Money: the People's Proxy

Calling it "energy" instead of "bread" probably wouldn't earn you as many cool points
Calling it "energy" instead of "bread" probably wouldn't earn you as many cool points

In my previous post I drew some parallels between energy and money – and more specifically, energy and banking – and pointed out that when money is at stake, the presence of energy is likely lurking somewhere in the shadows. It was mostly hypotheses and observations I was throwing around about energy and banking, but when it comes to energy and money, one can hardly overstate the connection.

Take an Economics 101 class, however, and not only will it be very unlikely that you'll ever hear of energy mentioned in a context besides that of a random commodity within the supply and demand workings of the "free market," but what you will likely hear is that, gosh darnet, money is an efficiency-laden tool that we humans came up with 'cause we're just so darn smart! As the story goes, money was ingeniously invented with three primary roles in mind: (a) a medium of exchange, (b) a store of value, and (c) a unit of account. Otherwise put, it (supposedly) has absolutely nothing to do with energy.

Trying to point out to a housemate a few years back – a housemate who had a degree and masters in economics and was working on his PhD – that energy actually underpins our entire economy, I was loudly shouted down with "I was never taught that by my professors!" Now, it's possible that my ex-housemate missed out on the most important one-minute factoid and lesson in all of economics because he had to, like, use the urinal or something, but sadly that's probably being too generous. Similarly, it's possible that he had the misfortune of being the son of one of those ign'ant, hee-hawin', country-bumpkin farmers who lack the economic sophistication of a Wall Street bond trader, but that's also not the case. Because what did his father do? He was only an economist at the World Bank in Washington, D.C.

Anyway, a contrary theory to the creation of money being the product of uber-intelligent human beings making the world ever more efficient is given by David Graeber in his insightful book Debt: The First 5,000 Years. As he puts it (while admitting that his description is "a bit of a cartoon version"),

Say a king wishes to support a standing army of fifty thousand men. Under ancient or medieval conditions, feeding such a force was an enormous problem – unless they were on the march, one would need to employ almost as many men and animals just to locate, acquire, and transport the necessary provisions. On the other hand, if one simply hands out coins to the soldiers and demands that every family in the kingdom was obliged to pay one of those coins back to you, one would, in one blow, turn one's entire national economy into a vast machine for the provisioning of soldiers, since now every family, in order to get their hands on the coins, must find some way to contribute to the general effort to provide soldiers with things they want.

Although I would definitely say that Graeber's understanding of money and markets is closer to the mark than what your average World Bank economist would recite verbatim from what their professor said, which was verbatim from what their professor said, which was verbatim from what their professor said, which was verbatim from what – whoops, the record's skipping – there is however one more core truth to money above and beyond that of being used to lord power over others.

For if you really want to get down to the nitty gritty of it all, money comes down to being one thing, and one thing only: a proxy for energy. What's that supposed to mean?

Simply put, it means that the core function of money is that it enables us to command energy – the energy used to move our bodies with, to power our machines, to feed to domesticated animals whose energy we then use to do work (which nowadays generally means entertaining us), etc. In other words, it might be tough and/or inconvenient, but one can get by without money. You can't get by without energy.

Once this is realized, it's easier to understand the next point, which is that it doesn't really matter what you use as your form of currency, because no matter how counterfeit-proof it is, or how abundant it is, or how scarce it is, or how shiny it is, or how encrypted it is, or whatever, regardless of the quality or quantity that endears a people to a chosen form of currency, nothing about any form of money guarantees that it's going to confer access to needed supplies of energy – a not-so-small issue to people and societies dependent on enormous supplies of energy to carry out their day-to-day activities, of particular importance in these early peak oil times of ours.

In short, what would be of great service is if economists of all ilk – as well as the rest of us – familiarized themselves with the laws of thermodynamics and realized that, at the very least, you don't get something for nothing, and that secondly, there are limits to growth. But that's fodder for another post.

In the meantime, it's best then that we come to realize that no matter how much money is printed, or held back, or lent out, or re-issued, or whatever, it's not going to fix anything when the issue is a lack of energy. That'll be covered in the next post.

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Comments (10)

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Dean
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Aug 2014
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Nice
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Allan Stromfeldt Christensen
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Aug 2014
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Dean: That's what the doctors – and so I as well once I learned to speak – called my burn. It was my "nice." Although I simply just started calling it my "burn" a few years earlier, it wasn't until I was 15-years-old that I clued in and realized that "nice" wasn't a medical term. (Just slightly off topic.)
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Blair T. Longley
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Feb 2015
A few points regarding thinking about human civilization as a general energy system:

Systems are controlled by their most labile components.

In the case of human civilization, that means that is controlled by the people who are the "best" at backing up dishonesty with violence.

Systems flow along their path of least action, or least resistance.

In the case of human civilization, that means that civilization follows the path of least morality. (It is possible to organized resistance, in order to change the path of least resistance somewhat.)

If one thinks enough about how human systems are general energy systems, it becomes clear how and why civilization operates according to the principles and methods of organized crime, and why there is almost nothing but a core of organized crime surrounded by controlled opposition.

The great paradoxes are due to warfare being the oldest and most developed form of social science and social engineering, whose successes were crucially based upon deceits and treacheries. Upon that foundation was built the established monetary system based on enforced frauds.

I agree that Graeber's research is some of the more interesting, and one of my favourite quotes from him is this one:

"If history shows anything, it is that there’s no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt — above all, because it immediately makes it seem that it’s the victim who’s doing something wrong."

