Understanding energy is crucial to understand economics, and thus the looming ecological crisis. Energy is not a thing, like oil and electricity, but a property of things that enables system to change. A transfer of energy is required for any material change to take place, which is why energy must be transferred to turn trees into a wooden house, metals and plastics into a car, paper and ink into a book, and any raw material into a final product.
This change in the organization of matter (the essence of all productive processes - including knowledge) has two protagonists: energy goods such as oil, electricity, and food that have energy, and prime movers such as engines, computers, and people that can use the energy contained in energy goods to do work and enact change. Thus, energy is not simply another productive input alongside capital and labor, but what energizes all human primer movers (labor) and non-human prime movers (capital) such that they can do work. Simply put, “labor without energy is a corpse, while capital without energy is a sculpture” (Keen et al., 2019). Unsurprisingly, at the heart of every grand transformation of the Human Story (e.g., the agricultural and industrial revolutions), there is a change in the types of available energy goods and/or prime movers, and accompanying every increase in economic activity there is a corresponding rise in energy usage.
This recognition of the centrality of energy for economic systems implies a paradigmatic shift by understanding human economies as a more sophisticated system otherwise found in all living societies. In fact, economic systems are the social metabolism that enables survival, reproduction, and convenience through the collective processing of energy and mass. Although this approach does not imply an energy theory of value, as prices do not simply reflect the energy required to produce goods because prime movers can be scarce, it does have a variety of implications. Among them 1) why and how growth occurs, 2) the internal structure of an economy, 3) how extreme inequality arise, and 4) how can a society protect its host biosphere. The next paragraphs explain these implications:
1) Growth follows from the possibility of producing more energy goods at an energy surplus. If this is the case, there are incentives to produce more energy goods and the prime movers that use it. For example, if gasoline yields 40 GJ/ton yet requires 5 GJ/ton to produce, then there are incentives to extract more oil and to produce more internal combustion engines. Because the total amount of energy in the economy has increased, now it is possible to produce more of everything, from oil and cars to houses and golden watches. It is possible to produce more of everything, and not only oil and oil consuming prime movers because oil yields an energy surplus which can be used to produce other things. Total energy surplus, which is the balance between the energy required to produce all energy goods and the energy they deliver, is a key concept to understand the internal structure of an economy and how extreme inequalities arise.
2) Energy surplus enables distinguishing between basal and surplus industries. Basal industries are those that produce the goods needed for the reproduction of the economy (energy goods, prime movers and supporting inputs). Surplus industries are those that produce goods not needed for the reproduction of the economy (e.g., luxury items, tourism, high-performance sports, and the arts). Surplus industries can only arise through the energy surplus left over from basal industries, because if there is not enough energy to maintain basal industries, diverting energy to surplus industries undermines the medium-run viability of the economy (e.g., only when a farmer produces more rice than the amount required to maintain itself under “normal” conditions can we enjoy Olympic Games). In fact, from the beginning of History, complex societies with expressions of art, religion, politics, etc., only emerged once enough energy surplus could be secured, and such expressions only accelerated through the enormous energy surplus delivered by fossil fuels.
3) Energy surplus is not only at the basis of surplus industries, but also of extreme inequality. Whereas the energy required to run basal industries must be distributed such that prime movers have enough energy to keep functioning, by definition the energy surplus is the residual and thus not required. This means that the energy surplus is up for grabs by elites, which battle ruthlessly for its control. In fact, social power was given by property over land when we had agricultural economies because the energy surplus was produced through food. Social power today is more concentrated by property over fossil fuel deposits for the same reason.
4) Finally, this perspective grounds economic systems firmly within their host biosphere. If economic systems are energy and matter processing systems, their growth leads to higher energy discharge and greater mass being rearranged from otherwise healthy ecosystems into goods and social structures. For example, Figure 1 shows worldwide energy and mass growth during the 20th century, both of which grew in tandem alongside GDP. The rate at which the increase in energy and mass takes places can change according to technological progress, yet, additional material rearrangements require additional mass and more energy. Curiously, the greatest challenge to sustainability comes not from the increase in energy use per se, but from the increase in mass that accompanies it. If growth entails greater mass being rearranged from nature into human society in the form of buildings, roads, engines, dams, etc., then no amount of green energy can avoid further human intervention in the biosphere.
Figure 1: Global energy use, material stocks, and GDP. Source: Leiva (2019)
This perspective reduces to wishful thinking the idea of absolute decoupling between growth of GDP, energy and mass, and sets only two possible avenues for the future. One is to set absolute limits to aggregate energy use to avoid further environmental degradation, and the other is to embrace becoming a spacefaring species with the urgency of survival. None is easy and attractive, but they are the only true solutions to the ecological crisis under the understanding of the relation between economics, energy, and mass.
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ABOUT THE AUTHORS
Benjamín Leiva holds a PhD from the University of Georgia, USA, and is a professor in the Department of Administration Sciences, and a researcher at the Sustainable Economics Observatory, Universidad del Valle de Guatemala. His research area covers Economic Theory, Economic Rent, Energy Economics, and Environmental Economics. Main questions: 1) Why are we experiencing a generalized ecological breakdown? 2) How does extreme inequality arise? 3) What is the role of energy in economic systems? 4) What is energy's place in economic theory? His most recent publications include articles in Energy Economics, Energy, and the International Journal of Energy Economics and Policy.
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