ENERGY IS THE FUNDAMENTAL UNIT OF ECONOMICS.

ECONOMY WILL REACH MATURITY AS A SCIENCE WHEN IT IS MEASURED BY ITS TRUE FUNDAMENT, ENERGY.

(12/23/07)

Abstract: Come to think of it, the concept of bare bones economics is all about energy management (nemein) in the house (oikos in Greek). This means that not anything goes, it’s a house, after all; and it also means that energy should be the store of value and computational conduit of economics… in one word: its currency.

Energy as currency would make energy what it ought to be, the first order of economics. Behavioral/Neuroeconomics should only be a second order, corrective term (although, fundamentally, it also depends upon energy, as we will see!) Thus considered, economics will turn out to be, in important ways, more fundamental and mentally powerful than a substantial part of physics (its Lagrangians being more free!). Economics is all about energy, it’s time to face the fact, especially in the context of finite planetary resources; energy grounded economics will allow for a sorely needed more precise and thorough accounting, in the light of what we want to accomplish on this planet.

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SHOULD THE ECONOMY STILL BE MEASURED WITH SHINY SHELLS?

Mathematics is only very refined, local, logics: it’s not God. Math is best applied to disciplines equipped with units that mean something objective (i.e., which can be experimentally ascertained without depending on human good will… or fancy). Otherwise, it’s garbage in, garbage out.

Unfortunately for the present state of the science of economics, the fundamental unit of most of economy as a “science”, is “money”, a man-made convention, as far from objectivity as one can get; the Sovereign can change money at will (it’s called “Fiat Money”, from the Latin fiat (“let it be done“)). Thus economic theory is pretty much reduced to what the Sovereign wants it to be. We don’t need books to tell us that. Example: Stalin killed (dozens of) millions as he forcefully industrialized the USSR; but then his war economy, this economic war machine, was able to defeat Nazism.

In most places, money started with marine shells (which were hard to get in most places, so represented a store of value). We will argue that the time has come to boldly go beyond that. Instead of self indulgently basking in anthropocentric economics, the time has come for economics to get a unit and so become a natural science.

MONEY CAN BE DILUTED, BUT IT CAN ALSO BE LEVERAGED:

Representing worth with money has been known, at least since 3C Rome, as highly problematic. Most of Roman money was affected with devaluation. Roman money had become increasingly a convention (the coins contained ever less precious metals, ever more copper, and thus their nominal value were ever higher relative to their real value). The weakening central state was unable to enforce the nominal value of said convention as the entire economic activity of international trade shriveled (although the Roman Solidus, solidly made of pure gold, was not devaluating)). By the 13C the early Yuan (Mongol) had established a very fierce state in China, and its associated paper currency was just as strong (the Mongols (just like Roosevelt later) forbid the use of precious metals for currency). But when war came (against the Ming), it was paid with paper money inflation (the Ming won and did away with paper currency entirely).

As defined in Wikipedia, economics studies the production, distribution, and consumption of goods and services. The term economics comes from the Greek for oikos (house) and nomos(custom or law, or management), hence “rules of the house(hold).” Adam Smith, in the “Wealth of Nations” (1776) proposed that economics had to do with providing a “revenue or product … to enrich both people and sovereign”. There had been some debate about what “product” consisted of. Early French “physiocrates” erroneously viewed only agricultural production as the only product which mattered. The main one, by formation a surgeon, a peasant at heart, was a very close adviser to Louis XV. In the seven year world war against France of 1756, an economically outmatched Great Britain borrowed massively, with financial engineering, to build up her Navy and Army (and Prussia besides). Consecutively, Britain won, and used ever more financial engineering towards massive industrialization, leaving the French peasants behind (relatively speaking…). Smith to some extent expressed what the latest facts had already proven: new technology works better than nostalgia.

After Smith, “product” came to mean money. it was progress then (as the British victory demonstrated). Economical theory stayed stuck in this context during the next two centuries. Twentieth Century macroeconomics uses money as a measure, making economics into a social science, because money is, after all, a social convention imposed by force.

