, is resolved by rooting value in EE and its EROEI-based productivity. Rather than a tautological feedback loop between capital, production and price, SEV treats capital as a configuration of energy embedded in productive infrastructure whose value emerges from systemic energy dynamics.

The Dialectic Between Entropy and EROEI Optimisation: Undermining the Mainstream Equilibrium Paradigm

Mainstream economic theory rests on a metaphor of price-clearing equilibrium, in which supply and demand converge through marginal utility and cost calculus. However, this metaphor breaks down in a thermodynamic world where production and consumption are irreversible and entropic.

Entropy, defined as the dissipation of energy into unusable forms, is ever-present in the system. Economic activity can never be purely circular because each transformation incurs energy loss. The dialectic between entropy and EROEI optimisation, therefore, defines the evolution of the system. Economic actors, institutions, and technologies are all incentivised to seek configurations that maximise productive energy returned relative to energy invested subject to the distribution of ownership and control over various energetic possibilities - in other words the extent to which there is competition and the availability of alternatives.

In this sense, systemic optimisation is not toward a static equilibrium but toward configurations that delay or slow down entropic decline by increasing EROEI over time. This is achieved through innovation, infrastructure and the substitution of high-waste vectors with high-return alternatives. This fundamentally alters our understanding of economic dynamics and positions energy productivity, not market-clearing price, as the core driver of transformation.

Rethinking Productivity: Challenging the Cobb-Douglas Framework

Mainstream economics operationalises productivity through the Cobb-Douglas production function, which posits output as a function of labour and capital inputs (typically: Y = A·K^α·L^β). However, this approach abstracts from the biophysical and energetic foundations of production. Capital and labour are treated as “black boxes,” with no consideration of energy throughput, transformation efficiency, or material degradation.

The SEV framework rejects this abstraction. Instead, it treats productivity as the rate at which EE is transformed into usable energy outputs through socio-technical systems. A higher EROEI in production (EROEI_p) means that more energy is returned for a given investment, directly linking productivity to energetic efficiency. Labour and capital are themselves seen as energy-transferring agents: labour being embodied energy, capital being stored energy in machines, tools, and infrastructure.

This reframing provides a physical, measurable basis for productivity that reveals the declining marginal productivity of fossil-fuel based capital and the superior systemic productivity of renewable-based energy infrastructure. It highlights that economic growth is not limitless, but governed by thermodynamic constraints and opportunities for EROEI enhancement.

Time, Infrastructure and the Value of Energy Vectors

Standard value theories ignore temporality in assessing investments. However, under SEV, time becomes a crucial dimension in determining the systemic value of energy vectors. Infrastructure investments, such as transport networks, housing, waste-water systems, or digital communication systems, may appear inefficient in conventional ROI terms but hold high EROEI_u because they enable the more productive use of energy across long temporal horizons.

The time factor thus modifies both the EROEI_p and EROEI_u of use values. For instance, an electric railway system may take decades to amortise its EE cost but deliver sustained systemic returns through dense, low-carbon transport capacity. Urbanisation, when structured around high-EROEI infrastructure, becomes a platform for energy-efficient living. Similarly, wastewater treatment and digital networks reduce waste, increase energy coordination and elevate the potential energy productivity of the system as a whole.

This insight provides a rationale for long-horizon public and collective investments. SEV thus shifts economic evaluation from short-term price signals to long-term systemic energy returns, measured across the lifespans of physical and institutional infrastructures.

From Sraffa’s Standard Commodity to Energetic Vectors: A Grounded Universal Measure

In Production of Commodities by Means of Commodities (1960), Piero Sraffa introduced the concept of the standard commodity. This is a composite commodity whose proportions are such that the ratio of surplus to inputs remains constant, enabling the determination of the general rate of profit. This concept, while powerful in challenging marginalist value theory, was abstract and disconnected from the material characteristics of use values or from any thermodynamic foundation.

In the SEV framework, I try to extend and concretise Sraffa’s standard commodity concept by introducing the idea of energy vectors; that is, distinct, materially grounded profiles of embedded energy that circulate within production and consumption systems. Each energy vector is defined by its embedded energy, production EROEI (EROEI_p), and potential EROEI (EROEI_u), providing both an ontological and quantitative grounding for assessing value.

Where Sraffa used the standard commodity as an analytical device to define a general rate of profit and stabilise the relationship between inputs and outputs, the SEV system uses energy vectors as real, thermodynamically grounded entities that perform a similar function but with richer implications:

• They offer a universal, physical denominator of economic value, not merely in abstract units of labour or surplus, but in energetically meaningful terms;

• They enable inter-temporal and inter-sectoral comparisons of value that respect material constraints and productive potential, rather than assuming commensurability through prices alone; and

• They operationalise the theory of systemic abundance, allowing one to trace how different configurations of energy vectors evolve dynamically across production systems and societies.

In this way, SEV replaces the abstract standard commodity with an empirically grounded, systemically dynamic measure of value, thereby merging Sraffa's logical critique of marginalism with the thermodynamic realism of ecological economics. This reorientation elevates energy itself, not as a mere input, but as the structuring logic of value, bridging classical political economy and 21st-century sustainability science.

