Energy as the Numéraire of any Given Economy
Please cite the paper as:
“Olaf Schilgen, (2013), Energy as the Numéraire of any Given Economy, World Economics Association (WEA) Conferences, No. 1 2013, The political economy of economic metrics, 28th January to 14th March, 2013”
Abstract
Economic theories are based on money as the unit of accounting, measuring and exchange. This paper discusses the usage of Energy as a physical characteristic of all commodities, all goods and services as the numéraire for measuring the size of any given economy. Since monetary value is not a real characteristic of the commodities and goods, physical characteristics are real characteristics and therefore they are precisely measurable. This allows measuring a precise physically real GDP in Energy units which represents an exactly metered value in the opposite to the inflation corrected money based ‘real GDP’. Doing so allows redefining the quantity theory as a relation of a given amount of money representing a given and real based physically measurable amount of commodities, goods and services. It allows to explicitly defining the size of any given economy by its amount of energy necessary to create the different kind of capital and consumer goods of any given economy. It also avoids the problem that the existing definition is circular. Measuring an economy by the money used in that economy to define the amount of money circulating in that economy is a circle in itself. Therefore it is impossible to measure an absolute value of any economy since no currency today is defined by a physically existent value. Changing this therefore allows redefining the quantity theory. Doing so also allows defining the Limits of Growth by setting in a given amount of Energy as the available input. Without more energy available for being productively used this sets, describes the limit of growth and gives it a value in physical units.
Well, i comment my own work …
I got a quite nice response from Gail Tverberg (I cited her in my paper). She wrote me quite a list of questions to be answered.
I want to pick up onw question from her here, because i think it is important to get that answered to understand the principles of my theory better.
The question is:
“Another fine point is the huge difference in different kinds of energy. Human energy is very different from electricity, which in turn is different from oil. intermittent electricity is of far less value than electricity whose quantity can be ramped up and down as needed.”
My answer is: I measure the pure energy productively used to do any kind of work in any given economy.
So, the “INPUT” energy is human or external energy. I do not make any difference in both kind of energy. I measure how much energy is producttively used.
If i would put a “worth” on human labor … it would totally destroy the principle of “real measurement”.
To Measure means to look at a scale, compare its value with the given units – and that is it. There is no “human” Celsius, Kilogramms or Meters. All are of physical existence.
By the way: The expression “Productivity”, normally used from economists to express that a farmer today is “much more productove” … is in fact not Productivity.
The farmer today needs very much support from external productively used energy to do is “Work”.
Without his machines – he is probably much less productive with his hands than the farmers 300 years ago.
So, Productivity in my Theory is different to this kind of use. If the farmer 300 years ago had an idea of using a piece of wood (which he found somewhere without investing any energy into constructing this early stage of “capital goods) … it is possible that he was able to do more work with his own body alone in one day. That is more productiveness in real terms.
But steering a tractor … (with that big engine running) … is not his own bodys work. It is external energy productively used.
This principle in circles and circles … is telling the story of industrialization. Making productively use of more and more external energy possible. That is the technological progress, that is the solow residuum. (more) external energy productively used.
Do you know the work of Paolo Malanima, who has done quite some number crunching with regard to (very) long run changes in the use of energy? http://www.paolomalanima.it/default_file/Articles/ENERGY%20IN%20HISTORY.pdf
And your work might also bee connected to the input output tables, which also contain data on energy. And Georgescu Roegen comes to mind.
However – as I see it money is also used as a means of exchange. People pay prices. And prices change. Even with zero inflation, there still will be all kinds of price increases and decreases. I do think that it is often useful to describe the economy in a more technological way and not only in terms of money. But in our society, profits and wages and taxes are almost completely monetary variables – which lead to monetary expenditure and the like. Not looking at money makes you miss out on these changing prices (which change for a reason) and the circular flow of money.
Thanks a lot for that paper. I didn’t know it.
And the money phenomenon: Of course, prices of some kind of consumer goods varies over time constantly. Maybe not for some daily use products like wheat.
