Chapter 3: NEW Wealth, Building from First Principles

Can we create an objective measure of wealth?

What You Will Learn

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In this chapter, you will discover:

• Why we start with a clean sheet: To design a genuinely better economic system, we must build from objective, measurable principles rather than inherited assumptions

• The three ingredients of wealth: Every item of wealth—from bread to furniture to services—requires the same three elements: base matter, intelligence, and energy

• The entropy test: Wealth creation is fundamentally about reducing entropy—organizing scattered, disordered matter into structured, useful forms

• Your first axiom: A precise, physics-based definition of wealth that provides an objective foundation for measuring economic activity: Wealth is created by the intelligent application of energy to matter to reduce entropy

This chapter establishes the cornerstone principle upon which the entire Natural Economics framework will be built.

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In the previous two chapters we learned that there is no clear objective definition of wealth and that money is not what we thought it was. We have all sensed this in our lives. The flow of wealth, however the current system defines it, always seems to move in one direction, and in our daily lives we feel the constant constraints and sacrifices imposed by money.

The conclusion from these observations is that we need a better economic design.

I am a product designer by profession, and a designer’s approach when facing a fundamentally flawed system is to start with a clean sheet of paper. To reach a genuinely new solution—one that can provide better answers—we need to build from objective principles rather than inherited assumptions.

So we will start with a clean sheet of paper to design our new economy. We know the destination we are aiming for. The design objective is an economy that optimizes real wealth creation while increasing individual agency and freedom—an economy that works with the planet’s physical realities rather than against them.

But how will we achieve this?

One step at a time.

We will build this new economy by building on insights that are irrefutable, objective and measurable, because it is only by objective measurement that we can be certain of our foundation. Each objective step will provide the foundation for the next, so that when we look back we can see that each step rests upon firm ground.

We will start by establishing an objective and measurable definition of wealth.

The Physical Foundation of Wealth

The value of all wealth is founded in the physical world. You can derive abstract forms of wealth from this physical form and today we do, but to confuse the derived forms of wealth with wealth’s physical origin is a fundamental error.

As we noted in the previous chapter, if you remove the physical wealth that forms the foundation for the derived forms of wealth, the derived value disappears. Nvidia’s stock value without its chip fabrication is zero. Apple’s stock without its Macs and iPhones loses its value. Closer to home, you can’t shelter from the rain under your mortgage agreement—you need the house. You can’t drive to work in your car loan—you need the car.

So we can be confident that the physical form of wealth—the tangible product or service that is the result of using energy to form a useful thing—is the base form of wealth that supports everything else.

The confusion between abstract and physical forms of wealth developed gradually over thousands of years, as we explored in the previous chapter. This happened via the invention of money and all of money’s many derivatives like bonds and shares and other abstract assets and instruments. The distinction between the abstract form of wealth and the essentially physical nature of real wealth became blurred.

This becomes obvious when you look around. You are sitting in an environment and you own products and services that exist in the real world. The product you read this on, no matter what form that product takes, is the result of a large network of activities that assembled atoms in the correct form and delivered that wealth to you. A similar network delivered the structure you call home, the infrastructure that delivers energy and clean water to your home, and the one that deals with the waste. You are surrounded and sustained by physical wealth.

But what creates that wealth?

We call it work, but what exactly do we mean by work? What does work entail? Let’s examine this through some concrete examples.

Maria’s Bakehouse

Let’s look at a small local bakery, and we will call it Maria’s Bakehouse to give it an identity. Every day Maria takes raw ingredients provided to her and creates breads and pastries and cakes. She does this by taking those raw ingredients and following recipes she has learned. Those recipes guide her in how she mixes the different ingredients and shapes the loaves and pastries and cakes.

But the recipes alone cannot create bread. Maria has to turn the instructions into products using her own energy to mix and shape the ingredients—the base matter. She then applies even more energy by baking the worked ingredients in the bakery oven. The amount of energy applied has to be precisely controlled following another set of instructions. Maria applies this information and uses her own experience and close observations as she works. Maria has inherited intelligence from others in the form of the recipes, and she has applied her own intelligence to ensure a beautiful result.

Something remarkable happens during this process. Maria starts with flour, water, salt, and yeast—ingredients that are essentially scattered and disordered. Scientists call this state “entropy”—a concept from physics that measures how dispersed or disordered energy and matter are.

