The People’s Economy

There is an enormous amount of energy. Given that the amount of energy in the universe is for most intents and purposes limitless, it can be said that the real cost of achieving most things is a triviality. The cost of heating the world, or running the world’s transport, or feeding the world might be measured in kilojoules, and if there is an overwhelming abundance of kilojoules, then the cost in terms of energy is comparatively trivial.

Without even having to consider something as huge and remote as a galaxy or the universe itself, the amount of energy available from the Earth and from the Sun is staggering.

We live in an extremely thin layer of organic life, protected above by ozone gas and below by continental crust. This sandwich is, when properly scaled, more delicate than an eggshell. It is more akin to the floating skin on a cup of hot milk.

On the underside is the mantle, a raging ball of hellfire almost three thousand kilometers deep, surrounding a huge iron and nickel ball, the core, a further three and a half thousand kilometers deep, with a temperature of about five and a half thousand Celsius at the middle. Most of the heat (about eighty percent) contained there is actually generated by decay of various radioactive isotopes. Only the remaining twenty percent actually comes from the original formation of the Earth. The total energy content of our planet from all this heat is estimated at about 3*1031 Joules, the equivalent of approximately three thousand billion (3*1012) year’s worth of electricity consumed by the USA. At current world total annual energy consumption of 5×1020 Joules, that energy would take over a hundred thousand million years to deplete if it were available to us.

On the other side, above our organic shell, is a great cosmic microwave oven threatening to incinerate us with everything from ultraviolet to gamma radiation. Arriving from the Sun just to the edge of the Earth’s atmosphere is a huge 174 Petawatts of solar energy. That’s 174 million million kilowatts and just arriving in near space. If we were to even harvest the Sun directly, using solar panels placed in space close to the Sun, the amount of energy available would be unimaginable to us.

Anything we want can be expressed as requiring a certain amount of energy. To mine silver requires energy. To make the machines that do the mining requires energy. Even if the silver has to be mined by robots that travel to different moons or planets in our solar system, or even if the silver has to be directly synthesized by nuclear fusion, if the method exists then the only price to pay is the energy required to produce and deliver it. However, as we have seen, there is enough energy there to fuel a god-like lifestyle for everyone on our planet.

So what is stopping us?

One immediate objection to the above might be that the energy exists but is not available to us. Perhaps immediately not, but whether this is absolutely true depends on if the process of striving to make that energy available consumes more energy than it returns. For example, if the process of making a photovoltaic cell consumes more energy than it produces, then people will only make photovoltaic cells while our society operates on the basis of ‘free’ reserves of energy from stores of fossil fuels. If there is no alternative technology that can help to make solar, geothermal, tidal or other energy sources available at an energy return higher than the energy consumed in their production, or if no such technology can be achieved by us, then we are doomed. Our population will be forced to dwindle as fossil fuels dwindle until it reaches numbers that can be sustained by agriculture.

As it happens, with current technology, the energy returned on energy invested (EROEI) of photovoltaic solar cells is about 30. This means that over the lifetime of a photovoltaic cell it typically produces enough energy, after deductions for the maintenance and upkeep of the cell, to make about thirty more photovoltaic cells. What this should mean is that if some group decided to switch to solar power now, if half of the power (or half of the cells) were devoted to general consumption and the other half to making new cells, within thirty years one half of the initial investment would have multiplied itself thirty times whilst the other half would have provided usable energy at the same time. After thirty years, there would be fifteen times as many solar cells and everyone would have been kept warm and lit in the process. After sixty years there would be four hundred and fifty times more photovoltaic cells in that group. In short, all that energy mentioned earlier should be increasingly available to us, energy affordability should be increasing, and our quality of life should be dramatically increasing.

Again, so what is stopping us?

The way we measure cost is not in terms of kilojoules or ergs. Most of the time cost is expressed in terms of a particular currency as a ‘price’. Complex social interactions and structures result in products and services advertised at certain prices. Those prices help to shape the decisions that people make. Conversely however the decisions that people make help to shape those prices. This bidirectional effect is true regardless of whether the system is a free price system or not.

In a planned economy, prices are set by central administration according to both planned changes in production and previous buying behaviour. That information about buyer behaviour in response to previous prices is the feedback into creation of new prices. In this sense there is no fundamental difference between a planned economy with fixed prices and a free price system. The difference is in the multitude, size and involvement of those signaling feedback loops.

Those pricing feedback loops serve to amplify or dampen investment in the things to which they apply: Infrastructure develops to support a particular type of product or service, which affects pricing, peripheral products, marketing and so on, to attract further consumption, further speculation and further development of the same type of infrastructure.