I found the article by Christensen above to be on the right track. However, after thinking about this matters for several decades, I would add two more comments:

First,

ENERGY IS SPIRIT

Second,

The dominant philosophy of science has inverted the entropy equations in thermodynamics and information theory, by inserting an arbitrary minus sign. That resulted in the measurements of power and information have relative positive values, rather than relative negative values, which was what the mathematical physics itself was saying, before that understanding was inverted and perverted.

The biggest bullies' ***** social stories have dominated natural languages, and the philosophy of science. Therefore, we tend to understand energy systems in superficial and backward ways. In that context, there could be a lot more scientific progress made with respect to thinking about money as a proxy for energy. However, to do that requires some BIG paradigm changes ...
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Allan Stromfeldt Christensen
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Aug 2014
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Blair: A quote comes to mind, which was the epigraph to Peter Maass' book Crude World: "The meek may inherit the earth, but not its mineral resources."

If that's the case, then I figure that perhaps the best we can do, while becoming better aware of what's coming down the road, is do what we can to establish more agrarian societies. Rome back in the day was of course more agrarian than we are, and was based on the energy of slaves, so agrarianism isn't some magical cure for things. Strengthening our democratic structures – which means democracy in the local sense – becomes all the more prevalent then I think.
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Johnny
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Mar 2015
I am sure you are aware that economics is a social science, it does best when operating within the parameters it was designed within, and that is the world of describing human behavior.

Certainly energy underpins the modern world, and those of us who extract that energy and operate from first order geoscience principles are well aware of this, even if economists are not. However, when those of us who use first order principles also incorporate economics in our analysis, we achieve results of far higher value than what some random economist might.

And your quote is more properly attributed to J. Paul Getty. An oil man, certainly one of those who understands first order principles, as compared to those who do not.
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Allan Stromfeldt Christensen
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Johnny: Can't say I've read any Getty, nor do I feel particularly compelled to (but thanks for the tip, regardless). That being said, after reading Debt I did find out that Graeber was the one that came up with that silly "We are the 99%" Occupy Wall Street slogan.
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Johnny
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Mar 2015
Well, let me disagree with a common misconception that Graeber does mention. The issue isn't one of money standing in for energy, but for power generation. Our quality of life isn't increased, or traded for coins, because we can stand in sunlight and collect energy freely, no coins required. It is the conversion of energy into power generation that matters, and it is primarily irrelevant which energy is used to generate that power. But money DOES matter in the cost of conversion of that energy into power generation. It might seem like a minor distinction, but it isn't, because sitting between the energy and power generation is technology. Money could more accurately be described as the ability to apply more efficient, more scalable, more clean, more powerful technologies. And with each new or improved technology comes the ability to utilize more diffuse sources of energy to generate that power, burning something to create 1 MWh as opposed to collecting free sunlight to do the same.

People, including economists, who do not understand commodity extraction, power generation, and the progress of the technologies through time are liable to draw incorrect conclusions are where to put the emphasis.
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Allan Stromfeldt Christensen
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Johnny: I'm not sure which Graeber notion you're referring to, and in my limited readings of his I (unfortunately) can't recall him ever mentioning energy.

About your correlation of technology with energy, I have to disagree, and I think the mistake comes when you say that "sitting between the energy and power generation is technology." What that statement misses out on is that the "technology" you mention requires energy to build and operate.

For the time being we have various fossil fuels which have been transformed over time from diffuse forms of energy to concentrated forms of energy. And what that process required was much pressure and high temperatures – or in other words, energy. It takes energy to concentrate energy.

Sure, we've got sunlight for free, but that sunlight isn't going to power a car or an air-conditioner unless that energy is concentrated into a more applicable form. That can be done without technology over time with heat and pressure, or, it can be done more quickly via the use of various technologies, but what they require to operate is energy. It doesn't matter how "new or improved technology [be]comes," if you don't have the concentrated energy to build and run the machines, you can't use those technologies to transform diffuse energy into concentrated energy. In other words, you need concentrated energy in order to build the windmills and solar panels, so that they can then take diffuse sunlight or corn or sugarcane or wind energy or whatever (which ultimately come from sunlight) and transform them into concentrated forms. Sure, you can use stalks or whatever off-cast cellulosic materials to run such things as biofuel refineries that concentrate the energy in corn and sugar, but those crops ultimately require energy to grow as well. You could accomplish that with slaves, but the slaves need energy (in the form of food) in order to grow and harvest the biofuel crops. And who's going to grow the food if the workers/employees/slaves are busy growing biofuel crops? To say that this can all work is getting into perpetual motion territory.

And just in case it needs saying, windmills and solar panels break down. They most certainly do not have enough output to power our 21st century lifestyles, nor even a more frugal lifestyle as well as to power all the needed repairs in perpetuity.

Money, ultimately, has nothing to do with any of that either. No amount of paper or gold or bitcoins is going to make the slightest difference to whether or not one can take diffuse energy and concentrate it.

One way or another, we're going to end up cutting back on our energy use.
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Johnny
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Mar 2015
Alan, have you ever read "The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy"?

It explains quite a different perspective, how cutting back energy use certainly is NOT a solution of any kind, and how our very ability to waste energy is key to the progress of humanity. And will continue to be.

So no, I would disagree that the only outcome is cutting back on energy use, and it is far more likely that increased use (and accompanying waste) will continue through certainly your lifetime as well as mine.
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Allan Stromfeldt Christensen
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Johnny: Can't say I've read it, although I do own it. I bought it at either a library booksale or a thrift store ("op shop" as they say down here in New Zealand and Australia), although it remains buried in one of many boxes on another continent. I have a few such books, I think I read one of them (I forget the title), but generally disagree with their their scientific understandings (or rather, misunderstandings). Likewise, I suppose the best we can do is agree to disagree.

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