But a very extreme kind of “consumer goods” is any artwork. One piece of paper with a red dot. Done in 10 seconds … if the artist is “famous” … it can be worth “a million” … the next day … a rainy day … the red dot disappears – and so goes the million.
But – what is the maximum price for that unique artwork? It is – in a stable economy – the total amount of money in that given year. In a stable economy with therefore an also stable (fixed) amount of money, the quantity theory is valid. All prices of that economy adds up to always the sum of “1”.
A stable economy also means a stable production of the consumer goods (and capitals goods also).
That means a stable consum of productively used energy.
Stable economy = stable production of cons. goods = stable amount of money = … all traded things add up to “1”.
In this stable economy there is no chance for hundred artworks worth a million … and that is valid for all things and goods also. The prices can change, of course. But not independent from all other prices. The sum at the end is “1”.
My opinion is: Money is worth nothing. Neither Gold nor silver is worth anything (except the amount of energy necessary for getting the gold out of the ground here and put it again in a safe lock under the ground somewhere. That amount of energy is the minimum (logical) “worth” of gold.
My idea is, that counting “real physical things” with its value in any currency is not really showing the right picture always.
There is one real problem by this kind of measuring: The “Financial Industry” “makes” money. Well. If you count and sum up the virtual profits, enabled by getting unbelievable huge sums of money out of thin air and putting it into some kind of bet-systems … and “creating”, “making” or “earning” money out of this … is in my point of view nothing but writing numbers inside of some kind of computers.
For now, this is Part of the GDP. As i heard, in GB it is up to 20% of the GDP. But is that really real?
I have deep doubts.
If i goes on and measure THAT kind of industry by its amount of productively used energy … i will probably measure some kind of massage seats working … but not anything like a real industry looks like on my scale.
At the end, all Money is on the one side of the economy playground – and the “real things” are on the other side of the playground.
If the money keeps the same relation to the “amount” of real things – prices stay stable.
If the money beeing put on the playground and is enabled to be used INCREASES much (which means it is possible to use that money by inhabitants of that economy) … then you very sure will get a lot of inflation.
There are different kinds of inflation. At the moment we have an inflation of the rich. Watches gets much much more expensive the last years. Oldtimers do the same. Artwork … exactly the same story.
There is no “common” inflation for bread, butter and water for now … because the huge amount of money does not stay enabled to all normal customers at the playground. But over time the money goes into the wider groups of normal people – then you will have the inflation.
Or not – if the amount of consumer goods increases by the same rate as the activated amount of money.
… and that means: To produce (f.e.) 50% more cars … the “black box” firm needs 50% more work beeing done. Which exactly means: 50% more energy used productively (for the creating of the “real things”).
Therefore is think: Measuring the economy by it “amount of real things” is a possible method. It will bring some minor or major different values if you compare a “GDP in Euro” with the same countrys “real GDP in Energy units”.
Money is the second step, i think.
Here is the quoting of Paul Grignon of this post:
http://peemconference2013.worldeconomicsassociation.org/?paper=a-brief-history-of-american-paper-money-with-emphasis-on-georgist-perspectives-scott-baker
QUOTE:QUOTE: “This allows measuring a physically real GDP in Joule units which represents an exactly metered value of real existing characteristics opposing the inflation corrected money based ‘real GDP’”
QUOTE: Perhaps I am misreading the author’s intentions here. I certainly agree that economics should treat energy as the irreplaceable basis of the economy, not simply as another good.
http://www.dieoff.org/
QUOTE:”But I balk at the equating of an energy unit as a VALUE unit if that is what is intended.
For example, is a Joule of coal as useful or valuable as a Joule of electricity?”
Yes. Measuring Joule (which is the expression for energy, it could be also kWh or even SKE) means that it is only each Joule productively used, which i want to measure.
And therefore a Joule in a steamengine (out of coal) is the same Joule like the Joule of an electic motor (replacing the steam engine).
The work, which is beeing done, is the same.