High entropy means things are scattered, random, and less useful for doing work—like flour spread across a table. Low entropy means things are organized and structured—like a finished loaf of bread. Life and human work reduce entropy locally by organizing matter into useful forms, even though the wider universe’s entropy still increases overall.

When Maria applies her intelligence and energy, she transforms these scattered ingredients into something highly organized—a loaf of bread with precise structure, consistent texture, and useful form. She has taken matter from a state of higher entropy (scattered flour and water) to lower entropy (organized bread). This is what intelligence does—it reduces entropy by creating order and structure.

As we can see from this example, the wealth that Maria creates comes from the combination of three ‘ingredients’: matter (the raw materials Maria used), intelligence (in the form of the recipes and Maria’s own applied intelligence), and energy (both her own physical work and the energy consumed by baking). But how universal is this pattern?

Let’s look at a very different business.

Carl’s Custom Carpentry

Carl is a skilled carpenter and cabinet maker who creates custom furniture to meet his clients’ needs. Timber is the base matter that Carl will use to create his custom furniture. The tools he uses have been designed with years of experience and embody that learning. They are, in a very real sense, intelligence embodied in matter.

Just like Maria, Carl is taking matter from a higher entropy state to a lower entropy state. A rough piece of timber has some organization (it’s wood, after all), but it’s still relatively disordered compared to a finished chair. Carl applies his intelligence and energy to transform the timber into precisely cut joints, smooth surfaces, and carefully proportioned pieces that fit together perfectly. He creates a highly organized structure with specific function and beauty—reducing entropy through intelligent application of energy.

We can add more examples, but we will find that, at the most fundamental level, to create real physical wealth you need the same three things: base matter, energy, and intelligence.

Testing Our Theory

We always need to test an assertion to make sure it is sound.

What happens if you take one of the three elements away?

We will do this in turn.

What happens if we apply energy without intelligent direction to base matter—say, a lump of clay? The clay will heat up. It will dry out just like the clay in a riverbank. Without intelligence to guide the process, the clay simply cracks into blocks at random. Entropy isn’t reduced—you just get hot dry clay.

What if we remove the base matter? We have energy, and we have intelligence. The intelligence wants to form clay into the shape of a brick. But there is no clay present. There is no base matter to work on. We don’t even get hot dry clay. You can’t reduce the entropy of matter that isn’t there.

Now let’s take away energy. We have the lump of clay. We have an intelligent observer, but we have no energy—no biophysical energy, no energy from the sun. Nothing happens. Without energy, nothing can happen, and so the world remains inert, unchanged. Intelligence without energy cannot reduce entropy.

So it seems that all three elements are needed to create wealth: the base matter to work on, the intelligence with the plan to convert the base matter into something useful, and the energy to put those plans into action.

So we can say with confidence that all physical wealth is the product of the intelligent application of energy to base matter to reduce entropy—to create order, structure, and utility where there was less before.

In the example we used in our reality check, if we had all three available we could direct energy to shape clay into a rectangular block and then use the sun’s energy to dry that clay into a brick. We would transform disordered clay into an organized, useful building block. This form of sun-dried brick was a fundamental unit of wealth in the construction of cities some 11,000 years ago, such as Jericho—often cited as one of the earliest known settlements with mud-brick structures and walls.

Services as Wealth

To simplify the description of wealth creation we have focused on products, but services also use energy in intelligent ways to reduce entropy and create wealth. A teacher organizing knowledge and delivering it to students uses their biological energy plus the energy embedded in schools, computers, and educational materials to transform disordered information into structured learning—reducing the entropy of ignorance. A doctor applies medical knowledge and energy (their own plus that of hospitals, diagnostic equipment, and treatments) to restore a patient to health. Care workers, software developers, researchers, and consultants all follow the same pattern: they apply intelligence and energy (both biological and technological) to create order and utility where there was less before. The matter they work with might be information, human wellbeing, or social systems rather than clay or flour, but the fundamental process remains unchanged—intelligence directing energy to reduce entropy and create wealth.

Our First Axiom

So the first axiom of our new economy is that wealth is created when we use know-how and energy to turn raw matter into useful products and services.

A more precise version of this is:

Wealth is created by the intelligent application of energy to matter to reduce entropy.

This is a much more precise definition of wealth than “wealth is the product of work” because it links directly to physics-based principles that give us the objectivity we have been looking for. Intelligence becomes measurable as the degree to which entropy is reduced. The more efficiently we can organize matter into useful forms, the more wealth we create.

In the next chapter we explore what this means and how it helps us build an objectively measured Natural Economy.