We will argue that it is high time to become a bit more scientific, and free economics from money, just as, after Smith, it got freed from agriculture.

THE ECONOMY IS MORE THAN MONEY: WHILST THE COINAGE WITHERED, THE ECONOMY THRIVED!

As Constantinople could not find any way out of its shrinking fascist sandbox, a lot of the Greco-Roman economy tied to money slowly died in Occident. The rest of the occidental economy somehow survived. This shows that the currency, as usually conceived of, is less fundamental than the economy itself: the death of the former may not kill the later. This is not surprising. But what happened next during the Dark Ages is. In a further blow for usual economics theory (which puts coinage front and center), a spectacular retournement de situation occurred.

Not only the post Roman economy did not die when the Roman currency and administration did, but it actually thrived (full and somewhat irrelevant disclosure: by 800 CE, the Franks used “argent” (silver) as currency: they had reestablished a coinage; the fact remains that their economy progressed spectacularly, and for the better, without much of a currency). It is as if, far from impeding the economy, the penury of coinage may even have facilitated reacquaintance with more fundamental principles to reestablish economics on a sounder basis. It’s probably what happened; the Greco-Romano-Christian economy was entangled with a very high degree of exploitation of man by man (giant properties, slavery, etc…). To change economic system one needed to change societies, i.e., change the general guiding metaprinciples.

THE ECONOMY DEPENDS ON PHILOSOPHY MORE THAN IT DOES UPON MONEY:

The Romans had not been able to introduce any deep philosophico-economic reforms. Instead they had tinkered in vain with their currency, tax system, and finally called onto that fascist, Jesus, to help them out (that distracted them from the deeper stuff). A few last big military efforts without church confiscation finished the Roman state authority (absence of confiscation made the theocracy more financially important than the secular state, for all to see, so people looked for the bishops for governance: after all, they had all the money, and the respect of the state; conversely Charles Martel, the leader of the Franks, nationalized the Church, as Islam loomed, four centuries later, to make the exact opposite point: the Frankish state mattered more than the Church).

As the Franks grabbed power, they established a philosophical system which was an opportunistic mix of many superior philosophical principles, some coming from Germania, some from Rome and Greece, some from the Sea, some maybe from what they imagined Troy to be. All together, those new philosophies had a huge socio-economical impact. The Roman imperial, international economy, which thrived for centuries, was centered on the availability of a coinage, and the related Pax Romana. It was doomed though, because it was unsustainable, in great part because fascism was so hostile to any progress (even materialistic progress, because it caused instability). The Franks’ new philosophico-social principles allowed for sustainability, and technological progress ( i.e., mentally growing out of militaro-economic difficulties).

Among those superior principles the Franks implemented were more equality, less plutocracy, much less sexism, no more slavery, more high tech and education generalized and enforced, no more religious terror, the termination of theocracy, and finally a professional army paid by the confiscation of church property. This is a lot of fundamental philosophical reforms that Rome-Constantinople could not, and would not do (instead often preferring their exact opposites). The result? The economy and technology of the Regnum Francorum roared ahead (in spite of military invasions from the north, the west, the south, and the east, by Vikings, Muslims and Mongols). By the 10C, the Western Europe the Franks had created had the highest energy usage of the planet, per inhabitant. And thanks to newly invented beans, people were well fed. Plenty of food and energy is a more fundamental yardstick of a good economy than a good currency.

SINCE ENERGY ACTS ON SPACE AND TIME ITSELF,  IT MAY AS WELL DOMINATE THE ECONOMY OFFICIALLY:

In astronomy the units are space and time. But it was found, many centuries later, that energy modified them. Energy can literally (at the limit) make space go around in circles. One may guess that what makes something go around in circles is more important than that something: energy should be more important than space and time. Indeed it turns out that it is not too clear how many dimensions space time has, and of which nature it is, whereas energy is a much clearer concept, measured in a one dimensional real line (we do not have non commutative multidimensional energy yet!). Energy is one of the most fundamental concept in physics (one could call energy an ultrafilter in conceptual space).