QUOTE:”That depends on whether you want to use a light bulb or a computer as opposed to a coal-burning stove. Coal is useless for the former and electricity for the latter, but in general a Joule of electricity is far more useful, versatile and therefore valuable than a Joule of coal.”
Right. A Joule out of electricity IS more useful. It is easier to transport … and so on.
So, if you sits inside of that given economy and there is a competitor around … you would, in the long run, try to get more electricity as your energy for productively used inside your company.
If you fail – your competitor will probably win the competition.
And more fascinating: If there is no electricity – and both companys have steam engines running … there is no chance of really getting a great leap forward.
But the invention of the electricity (which gives you, the inventor, a real advantage!) … drives the technological progress on its path marching forward.
QUOTE:”With the right equipment, one can make a Joule of electricity from 3 Joules of coal. One cannot make coal out of electricity at all. It is the match of needs and wants with supply that determines value not the energy content.”
Well, i think that is not true. “Wanting someting” brings nothing into real existence.
Doing some kind of work, human labor, menchanical work, creates the things. “The wish to have them” .. well, drives the humans to start working for it …
QUOTE:”If energy consumption were the measure of the economy’s size, then it follows that economic growth could be achieved by becoming LESS energy-efficient, all the way to a theoretical 100% total wastage of energy with zero production of value.”
I disagree here. But a good point to show this.
My theory says: “PRODUCTIVELY used energy”. Burning coal for having a big fire … does not produce anything.
You are in the competition with the second company (or even neighbour farmer) if he gets more fruits out of the ground with half the amount of slaves … he wins.
If he gets twice the amount of fruits, wheat etc. out of the ground … he wins.
Conusmption von energy for nothing but enlarging in-efficiency … clearly sets you in a position of disadvantage in that competition.
Even animals or flowers follow that principle.
The apes goes where the most banana are hanging around (which is energy for their body). The flowers grows, where the most light is (which is energy for their bodies).
So, in one short sentence: All living creature want more for themself whith less own efford for getting this.
And the amount of all “doing” is an expression for the size of any given economy (even biological systems). All is run by energy, therefore it should be the base for measuring the size of the economy, i think.
The author didn’t deal with the last line of my post:
“If you could create infinite value with zero energy your economy wouldn’t even exist by this measurement.”
Admittedly nonsensical and theoretical but to me it illustrates the logical fallacy in this idea.
And, how about the word “productively”? Isn’t it just as subjective as the word “value”?
Those who manufacture plastic dog doo-doo for practical jokes would consider an increase in plastic dog doo-doo output to be an increase in productivity. I would consider it a total waste of resources, worse than ZERO productivity.
On a globally relevant level, increasing the output of the Canadian Tar Sands is the “productivity” Canada is counting on to pay our bills. To me it is ecocide. What is productive about destroying an area the size of England & Wales to mine carbon that may well cause the extinction of most life on Earth?
The same can be said for countless items that some people value and others abhor. So it would seem that everything produced must have been a “productive” use of energy by someone’s standard of VALUE.
Now, how about the immense use of energy for home heating and air conditioning? Is that productive if all it produces is comfort?
QUOTE: “The author didn’t deal with the last line of my post:“If you could create infinite value with zero energy your economy wouldn’t even exist by this measurement.”
Admittedly nonsensical and theoretical but to me it illustrates the logical fallacy in this idea.
ANSWER: Right, i did not answer that argument. Well. i try now.
The argument is that creation of infinite value with zero energy would result in a measurement (by its energy value) of zero.
That is true like it is written – but i see few very big “but”-point.
– first is, that there is nothing on earth without zero energy. Nothing can even be described with zero energy.
Setting a given simple economy of only one person, and let this person doing absolutely nothin the whole year but having one absolutely brilliant idea from infinite value … which means, there has been energy “working” in his brain. Of course, not easy to measure, but there must be energy in the game. So, the measuring will give a result.
Or just saying: there is really a zero measuring, because nothing in that economy has been moved around … (which means, i will not measure the energy used in brains) …
I really measure “ZERO” economy size.