Information as Energetic Infrastructure

The inclusion of information as a category of value - grounded in energy cost and entropy reduction capacity - extends the traditional factors of production. Information has EROEI in both production and use, and must be evaluated for its entropy-reducing contribution to the system.

This reframing aligns with Shannon’s entropy model and positions information not as an abstract signal, but as a material, energetic function enabling coordination, learning and adaptation.

Endogenous Money and Anticipatory Liquidity

Monetary theory must also shift. In the SEV framework, money is an endogenous, informationally encoded claim on future energy surplus. It is created through credit issuance based on expectations of future productive capacity, and becomes sustainable only if tied to increasing AEP.

When monetary flows are misaligned - particularly when credit is disproportionately directed toward low-EROEI sectors - the result is systemic maladaptation, reducing innovation and energy productivity. This dynamic replaces inflation control and neutrality assumptions with a focus on adaptive liquidity discipline rooted in biophysical reality.

Toward a Thermodynamic Political Economy

Finally, SEV redefines the scope of economic theory. Instead of utility maximisation under constraints, the central question becomes: How do systems structure and optimise energy transformation, information coordination and monetary flow to maximise long-run surplus (AEP) while resisting entropy?

This approach opens space for new metrics, empirical models and policy tools aimed at enhancing EROEI trajectories across economic, technological, and institutional domains.

8. Policy and Systemic Strategy Implications: Competing through EROEI Dynamics

The SEV framework reorients the foundations of economic analysis, value attribution and productivity toward thermodynamic realism. This has important practical implications for how policy is formulated and how we understand the dynamics of systemic competition, whether between firms, sectors, or nations.

At the heart of SEV is the understanding that exchange value is a function of the energetic profile of the commodities involved, specifically the Energy Returned on Energy Invested in production (EROEI_p) and the EROEI in use or potential (EROEI_u). This means that value does not emerge from subjective preferences or relative scarcity, but from the physical capacity of a system to mobilise energy and convert it efficiently into usable output over time.

Thus, rather than pursuing growth or productivity as abstract or GDP-maximising goals, SEV implies that policies should be designed to enhance the systemic EROEI_p and EROEI_u of the economy. For instance:

• Infrastructure investments should be evaluated by their long-run potential to increase EROEI_u (e.g., efficient housing, rail systems, public sanitation, digital networks);

• Energy transition strategies should prioritise energy sources and technologies with the highest scalable EROEI_p and EROEI_u, not just lowest short-term cost or emissions;

• Innovation and R&D funding should focus on energy-efficient production technologies, durable-use commodities, and system-wide improvements in energy conversion and storage; and

• Agricultural, transport, and industrial policy should evaluate inputs and outputs by their total system EROEI profile rather than narrowly framed productivity metrics.

For governments and institutions there is a need to evaluate investments in digital infrastructure not merely as technological upgrades, but as systemic EROEI enhancers. High initial energy costs in data infrastructure may be more than offset by long-term gains in systemic energetic efficiency. This leads to the need to redefine productivity. Digitalisation challenges traditional notions of productivity by enabling more efficient energy use and allocation rather than simply increasing outputs per unit of labour or capital. It thus requires an energetic, not purely output-based, understanding of productivity as articulated in the body of this paper. Investment in data systems, digital coordination platforms, and AI should be understood as a strategic lever for improving both EROEI_p (through better production systems) and EROEI_u (through better use and application of energy).

There are also implications for the design of monetary and financial systems. Monetary systems and financial flows should be evaluated, at least in part, in terms of their energetic cost and contribution to efficient circulation of use values. This reframes debates around liquidity, velocity of money and capital requirements in energetic terms. The implications of the reconceptualisation of the interrelation between monetary systems and EROEI dynamics suggest that:

• Sound monetary policy must be grounded not in inflation targeting per se, but in fostering high EROEI_p and EROEI_u sectors. Inflation results when output pushes beyond entropy-adjusted energy availability, which reframes inflation as material system stress, not just expectations or wage bargaining;

• Asset bubbles arise when credit expansion targets low EROEI activities (e.g., speculative finance or ecologically unsound extractive projects) and where monetary claims exceed available energy surpluses; and

• Sustainable monetary systems require alignment between endogenous credit expansion and systemic energy return dynamics.

In a global context, the SEV framework suggests that multi-system competition will be determined by the ability of societies to:

1. Innovate more rapidly in technologies and institutions that improve EROEI_p and EROEI_u;

2. Adopt and diffuse those innovations more expansively and equitably; and

3. Avoid systemic lock-in to low-EROEI infrastructures, technologies, or institutional arrangements.

From this perspective, abundance is not a natural outcome of market clearing, but a result of persistent energetic system optimisation. A society's or system’s capacity to produce abundance is a function of its energetic architecture, within the social settlement setup that constrains or enables energetic system adaptation, not its financial balance sheet. A superior system will be one that can not only generate high-EROEI energy vectors, but build physical and institutional pathways to accelerate their uptake and integration across domains of human life - namely in areas such as housing, health, food, information and mobility.