As Richard Feynman puts it in “The Feynman Lectures on Physics” : “There is a fact, or if you wish, a law, governing natural phenomena that are known to date. There is no known exception to this law—it is exact so far we know. The law is called conservation of energy; it states that there is a certain quantity, which we call energy that does not change in manifold changes which nature undergoes. That is a most abstract idea, because it is a mathematical principle; it says that there is a numerical quantity, which does not change when something happens. It is not a description of a mechanism, or anything concrete; it is just a strange fact that we can calculate some number, and when we finish watching nature go through her tricks and calculate the number again, it is the same.’

Energy is found at the basis of all present physics (in a sense, it even implies non locality, which rest on the conservation laws which rest on the conservation of energy!). The theory of gravitation (“General Relativity”) is about how energy acts upon space-time. Quantum Theory and Quantum Field theory are all about finding ways to compute precisely with the “Principle of Least Action”, which says that fundamental processes minimize (locally) the energy they involve. We saw above that economic theory, as conceived of so far, is mostly about money flows. But money, a social convention enforced by military power, is not conserved. Whereas energy is. To try to make a mathematical theory where the unit is not conserved, or, if you will, where the unit is not a unit, is to try to build a castle with a cloud.

VIEWED WITH A CLEARER PHILOSOPHY, IT’S CLEAR THAT THE “PRINCIPLE OF LEAST ACTION” IS AT THE HEART OF ECONOMICS TOO:

“Economy” means “HOUSE-MANAGEMENT”. Intuitively that management is going to accomplish the most  tasks if and only if it minimizes the energy spent when accomplishing all and any task. In other words, per its very emotional definition, economy, as a manager, is directed by the same fundamental principle than physics: effecting the maximal number of processes while spending the “Least Action”. Thus the natural unit, the natural dimension, if you will, for the economy ought to be ENERGY (this answers in one shot all the “perplexities” which were affecting the honorable Keynes, see the post-scriptum).

All human activities are, can, and ought to be, measured in terms of energy.

Evaluating even the highest mental work in terms of energy can be done. A PhD can be evaluated in term of energy content. The more sophisticated work, the one with the highest added value, comes from the advanced education of its author. It ought to be valuated in terms of the energy deployed in providing said education (taking into account, in a cascade effect, the energy content of the education of the teachers of the sophisticated author, itself coming from the energy content of the sophisticated knowledge the preceding generation of teachers was imparted, etc…).

Coal thermal plants produce energy, in the short term. But, so does setting one’s house on fire. Indeed, when considered in the fullness of time, it is clear that the carbon dioxide produced by coal plants will result in an enormous greenhouse effect which will have a huge cost in energy units. (Carbon dioxide is a gas which has long regulated Earth climate; without it, Earth would be a snowball, too much of it, and it would turn into hellish Venus.)

Part of the cost of coal thermal plants ought to include, what will be, in the fullness of time, the significant energy of edifying a seventy (70) meters high dam around all lands that one does not want to see turn into coral reefs. This is a cost which is sure to occur: all glaciers have melted in the past, 35 million years ago. The Arctic ocean reached 23 degrees Celsius (84 F)… before the temps rose even further as heated up methane hydrates erupted from the bottom of the seas.

This turns on its head Paul Samuelson’s theory of discounting (which he himself doubted as universally valid; that discounting theory was in a 6 pages paper published in 1937). Simply, one cannot discount Armageddon, especially when one has found a sure way to bring it about. Actually we cannot afford to discount anything anymore; and as far as counting with GDP, that’s not something we should want to do either.

GDP IS TOXIC, AWE IS AWESOME:

GDP is the fundamental computation in present day economics. It’s the sum of all monetary activity. One may as well sum up all the hot air. GDP is completely obsolete as a measure of economic value, considering which values our house should value (as we said, not setting the house on fire should be a primary value).