That is what i not only expect but definitely want to underline – the “infinite value” is much overstated when saying “infinite value”. Because: What really is this infinite value – if really nothing in this economy has ever changed in this year?
– second: Therefore i state that there can not be an infinite value. The total sum of all values of the given economy can – and by definition must – be only sum up to “1”.
(and it is also a limit of the maximum “value” in a moneybased definition … the maximum value can not exceed the maximum amount of money.)
One more comment to this thought:
Even patents will never be measured by any “value” (exept the amount of energy to print them down on paper).
So, given the case that a company had in one year hired a superbrilliant brain … and this brain wrote down thousands of patents for thousands of extremely well designed and usefull products …
The only thing that i will measure by my method is the energy equivalent of one man working … (in fact, sitting at a table and moving his pencil which is not so much energy been used).
The fact that i would not measure these brilliant ideas is correct by meaning of its method – and also by making sense.
It totally makes sense – because writing down a brilliant idea does not produce anything.
BUT: All the brilliant product, coming the years after that first year … will clearly been measured. Because the creation of these brilliant products will clearly result in the need for productively used energy.
QUOTE: And, how about the word “productively”? Isn’t it just as subjective as the word “value”?
Those who manufacture plastic dog doo-doo for practical jokes would consider an increase in plastic dog doo-doo output to be an increase in productivity. I would consider it a total waste of resources, worse than ZERO productivity.
ANSWER: That is a very good question. But:
I do not want to value anything. I want to measure the real size of any economy. To divide between “bad” use of energy and “good” use … is valuing. The value is a very difficult and also sensible thing. Value is not very easy to define, and since there is no absolute definition of value it is a very good source of different meanings, of conflict …
And i really do not want to tell any economy what is “good” usage of energy or “bad” usage. Producing of plastic stupid stuff … is not good for one person, but good for the producer … there is the conflict i meant.
To spread it to an extrem example: If one economy only produces enough wheat for its inhabitants for not starving … and also “Pyramids” … and another economy produces just nothing but enough wheat … i will measure that the energy productively used is much bigger in the first economy.
But can i tell them: Stop building Pyramids, it is waste of time?
I am not doing this. The only thing i can see is: The first economy is doing more work, and if i also know that the only available energy source in both economies is just human body power … i can deduce from this information, that the first economy has to be more productive than the second one. The second one does not starve – like the first one – and the first one does “some” more work – so the conclusion is: The do more work with the same potentially available input power.
Or shorter: the second economy inhabitants lay around and let the wheat grow by itself … they are lazy.
QUOTE: On a globally relevant level, increasing the output of the Canadian Tar Sands is the “productivity” Canada is counting on to pay our bills. To me it is ecocide. What is productive about destroying an area the size of England & Wales to mine carbon that may well cause the extinction of most life on Earth? The same can be said for countless items that some people value and others abhor. So it would seem that everything produced must have been a “productive” use of energy by someone’s standard of VALUE.
ANSWER: If i look at that tar sand catastrophfields … i agree. That is not good. But i do not want to value anything when i just want to measure. Therefore i can not look at any argument like “it is not good, what the canadians doing – dont measure that” … i talked about this above.
Different economies use energy differently – that is a fact not to be changed but by the own inhabitants.
QUOTE: “Now, how about the immense use of energy for home heating and air conditioning? Is that productive if all it produces is comfort?”
Well, this question is clearly to be analyzed more in detail.
And of course it depends of the understanding of “productively usage” of energy.
At the moment i tend to say, that the use of energy for making the living inside of a house more comfortable (which includes heating and cooling and also light and also energy for the TV and so on … ) is NOT productively used energy.
I thought about this question quite long – and i argue that it might be worth of thinking about the part of energy (percentage of total consumption) could be an indicator for a classification of any given economies.
I think it is well worth of thinking about a classification like “comfort energy guzzler” until “stone age like energy user dwarfs”.
Nice article, congratulations but I still have some doubts.
How do you treat the question of product quality? I mean, the exact same amount of energy is used to make two different goods but one of them is considered less desirable socially?
