George Bernard Shaw once said 'If all the economists were laid end to end, they would not reach a conclusion'
This quote is a reflection of the wide ranging theories and debates that plague this branch of the social sciences. In fact it has often been said to the economics is not a science but a biting critique of a branch of study that proports to understand and explain one of, if not the most, important foundations of human society.
So what is economics? A quick google search will give you something like this 'the study of the production and distribution of wealth and the buying and selling of goods and services' but
the problem is, as much as I have researched, I have never been able to find a definition of wealth that relates 'wealth' to clear concreate phenomena. All the definitions I have encountered such as 'a measure of value of the assets of worth owned by a person' only ever leads to the question what is, or who determines, the value of something. In other words wealth and value are completely arbitrary terms and that means the entire study of economics is built on shifting sands.
These questions of what is wealth and value, have occupied economic thought throughout its history. Many economists such as Ricardo, Smith, and Marx and have attempted to define wealth and value of applied conceptions of wealth and value to their analysis of the economy. Yet it is my opinion that each of their conception of wealth and value fall far to short of providing the solid foundation needed to build a functional understanding of this thing we call an economy. I don't fault the founding economist as I believe that economics suffers from an historical case of silo group think that was well established long before science, in particular the younger sciences of physics and ecology could be used to inform the foundations of economics.
So what is it that the scientific fields of physics and ecology have to offer that economists have missed. Well to not put to fine a point on it, it's the laws of thermodynamics, which quite frankly are foundational to our understanding of matter, energy and how these laws are applied to applied to our understanding of ecosystems.
The idea of measuring the value of something in terms of energy or Joules is not new in economics, it is referred to as the energy theory of value and physicist have made significant inroads into justifying this conception of the value. While no orthodox economists like Steve Keen has recognised the role of thermodynamics with his now commonly used analogy of 'a body without energy is a corpse machine without energy is a statue'. Thus it is heartening to see that is conception of value and it implications are starting to make some headway into economic thought even if it is still very much on the margins as demonstrated here and here. However I am yet to see the connection of the energy theory of value and thermodynamics connect with ecological principles so I am going to throw my two cents in as well.
So for those of you not familiar with the laws of thermodynamics as they apply to ecological systems lets start with a basic idea of energy flow and matter cycling in ecosystem (something you should be able to find in any year 9/10 science text book).
There are two fundamental requirements of living things, they are matter and energy. Matter is composed of the very atoms needed to build the body of a living organism, mainly Carbon, Oxygen, Hydrogen, Sulphur, Phosphorus and Nitrogen as well as a range of other trace element like iron, calcium and zinc that make the compounds of the cells thin the body. the matter needed to make these compounds are gathered from the environment and namely the soil and air by plants before the are consumed by other animals before eventually returning to the soils and air. However, just as essential as matter is the energy needed to build and break down these compounds, because without energy there would be no life. This because energy is involved when any change occurs, or as it is referred to in science 'energy is needed to do work'. Thus without energy everything would appear to be frozen in time an no change would ever occur. Living things use energy to maintain metabolic function, move, communicate, grow, reproduce, detect and respond to things in the environment and of course collect more energy so they can continue to live. Energy can in many ways be considered far more important than matter as gathering the matter needed to build a body is relatively easy, (think about how much you weigh and how much food you would need to consume to make your body weight). The hard part in truth is collecting the energy needed to continue to survive this is because unlike matter (atoms) that can be recycled and used again again, energy cannot.
Instead energy, according the 2nd law of thermodynamics, transforms from high density, or concentrated, forms of energy to lower density forms of energy typically as heat. This is known as entropy. The trouble is low density energy is so diffuse throughout an ecosystem an organism would actually expend more energy trying to collect it than it would be able to obtain. For this reason living organisms favour collecting energy with higher density as this way they can gather more energy than they expend in gathering it (this essentially makes living things anti-entropy). In ecosystems plants (the foundational producers in almost all ecosystems) favour collecting high energy light waves and then storing the energy they collect in the bonds of glucose molecules which they use to build their cell walls. Animals exploit this high density store of chemical energy by eating plant tissues to supply their own energy needs. They in turn use the excess energy they collect and store it the fat and protein molecules of their body tissue which is in turned consumed by predators. This transfer of energy is demonstrated by the use of food chains and food webs which have arrows indicating the direction of energy flow.