A topical example of such a feedback loop is called “debt deflation.” This is where people become increasingly motivated to rush and pay off debt in response to decreasing ability to repay the debt. What this results in is a reduction in the circulation of money, which means that less gets spent on goods, which means nominal prices drop and businesses earn less, which means less get’s paid on wages and the incentive to clear debt increases still. It is a particularly nasty condition, because while nominal prices and interest rates drop, real rates rise as wages drop, sales slump and unemployment rises. It is an unregulated decay that describes the Great Depression and arguably one effect of the Global Financial Crisis in the West.

Price itself has little meaning other than something that can be loosely correlated with trends in human behaviour. Price is part of a signaling mechanism. Essentially it is marketing: information about something that hopes to change behaviour in relation to it. A high price may increase demand or it may be decrease demand; it just depends on the type of product. There is nothing absolute or intrinsic in a Euro or a Dollar, or even a gram of gold. The potential exchange of one Euro is not the same as the potential exchange of ten kilojoules. The latter occurs according to immutable laws of physics, the former is merely a signal that helps to modify individual behaviour, and according to sociological, biological and neurological patterns that are not yet well understood at all (though, yes, both ultimately occur according to immutable laws of physics, but one occurs on a low level where the other does not! For now, physics does not explain buyer behaviour, but no doubt one day it will).

Whether they be empires, territories, mass production infrastructures, energy networks, roads or railways, it may be more useful to think of human society as constantly developing new and tearing down old structures depending on which way the winds are blowing, where price systems supply the underlying but undirected mechanism of those winds, allowing them here and there to billow in gusts of investment amplification and stall into calms of stagnation and decay.

With this bird’s-eye view, it is clear that there is no reason at all why anyone should enjoy a god-like lifestyle at all. There is no overall regulation, no overall architecture and no general direction. There is nothing to say that those feedback loops should not all switch to dampening and decay at the drop of a hat. In fact, the evidence and several famed economists show that the system we have had in place for the recent past is not a stable one, and often it is the centrally planned, state regulated, tax funded bailout, war or convenient trip to the moon that drags society out of the inevitable collapses whenever they happen.

Price almost never increases as a product becomes more abundant. The price system is set up in such a way that infrastructure must wane if the output becomes abundant. If something becomes as available as the air, the price drops to nothing. Nobody is interested in selling or buying air. The unfortunate consequence of this is that the price system becomes self limiting. Before things become ‘too’ abundant, artificial scarcity is introduced to help maintain sufficient competition between people to justify production. If it could be done, respectable entrepreneurs would find ways to make air scarce, in order to sell it. Given that they have succeeded in decorating simple water with nicely distinguishing bottles, and people are willing to spend their earnings on this, it is a wonder that bottled air is not more popular. Another good example of artificial scarcity is the diamond. Diamonds are maintained at artificially high prices by restricting the quantities sold. Yet another example is digital music. Now that distribution of music can be done without the use of physical movement of plastic, using the internet, it is the response of the old business model that relied on this monopoly of physical distribution to introduce artificial scarcity in the form of ‘digital rights’ enforcement, without pro-active adaptation and endorsement of new, efficient, faster business models.

As technology and automation advances, things become more abundant. The only problem is that while investment in automation is made according to price systems, the output product or service cannot over time tend down towards a zero price. The investor makes his decisions about where to stimulate development by examining expected returns, measured in a currency according to prices. The stimulation in a certain direction – the amount of machinery that can be built or bought – depends on the amount fronted by the investor expressed in a currency and relative to current price indexes (a factory may have cost ten thousand pounds some time ago, but might cost ten million today). If for example the business plan is to provide a cheap, abundant form of energy with a projected exponential decline in cost price over the next ten years, then given that there may be a competitor, there is no way either could expect to recoup their investment.

While abundance is linked to automation and technology, it will be hamstrung as long as investment in automation is made according to unsophisticated calculations of private ‘profit.’ Further, the output of these automated supply processes must be bought using the fruit of remuneration, but automation reduces the numbers of employees. While ideally this would allow people to move on to new areas, in actuality it results in both unemployment, inequality, and an increasing number of “non-jobs”: sub-optimal shuffling and time-wasting with little fulfillment or purpose aside from the monthly pay packet.

So in conclusion, what I hoped to present was the notion that our ‘economy,’ while based on a price system, is a system or structure that relies on scarcity and competition between ourselves. It is a self-perpetuating thing. We delude ourselves into accepting scarcity because when faced with abundance our paradigm breaks down. When told of alternatives to the petrodollar, despite the obvious overwhelming abundance of energy, we are given to understand that other sources of energy make no ‘economic sense.’ It is directly analogous to Galileo’s eyes being blinded after he informed the establishment of celestial arrangements not compatible with the social order of the time. The price system entices us with the promise of conflict-free rationing and distribution of scarce resources but ensures that for as long as we adhere to its rules scarcity must continue and so we will be doomed to inequality, suffering and war. Like any doctrine it offers structure at the expense of flexibility and potential.


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