Following on this how can we compare two countries producing the same amount of energy but one of them has more (socially defined) desireable goods?
And how would we treat intellectual production?
QUOTE: Nice article, congratulations but I still have some doubts.
ANSWER: Thanks … i hope to be invited to Olso one day for this idea.
QUOTE: How do you treat the question of product quality? I mean, the exact same amount of energy is used to make two different goods but one of them is considered less desirable socially?
ANSWER: Very good question. My answer is: That is the borderline between macro- and micro-economy.
I measure both energy consumption for producing both product to get a value for the total value of the whole economy.
The rest is out of focus for this measuring – but totally in focus for any following microeconomic observations.
I am pretty sure that the customers will see the difference in the product quality – and will choose the better quality. It is more of effectivenes for the customer also. The better quality means: Getting more (of the product over time) with less (same price, longer product life).
I very well think that it is woth of discussing how to bring the information of a measurable kind of quality definition more into customers focus and decisions. This analysis could very well make “longer life” product more attractive for the customer. To make a “better product” measurable by its energy efficiency of its production seems to be a very interesting start of the discussion.
QUOTE: Following on this how can we compare two countries producing the same amount of energy but one of them has more (socially defined) desireable goods?
ANSWER: One small correction: It is not the production of energy which defines the size by my measuring. I suppose you mean: Both countries use exactly the same amount of energy to produce their goods like the inhabitants want it.
Well.
By just measuring the productive use of energy … i can not tell about the other characteristics of the produces goods. It is out of focus in this step.
It could very well worth a report about the interesting fact, that economy one is producing more “fancy things” than the other economy which produces nothing but stupid huge pyramids. And both use exactly the same amount of energy.
But – it could be an indicator for a special characteristic of the different economies. Maybe an economy with all inhabitants beeing very religious has some kind of rules force them to build churches constantly … and the other economy does not have such rules … and they produce much more fancy rings … well. It is not my business to judge the difference …
QUOTE: And how would we treat intellectual production?
ANSWER: Very good question again. Intellectual production is – in fact – nothing like a real production. One man “working” as a consultant is not producing anything (which is, in fact, quite common sense). One man, “working” as an employee inside of a bank is not producing anything. One man writing very successful books – is not producing anything.
I will measure some of their tracks during workdays … since they all need some kind of capital goods (the table, the computer, the room, the transport … ) any their very low own physical “work” of moving their body around and talking like dilbert is showing us.
My Conclusion is that they nearly disappear by my measuring. If the microeconomic process inside of that economy has in the end resulted in (partly) the need for this kind of work – well, then it is like it is.
And, by the way, the part of human “work” is very much overstated today. We nearly do not work anymore – compared to the amount of total work (which is energy productively used over time) is much less than 0,1% … there is so much more energy driving our daily economy – forget about the human ability of replaycing the smallest part of it.
Even if the elevator is not running … people get killed by an heart attack while running upstairs.
THere is more “intellectual work” to be discussed: Think about all the teacher, all the police, the military service, the firearms …
Well: All of this is not productive. The productive input from these people is zero.
But – obviously the given economy has (by its political system) decided that it is useful to have all of this. Some economies have more polices, some has more military sunning around … (north corea) … it is an indicator of some kind of characteristic of the different economies – i think also worth of being discussed …
But the teachers are paid by the rest of the economy.
Or in energy terms: The rest of the economy delivers some products of this economy to the teachers to enable them to concentrate on the teaching – and not in running after food or so.
I measure the creation of the things – not the usage or the differences in the dealing and spreading of each thing.
And of course, teachers are important. The childs will grow … and invent the next step of technology.
A couple of points:
First, this is an old idea. It was already proposed during the 1970s and criticized by Nicholas Georgescu-Roegen in his 1979 paper, “Energy Analysis and Economic Valuation”. I think you may want to examine that paper quite seriously. NGR wasn’t always correct about his physics in all his works, but many of his criticisms in this paper are germane to your argument.