 |
| Diagram of a food chain with arrows indicating the direction of energy flow among water birds in Chesapeake bay. Wikimedia Commons. |
The 2nd law of thermodynamics doesn't just state that the energy transforms, but that it also
'degrades' into less dense forms of energy, like heat, that cannot be effectively used to do work or facilitate change. In living ecosystems this means that in each transfer of energy from one organism to the next only about 10% of the energy consumed by an organism is stored
in their body as chemical energy. The other 90% is lost as heat during the normal metabolic life processes. The consequence of this is that this limits the number of organism that can exist at each level (referred to as trophic levels) of the food food chain. This is shown in the diagram below.
 |
| An energy pyramid is a presentation of the trophic levels in an ecosystem |
You can find out more about food webs and biomass pyramids below.
So what does this have to do with economics? Well everything. Human's and their society are not excluded from the laws of thermodynamics and ecological processes and the easiest way to see this is through the food we eat. This is the chemical energy in our food that keeps each and every one of use alive, but our society doesn't run on the chemical energy needed to power humans alone. It runs on oil, gas and coal, the vast stores of chemical energy stored in fossilised plant matter, as well as solar, wind, tidal, geothermal and gravitational energy. It is the ability to access or tap into these sources of energy which allow us to transport our food and goods power our factories, light and heat our homes and exchange bytes via our global communication networks. In fact our society would be frozen in time without the energy needed power it. But then this is nothing new to many people
and was brought dramatically to our attention by things like the 1970's energy crisis. So we could say that our economic system is in fact a human economic ecosystem.
So what does this all mean? Well it could be reasonably argued that the stores of energy food producing land, fossil fuel deposits and renewable energy sources represent the real wealth in our society because without this energy our human economic ecosystem would come to a stand still. Thus wealth can be though of as productive land capable of capturing energy in the form of food, the coal, gas, hydro, solar arrays, wind turbines and more that provide our electricity and the oil that power our transportation. This conception of wealth which is demonstrated starkly when we refer to the petrodollar where those that control the access and use of oil control the markets of the world.
Recognising that wealth can be stored in energy assets such as productive farm land and vast stores of fossil fuel deposits is to see wealth as control of and access to the potential energy stored in these locations. In other words wealth is control of potential energy. Energy that at some point in the future can be used to do work or facilitate change however potential energy is only part of the economic story, this is because potential energy is just that potential. It cannot do any work or facilitate change until it is transformed into another form of energy like kinetic energy. This means the potential energy be harvested. The chemical energy in our crops needs to be gathered, the fossil fuels in the ground need to be mined and the dams and turbines need to be built. Doing all of this requires energy that had already been harvested and is in the process of being used to do work.
So just like the organisms in an ecosystem must gather and store enough energy to continue to gather more energy to continue to survive, so must humans to maintain their society. There is a term for this, term commonly used in peak oil circles, it is energy returned on energy invested or ERoEI, and is just as applicable to the harvesting of energy from agricultural land as it is for mining coal, drilling for oil or harvesting renewable sources of energy. ERoEi is typically expressed as a ratio. A ratio of 1:1 means for what energy is put in the same is extracted. This is an unfeasible amount as it leaves no surplus energy for any other activity like education, healthcare, manufacturing of technology or the many other things that make our society function. In fact it is estimated that ERoEl of less than 8:1 will result in social decline as not enough energy is gathered in high enough density to maintain its structure, or complexity, and the society will effectively starve.
This structural complexity of the human economic ecosystem can be thought of in the same way as a a food web in an ecosystem. However there is a significant difference. In an ecosystem food web the flow of energy and its decay is determined by what eats, or consumes what. In a human economic ecosystem however the flow of energy is determined not by what eats what, but by our consumption practices or more precisely where we direct our money. In this way money is not only the means in which we determine value but what our potential energy stores are used for. This means that in the same way that wealth is a store of potential energy, money is the means to turn that potential energy into Kinetic energy that does work. Consequently where we put our money directs and controls the energy in the human economic ecosystem.
None of this may seem new to people or economists that are familiar with the energy theory of value but there is a problem, a serious disconnect and that disconnect is something that I rarely see addressed even in these circles. You see every time their is a change, every time work is done in the human economic ecosystem energy is degraded and lost as heat, yet the money used to direct that energy, doesn't degrade with it. It remains persistent. This is a problem because just as energy flows up the trophic levels in a natural ecosystem so does money in the human economic ecosystem, and this money ends up in the hands of those at the top levels of our society because money and energy in our human economic ecosystem are intimately linked.