The problem with GDP is that GDP DOES NOT MEASURE ECONOMIC ACTIVITY IN A CIVILIZED WAY: it augments in traffic jams. Worse: a country with an enormous activity in terms of energy could see ALL of this energetic activity negated if, ultimately, the cost of all this energetic production in terms of pollution exceeds the value of what it brought in the first place. That a frantic economic activity only makes us run backwards energetically would be definitively uncivilized.

Such allegations were nearly made about the Chinese economy by the World Bank, in December 2007 (more exactly, the World Bank claimed that most of the Chinese augmentation of GDP (8 to 9%) was the pollution cost created by the 10 to 12% GDP growth; if true, this is grave, because it means that China is barely progressing economically, at a giant pollution cost.)

In any case, the same certainly holds for the USA, to some extent. In spite of its enormously increasing GDP, the USA has been unable to keep the most significant part of its economy, health care, going on at the top level it had long achieved. This reflects what the ultimate values of the USA have now become: not the best health care, as in the past, but the best military, as in Iraq.

Besides faith in the currency it’s expressed in, GDP reflects particular moral and hedonistic values (or rather their want). GDP is a computation with a moral and hedonistic agenda of a type it’s high time to reject. If a car has a lot of energy, and then crashes into a tree, it should not help. GDP says it does. A lot. GDP is not just friendly to waste, it encourages destruction. There was never a pollution cloud GDP did not like.

House management depends upon moral and hedonistic theories of value. We don’t want a house management which loves traffic jams, crashes, and poisonous gases. An economy which stuffs garbage inside the house and the atmosphere should be viewed, should be conceptually abbreviated as, garbage itself.

The Greco-Roman economy was essentially agricultural. Because of active discouragement from the central government, it could never break into the industrial stage (although there were germs of it: hydraulic plants and military arsenals). A better theory of economics was devised when “product” was generalized to include money (by Smith and his French teachers). Our activities have now progressed some more, and we need a more general definition of product than the one defined by money. We need to switch from GDP to AWE.

GDP CAN AND OUGHT TO BE REPLACED BY ABSOLUTE WORTH ENERGY (AWE):

Whereas GDP adds all the money, AWE adds all the real energy produced, once WASTE has been subtracted. AWE takes into account the long term energetic value of whatever is being produced, after subtracting all the energetic cost, in the fullness of time. Switching from the money based GDP too the energy based AWE would represent a moral, hedonistic, and strategic switch from the teleology of disaster unimpeded, to its opposite, ever more comfortable sustainability.

AWE would expose the true cost, and the true worth, of any goods and services. AWE would be the sum of Energy Income and Energy Waste. Of course, the decision of what is Income and what is Waste would be partly metaeconomical. But only partly so: a lot of the Waste would appear just by considering the long run (such as how much it would cost to build a 70 meters, multimillion kilometers long dam around all worthy lands, in the case of coal

AWE would give a hand to the CARBON TAX. The carbon tax was inaugurated by Sweden (1991). The idea is to make more expensive goods and services which produces much too much carbon dioxide. The economics of money circulated by the pure free market are blind to carbon dioxide; taxation is needed, in a moralo-economic process similar to the taxes on tobacco. Whereas the Carbon Tax punishes the production of carbon dioxide, AWE would punish waste in general. For example the huge Chinese GDP increase would turn into a vary small increase of AWE. Viewed in the simplest energetic terms, AWE would reward energetic efficiency. But AWE does much more. It also encourages wisdom, because it highly values the chain of increasing culture, and less so frantic physical activity.

SUSTAINABLE PHILOSOPHY PLUS ENERGY ECONOMICS EQUALS NEW SCIENCE:

Some will say that it would be difficult to evaluate all processes and human achievements in terms the energy they represent, after subtracting the energy needed to obtain them, all in the fullness of time, as the AWE computations will require. But future science was never as easy as obsolete science. Science has always replaced the simplicity of the beast by the complexity of analysis. We now have huge computational power, we ought, and need, to use it. ENERGY ECONOMICS will be a new fundamental science.