Second, even assuming this were a viable idea, there’s a question of how one could in practice fulfill the promise of “measuring a precise and physically real GDP in energy units which represents an exactly metered value.” What kind of physical intrusions would be necessary for this? If I tap my fingers and feet while thinking about how to write a contract for a client or to prepare a lecture, or take a bathroom break, does these activities count toward the energy expenditure for my services? If not, how will the “precise meter” know the difference? Who will accumulate all the streams of everyone’s energy expenditure data to create an aggregate?
Third, the idea suffers from even simpler problems. Suppose we want to value the services of sign language interpreters Alice and Bob, where Alice is a petite 149 cm., and Bob has the physique of a sumo wrestler. We hook them up to gizmos that measure their energy expenditures while working. Some issues:
(i) To render equivalent signs, Alice will use fewer joules than Bob, because her arms are less massive — does that mean her services are worth less？Or does it mean she is more productive?
(ii) What if Bob’s signing is more legible by more people in the room, either because he’s taller than Alice, or just more skillful — who is more productive now? How does this relate to energy?
(iii) Then there is the quality problem raised by previous commenters: what if Bob’s same expenditure of energy can lead to signs that are correct or incorrect?
(iv) What about other inputs: suppose Bob lives in a developing country where labor costs are lower but staple food costs are higher per kilocalorie than where Alice lives?
I hope you can see that things get quite complicated quite quickly. And just as with GDP, the decisions about what to include as “economic” energy expenditures, whether to include or exclude the energy content of matter, etc., are all mediated by *social conventions*. (You should check the work of the « économie des conventions » school, including Jean Gadrey and Alain Desrosières, among others, for a fuller explanation of this point.) The notion of precision and exactness without necessity of human decisions and judgments, which seems to be the aspiation of your paper, is illusory.
sorry, the correction didn’t take the first time round: should be “aspiration”, not “aspiation”, in the last line.
QUOTE A.J.Sutter: First, this is an old idea. It was already proposed during the 1970s and criticized by Nicholas Georgescu-Roegen in his 1979 paper, “Energy Analysis and Economic Valuation”. I think you may want to examine that paper quite seriously. NGR wasn’t always correct about his physics in all his works, but many of his criticisms in this paper are germane to your argument.
ANSWER: I did not know the work from Nicholas Georgescu-Roegen. But i got also the same remark as a feedback from James K. Galbraith today. I ordered his book and i have to read it soon, i think. I also found his paper. Thank you for the remark.
QUOTE A.J.Sutter: Second, even assuming this were a viable idea, there’s a question of how one could in practice fulfill the promise of “measuring a precise and physically real GDP in energy units which represents an exactly metered value.” What kind of physical intrusions would be necessary for this? If I tap my fingers and feet while thinking about how to write a contract for a client or to prepare a lecture, or take a bathroom break, does these activities count toward the energy expenditure for my services? If not, how will the “precise meter” know the difference? Who will accumulate all the streams of everyone’s energy expenditure data to create an aggregate?
ANSWER: Well, that is in fact a problem, but a minor one. The error rate would be surely less than 0.1% – in the relation of the energy based GDP value in total. Since human work is more or less not the source of the creation of all goods any more, it could also more or less completely be ignored. The error rate still would be less than 0.1% in the measuring.
But – for getting a theoretical more correct value, it should be enough to evaluate the average energy supplied by each inhabitant and just multiply it up to the number of inhabitants.
This has to be done if you would start to get a (reconstructed) value for the size of former civilizations like the egypts.
The GDP of the egypts can be estimated if you know how much each inhabitant could work in a day and if you know how much inhabitants there were. Since there was no other major source of energy which could be used (horses or so, some kind of wind for sailboats maybe) … the energy which could been supplied by each inhabitant (or even each of the slaves) was the only available source to create all goods.
So, my answer is: I think it should be enough to get a pretty good evaluated average amount of work, delivered from each inhabitant.
QUOTE A.J.Sutter: Third, the idea suffers from even simpler problems. Suppose we want to value the services of sign language interpreters Alice and Bob, where Alice is a petite 149 cm., and Bob has the physique of a sumo wrestler. We hook them up to gizmos that measure their energy expenditures while working.