And this is the problem, top predators in ecosystems are not top because they accumulate more energy, they don't, in fact they only ever accumulate as much as any other organism
that needs to survive. They are top predators (or more correctly top consumers) because they are the last level within the ecosystem that can gather enough energy from the lower levels to survive. Life beyond this point in an ecosystem is unfeasible as not enough energy could be gathered to maintain it.
Human economic ecosystems however differ as money flows upward to the top layers of society it accumulates because it is persistent making it more and it more and more possible for those to at the top level of the human economic ecosystem pyramid to direct and even waste energy for their own pursuits, because in a human economic ecosystem those
that have money get to decide what the energy in the system is used for. In other words the distribution, of who can direct energy via money is completely inverted from what the actual energy distribution in an ecosystem should be.
This inversion of the control of energy via money in the human economic ecosystem is only sustainable for a limited time, eventually the top consumers acquire so much control of the energy through money that not enough is left for the bottom order consumers. The result is
that the bottom order consumers have less and less surplus energy/money to commit to other productive endeavours and the flow of energy (and money) stalls, while those at the top have an over abundance of money that has disconnected with the energy it is representative of. consequently they they cannot do anything productive with it and end up gambling it through financial speculation. It is at this point that the the laws of thermodynamics (and not monetary
policy) take over enforcing a redistribution of energy by destroying money at the top of the human economic pyramid in what is typically called the creative destruction of depressions and recessions. Unfortunately, in doing so it often further stalls the flow of energy through the human economic ecosystem until the balance can be restored.
This problem can be solved in one of number of ways. First by aligning our units of money with energy (including the valuation of wealth), something as simple $1.00 equal to 100 Joules of energy. The second will be much more controversial but has already been proposed by the economist Silvio Gesell who seemed to have intuitively understanding of the problem
but appeared unaware of the relationship to thermodynamics (unsurprising given that thermodynamics has only been established as something more than a curiosity since the 1930's and Silvio Gesell was working in the mid 1800s). Silvio Gesell proposed that money should degrade in value over time or with each transaction, and I agree. This
degradation of money (preferably with each transaction in my opinion) would realign the distribution of energy and money. Finally wealth in its numerous forms of potential energy such as land, fossil fuels, and renewable resources should be recognised as belonging to the commons and either returned to the people or have a land tax imposed on it as advocated for by the economist Henry George, who also appeared to have an intuitive understanding of the role of energy and thermodynamics even though he also was working in the mid 1800s.
Tying money to energy and the way energy behaves will do a number of things. First saving money will be saving energy an have countless benefits for the environment particularly climate change, but when you also consider it is much more energy efficient to reduce, reuse
and recycle - take the smelting vs the recycling of aluminium for example - then it makes much more sense to recycle even with the costs that would need to be paid for the gathering and processing of the material to be recycled. Second as a society we will have to function within the Earth's energy budget. This is because if our money to decay with each transaction it will need to be replaced, but to do so we need to how much we need to be able to replace it. This means auditing our potential energy resources (our wealth) as a community community and creating money equivalent to these resources on regular basis. This money can then be distributed in one of two ways, either as a universal basic income or as 'reparations' for the energy people expend in contributing to society with the right to distribute these in the hands of government. The value of this should be enough to cover the cost of food and energy to power a home and should be matched to the potential energy/wealth of the productive land needed to feed and house the population. This will provide an 'energy floor for people'. The remaining energy in the Earth energy budget can be earned as extra energy credits by allowing people to use their energy for broader social purposes such as social services or manufacturing and selling products or services as individuals or cooperatives. Finally money/energy can be borrowed from the future for major project with the understanding that a proportion of future energy allocation will be forfeit or need to be repaid by directing personal energy to socially productive purposes.
The logistics of this is something that economist could and should work out, but the key is that
as a human society we would be able to find balance with our planet while also retaining the freedom that markets and human ingenuity offers. It is my belief that until we align our economy with the laws of thermodynamics we will continue to suffer the wild and, quite literally life threatening, swings of a fluctuating economy as well as over shoot the sustainable capacity of our planet and this is my small contribution to creating a more sustainable world.