Others will point out that it will be hard to integrate in this the value of a work of art, for example, because that will still be determined by how much people are willing to pay for it in terms of energy units, and people can be crazy. In other words, some will say that some of behavioral economics and neuroeconomics will escape energeconomics, and live in a transverse dimension.

Sure. But so what? The patients in the lunatic asylum also escape the Least Action Principle. We are talking here about finding a scientific basis, a ground for the field of economics, not a flight of fancy into why crazy people will do crazy things. Besides, the brain spends a lot of energy, and is around to find energy (bays, bugs, roots, etc…), so ENERGY ECONOMICS SUBTENDS A LOT OF NEUROECONOMICS. The later mostly exists because of the former.

MOST of the economy will find itself evaluated in a way suitable to differential calculus by the AWE energy computations. The free market of the free will still have a role, but a smaller role. Just like free will has a role in the health of people (but most of the health of people, at least in theory, can be objectively evaluated; AWE is objective too). Economics will become more rational, because AWE computations will change the economy (a miniature manifestation of energeconomics, the carbon tax, will, all by itself, modify the world economy.) The point being, we are mostly not free: energy dominates (Sartre begged to differ, he thought people were free, but he mostly hanged around Parisian cafes.)

Interestingly, action potentials in economics (which describes the way energy shows up in a particular situation) will not have to be limited to those found in the natural world (“physics”). The genus Homo has a knack to make the reality he contrives more complex than the one he initially encountered. Thus ENERGY ECONOMICS WILL END UP AS GENERALIZED PHYSICS (at least inasmuch as the Action Principle is concerned).

Economy would then transmogrify from “dismal science’ to “generalized science”.

Patrice Ayme

Tyranosopher

Patriceayme.com

Patriceayme.wordpress.com

P/S: As Keynes put it: “The three perplexities which most impeded my progress in writing this book, so that I could not express myself conveniently until I had found some solution for them, are: firstly, the choice of the units of quantity appropriate to the problems of the economic system as a whole; secondly, the part played by expectation in economic analysis; and, thirdly, the definition of income.” (John Maynard Keynes, in his magnus opus of 1936, “The General Theory of Employment, Interest, and Money”). The approach above impacted all three of Keynes’ “perplexities”.

 

5 Responses to “ENERGY IS THE FUNDAMENTAL UNIT OF ECONOMICS.”

  1. Money shot » ENERGY IS THE FUNDAMENTAL UNIT OF ECONOMICS. Says:

    […] post by Some of Patrice Ayme’s Thoughts and software by Elliott Back This entry is filed under Money shot. You can follow any responses […]

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  2. ECONOMIC REVOLUTION « Some of Patrice Ayme’s Thoughts Says:

    […] LIKE A FOX, TO OPT FOR CATASTROPHE, JUST AS IN 1939: Already in 2008, and before, I explained that “Energy Is the Foundation Of Economy”, and I introduced AWE before. That the USA has chosen a catastrophic energy policy goes according […]

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  3. TRUTH AS ENERGY | Some of Patrice Ayme's Thoughts Says:

    […] ought to be founded on Energy (I’ve insisted, to give economics, and thus society the rigorous foundations society needs it to have). In […]

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  4. Bitcoin: Naïve, Evil & Demented | Patrice Ayme's Thoughts Says:

    […] BUT A HOPE NEVERTHELESS. THANKS TO ABSOLUTE WORTH ENERGY (AWE). […]

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  5. Patrice Ayme Says:

    The way to measure money fairly is by reducing it to the foundations of physics, by the concept of energy. It can now be done, thanks to enormous computing power… But without the unsustainable waste of energy systematic usage of blockchains would bring:
    https://patriceayme.wordpress.com/2008/01/03/energy-is-the-fundamental-unit-of-economics/

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