ANSWER: Well, a first answer could be that in the microeconomic system it could be of more sense to use the wrestler as something else than sitting at a table. Maybe using his immense power could be of more sense for that simple example.
QUOTE A.J.Sutter:Some issues:
(i) To render equivalent signs, Alice will use fewer joules than Bob, because her arms are less massive — does that mean her services are worth less？Or does it mean she is more productive?
(ii) What if Bob’s signing is more legible by more people in the room, either because he’s taller than Alice, or just more skillful — who is more productive now? How does this relate to energy?
(iii) Then there is the quality problem raised by previous commenters: what if Bob’s same expenditure of energy can lead to signs that are correct or incorrect?
(iv) What about other inputs: suppose Bob lives in a developing country where labor costs are lower but staple food costs are higher per kilocalorie than where Alice lives?
ANSWER:
to (i):if the measuring is really possible for all inhabitants, then of course you have to measure the difference in the amount of energy which the sumo wrestler needs to do his “work”. But is is not in my argument that you directly link back to the “value” of the wrestlers work.
He is not beeing paid by the amount of energy he uses to do his work. He is paid for his delivered result of his work. So he could easily come to the conclusion that he could do more out of his power than drawing papers. That is his decision.
I measure only all the delivered energy to do the work which is done in total inside that economy. Then i hava a result of the total sum of energy used – and, as i say, therefore of the “Size” of that economy.
That some parts of that economy are working and maybe did not even get paid … well. I do not see that also.
to (ii): That is again one point to be figured out by the boss of Alice and Bob. He should optimize his employes – putting them to their best possible job position. I do not measure that “quality difference”. It will be the customers choice who will be of “more value” inside of this economy.
to (iii): That example is the same answer as before. It will be the customer (or boss) of Bob, who decides what is a “good” or “bad” job.
to (iv):
Well that is a clever question. But is is misleading in a way. I do not see any kind of “costs” if i meter the energy productively used.
So i can not see that phenomenom at all by my measuring.
But that is not the final answer only: the player inside both economies will clearly see that, and try to figure out how they can get their own advantage out of this observation. I think, someone will become rich in those two economies … possibly the guy who get his chance first to use this “cheaper” labor for his company.
That is an export-import phenomenon that we can exactly see today.
In china the setting is, that the salary for all employes has to rise for the next five years by 12%. Per year!.
So there are many companys looking for machines now – and replaycing the “former very cheap human labor” (which is clearly becoming more and more expensive) by still very cheap external energy (investion of capital goods like machines is therefore necessary first – which is ok if you exactly know that the human labor gets more expensive the next five years.)
QUOTE A.J.Sutter: I hope you can see that things get quite complicated quite quickly. And just as with GDP, the decisions about what to include as “economic” energy expenditures, whether to include or exclude the energy content of matter, etc., are all mediated by *social conventions*. (You should check the work of the « économie des conventions » school, including Jean Gadrey and Alain Desrosières, among others, for a fuller explanation of this point.) The notion of precision and exactness without necessity of human decisions and judgments, which seems to be the aspiation of your paper, is illusory.
ANSWER: Well, i know that it not easy. In my dreams i see a world economy where every company is forced to label all products by the average amount of energy which they use in total to produce them. That would make it very easy to get all the numbers. … And for some categories there are good numbers. In the automobile industry there are quite good numbers which you can get about their use of energy to produce one car.
To give you an impression of the necessary amount of energy: One “Black Box” (real firm) needed in 2010 the total sum of 12,990 emplyees to produce around 295,000 cars – plus “some” energy (oil, heat, coal, Electricity) and “some” parts and material.
I calculated that there is a need of more than 5 million more employees sitting on a generator for producing electricity for replacing the energy stream into that black box. And i also know that 80% of all energy necessary to produce all delivered parts (even the finished and from external smaller companies delivered parts) – which means that todays normal energy consumption would need to be replaced by roughly 25 million employees just to deliver the necessary energy input.