This view points towards a new kind of political economy: one that is thermodynamically literate and grounded in the biophysical limits and opportunities of energy transformation. It replaces economic growth as the ultimate aim with energetic abundance and resilience, measured not in monetary aggregates, but in sustainable improvements to the energetic capacity of the system.

The systemic exchange value (SEV) framework departs sharply from mainstream economic models that seek equilibrium through marginal price adjustment. Instead, it describes a dynamic, non-equilibrating system, constantly shaped by the dialectical tension between two opposing forces:

1. The Entropic Drift: Every transformation of energy in production or use increases entropy. This is both physical (in the form of waste, heat loss, degradation) and informational (through uncertainty, disorder, and decay of coordination over time).

2. The EROEI_u Counterforce: To sustain and reproduce economic systems, actors must constantly work to increase EROEI_u - the efficiency with which energy is used for useful work.

This is achieved through technological innovation, infrastructure and institutional design and information processing and coordination systems. Crucially, the ability to increase EROEI_u depends not only on physical arrangements, but on reducing informational entropy - uncertainty in production timing, system state, resource availability, and agent behaviour. Information and energy are intimately entangled because the effective EROEI_u is related to the extent of the system’s informational entropy.

This continuous antagonism between energy degradation and entropy-reducing adaptation drives system evolution and motion, not toward equilibrium, but toward an always-contingent and fragile adaptive order. The system’s capacity to endure - its dynamic stability - depends on its ability to:

• Anticipate and offset entropy through information;

• Reconfigure energy systems around higher EROEI vectors; and

• Circulate use values efficiently with minimal energy waste.

There is no final balance point. Only systems that continuously internalise the entropy they produce - by building structures that restore order more efficiently than it is lost - can persist over time.

Conclusion

This paper has proposed a unified framework for understanding value, production, and circulation grounded in thermodynamics, information theory, and monetary endogeneity. By replacing marginalist equilibrium with systemic energetic realism, the paper sketches out a materially coherent model in which value is not an abstract, utility-driven construct but a function of energy transformation, entropy management and dynamic coordination.

At the centre of this model lies the concept of Systemic Exchange Value (SEV), a process in which embedded energy is mobilised, transformed, circulated and reproduced. Money is not a neutral veil but a dynamic, informational claim on future energy surplus; information is not immaterial, but a structured energetic activity aimed at reducing entropy and enabling productive alignment.

The SEV can be summarised as follows:

Monetary Claims (M) → Use Value Acquisition (C) → Production (P) → New Use Values (C′) → Realised Exchange Value (M′) → M′ → New Claims (Wages + Profit) → Consumption + Reinvestment (M_i) → EE_t+1​

This mirrors Marx’s M–C–P–C′–M′ structure, but with SEV-specific energetic layers. Each stage embeds energy and entropy dynamics:

1. M → C (Mobilisation of Inputs):

   1. Money is issued as a claim on EE in potential;

   2. Commodities acquired (labour, machinery, raw inputs) each contain embedded energy (EE);

   3. This is an anticipatory act based on expected AEP and productive transformation;

2. C → P (Production):

   1. Energy is consumed, transformed, and degraded;

   2. EROEI_p defines efficiency of energy conversion in production;

   3. Entropy is generated and (partially) offset via infrastructure, coordination and information systems;

3. P → C′ (Output Use Values):

   1. New use values are created with updated EE and EROEI_u potentials;

   2. Information systems may improve effective energy use through intelligent coordination (if viable);

4. C′ → M′ (Realisation):

   1. Use values are exchanged, returning monetary claims backed by realised AEP;

   2. If use values do not return more systemic value than their cost, M′ < M, we see a thermodynamic loss.

The circuit reproduces and evolves as future claims draw on current surplus and AEP, whereupon reinvestment in production and R&D affects future EROEI_p and EROEI_u, whereby entropy accumulation must be offset by innovations, maintenance, and informational governance.

The system described here is not equilibrating. It is in perpetual flux, shaped by the dialectic between two fundamental forces:

• Entropy, which degrades energy and information, pushing the system toward disorder and energy loss; and

• Adaptive efforts to increase EROEI_u, which seek to extend the productivity and longevity of energy use by reducing informational entropy - uncertainty in production, coordination and system control.

This dialectic defines the motion and evolutionary character of economic systems. Unlike neoclassical models, which seek price-clearing stasis, the SEV framework describes a system that must continually reorient itself around new energy vectors, infrastructure logics, and information structures to maintain viability. The long-run survival and prosperity of any economic system thus depends on its ability to:

• Expand Available Energy in Potential (AEP);

• Improve the efficiency of circulation and coordination; and

• Reduce both physical and informational entropy across its value circuits.

Endogenous money is shown as surplus-anticipatory. Credit is not neutral but projects expectations of future systemic viability. Systemic viability is only preserved when ‘energy used → energy returned in future circuits’ exceeds entropy. Information becomes the tool that, if viable, helps ensure M′ > M by enhancing coordination and reducing systemic waste. This reorientation of economic theory offers not just a critique of the mainstream, but perhaps a foundation for new metrics, policies, and institutions rooted in the realities of energy, time and entropy.