Now think about the “value” of one car in that economy again. How much would it be “worth” in a given economy? I think it would have to cost much much more than today. That is, what cheap energy deliveres. Lots of things, lots of stuff – with nearly one monetary value compared to the amount of energy which is necessary for producing it.
But your point is that it is not easy to decide what IS part of economy and what is not. Well, in a way you are right. One has to think about this carefully – but even today there is this problem. Think about the “labor” from each wife … delivered for free. That is a totally blind spot in the money accounting also – and in addition the “black labor”, the illegal work. Today there is a rough guess how much that is … I could not measure these illegal human work much better – but i would clearly see all material beein used by this illegals, all energy which is beeing used.
It is always more easy to stay at a higher level not going into small details. But i think this is worth to think about – i know that there a problems coming but it does not keep me from thinking about it.
And thank you for the reference … i did not found that earlier.
But you are right as
(ups, too fast)
But you are right as … as long as it is a decision of the human being what is “part of the economy” and what not.
But that is also an existing problem with the actual monetary based accounting of the economy. It does have blind spots also, as mentioned.
I see the advantage of my theory in the fact that any mismeasuring of the financial “industry” will be avoided. That is a total misleading accounting today – and its mis-measuring of value is in fact much larger than any other small problem in my theory.
And i see the advantage of my theory also in its philosophic consistence. The more work is done in any given economy, the bigger it is.
I understand the expression “economy” as a synonym of “a given amount of work in a given timeframe for a given area”.
All we use today has to be created before. That amount of “work” is the true equivalent of the total amount of economc size in total for that economy.
What i want to say is also: The economy “is” only the product of work which has been done. Each single part of it.
And for measuring the “size” of any given economy you simply can add all work which has been done to build it.
Therefore i want to use energy as the numéraire – as it is a real characteristic, or it “is” the work itself.
At the end i see one insight: All the real world stuff which we use today has to be produced – by energy of humans or external energy. Even the worst ever product – has been produced.
Therefore i want to keep money by definition as “a medium of exchange”.
But i want to replace it as “a unit of account” for the measuring of the makro economy, the GDP – by energy units as an expression for the size of the economy (for defining the amount of money circulating in it).
And the idea of “using money as a store of value” – well, i think this has to be discussed as well.
I am surprised not to see any reference to Odums emergy concept which tackles energy econometrics in many details. Energy econometrics allows us to compare human society with other social beings as described in Behavioural Ecology and Sociobiology 64(11): 1721-1724
Dear Klaus Jaffe, thank you very much for the link to Howard T. Odum. It is a huge amount of papers and books – but seems to be on the same path, very interesting.
One conclusion of the Theory described in this paper is said on page 6:
“if the total amount of goods, measured by the trade volume, adds up to a size of ‘1’, it implies that the amount of energy
for this given economy also adds up to a size of ‘1’.”
I did not write in in words, but of course this results in the conclusion, that any growing real economy must be expressed by a also growing amount of productively used energy.
The only chance of getting a growing real economy with a smaller amount of total energy consumption (productively used energy and waste energy) is a case were the rate of waste energy shrinks more than the productively used energy grows and also the economy grows by the same rate.
Or i other words you can also made the conclusion that the relation of productively used energy and the real economy is a fixed relation. Or you can say it is not only growing with the same rate but it is in fact the same thing in itself.
Or describing it in a philosophical way: “Economy” is nothing without “labour”. Labour is nothing but doing some kind of physical work, controlled and used to do some kind of productive work.
“Energy productively used” is in fact the very same.
And the history of technological progress is full of machines replacing human manual work. Each machine is sooner or later also been replaced by the next machine.
But at the end, there is still a given amount of physical energy to be done if you want to form matter into products.
The worth or value … is something which is coming later on as long a given economy “decides” its value by trading it from one player of the economy to another player.
But all physical things are adding up to the size of ‘1’ – as the value of all traded things also do add up to the size of ‘1’.
I wanted to explain this a bit more in detail than expressed in the paper. I think this is the core of my theory.