Energy based economy or roaring debt growth?
While the New York Times editorializes about a warning by the US Congressional Budget Office that the growth in the deficit is more likely to roar than retreat across the next decade, Andrew Foa'ppiness from South Africa has provided some good food for economic thought. His proposal, made in more detail on his website, is to de-link money from the speculative economy that has no regard for people's everyday survival needs. He proposes energy as the basic value to link money to.
I do not agree with everything Andrew says but there is much in his discussion that is important.
Comments and references to previous articles of mine on economic issues are placed after his e-mail message.
If you care to comment as well, there is place at the end of the post...
NEW YORK TIMES
September 2, 2003Deficit? What Deficit?
The White House serenely brushed off a detailed caution from the Congressional Budget Office last week that the growth in the deficit is more likely to roar than retreat across the next decade, fed by the three Bush tax cuts and other debt-fattening indulgences. If that warning was not enough, how about the concern reported at the International Monetary Fund that the administration has no credible plan to restore budget balance? Yes, the I.M.F., which must lecture the profligates of the globe, is worried that a structural deficit will push up interest rates and restrain growth as America ceaselessly borrows to steer red ink from imbalanced budgets onto future taxpayers.The coming overview from the I.M.F. is reported to foresee that in the short run the United States will drive economic growth. But it can find no believable plan to rein in ballooning deficits, already at historic levels. The mix of detaxation and deficit spending that has overtaken the government under President Bush's guidance is rolling trillions of dollars in debt over to the uncertain future. The nonpartisan budget office's outlook is conservative compared with other responsible estimates of deficits averaging a half-trillion dollars across the decade, doubling the national debt to $9 trillion.
Hard choices should be made now about this grave threat, before the baby boomers are stuck with the bill in shrunken retirement benefits. But the dominant Republicans of Washington value no vision beyond pandering to taxpayers in the next election cycle.
E-mail from Andrew Foa'ppinessDear fellow seeker
Wiping the sweat from my brow, I now have the audacity to present the result/consequence/outcome/hopeful fruit of a long and gruelling nightmare for your considered opinion. It may be far fetched, but at least on my paper it makes some sense.
Maybe your insight can lead to something productive.
With kind regards
Andrew Foa'ppiness
We need a stepping stone between competitive evolution and perfect harmony to prevent a bloody revolutionRenovating a denatured economy
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The induced value of money has become too vulnerable to float without an anchor.
Where is our economy from?Since the beginning of the industrial revolution (which started before the wheel, mind you), the nature of trade has been changing progressively, from being predominantly agricultural, to becoming predominantly intellectual in content and in value.
In early days most of the money in circulation was spent on essentials like food, clothing and housing. Changes in economic variables in those markets related mostly to conditions within these markets of basic goods and services themselves. Fluctuations endemic to these markets were absorbed in and limited by the content and magnitude of the markets within which they occurred.
What has become of it?Over the years both industry and the markets became more sophisticated. A progressively larger portion of the economy became dominated by trade in luxuries and in artificial means for gaining wealth. The spirit of the market became steadily more profit- rather than service oriented. A greater volume of money came into circulation chasing non-essential speculative values. In short, the economy became bloated with goods, services, supplies and demands, money and transactions that have little if anything to do with the primary function of the original economy. In the end we have in fact two economies coexisting under the same umbrella, sharing the same 'blood', or currency, regulated by more or less the same stipulations. The primary economy serves the purpose of keeping us alive, while the other, parasitic on the first, in the sense that it grew out of it, serves to enhance quality of life beyond the ordinary.
The rules of the game have not changed. Neither have the fundamental laws. yet we are dealing with a different animal. The originally central theme of the economy, namely that of catering for essential needs, has now become a sideshow, a mere appendage to its former self. Enormous amounts of money now flow in the so called 'macro economy' at the mere whisper of either opportunity or collapse in speculative values -- and we talk fearfully of things like 'market volatility' and its effects on food and pensions and the price of fuel. These fluxes of megabucks, that are primarily profit driven and that seldom have functional bearing on the supply or demand of essential goods or services, cause ripples of their own : 'ripples' by their own proportions, that are, by contrast, tsunamis in microeconomic terms.
Fluctuations in the money market, caused by ups and downs in the speculative trade, that were previously barely noticed, now cause severe disruptions in the food and utilities zone 'lower down' -- also in the realm of welfare and of pensions and of household level startups. A single sneeze of mr Greenspan's seems to now have the power to wipe out hundreds of farmers at a time.
It does not behave properly anymore, this denatured economy...The focus of the economy has shifted from the basic needs of the individual, to the profit margins of international corporates, with the effect that micro operators and dependants have been marginalized to the loose end of the flag flapping in the wind. The point is, we have become vulnerable to our own devices -- and more so to those of others -- to a critical degree, and something drastic has to be done about it.
We clearly have two choices now :
either seperate the twins, or stabilize the life blood in the primary side, the sustaining aspect of it all; then cultivate the secondary part to become the flower it should be, instead of it being the greedy cancer it has become.
The question is :
How do we regain stability were it belongs, at the grass roots, where our feet have to remain in touch with the realities of what mother earth has to offer -- at the level where a regular healthy meal for every living soul has to be generated?
The manipulations performed at the Greenspan level very obviously hold no permanent cures -- not with the World perpetually holding its breath for the next pontifically deliberated micro adjustment.
The answeris to be found in a relationship between the very basic elements that constitute the economy, the natural elements and the artificial elements; the real value elements and the floating value elements.
In the real-value sphere there is one unique production factor that is a common denominator to every single action and event that takes place, inside or outside of the definable perimeter of any economy. That factor is energy. Nothing, but nothing at all, happens without energy. Not a pin will drop; not a breath will stir; no ship will sail; not a glimmer of light will be visible; not a single blow of a hammer will fall, without energy : real physical energy that comes in as many forms as the units it can be expressed in, be it terms of calories, or joule, or kilowatt-hours, or whatever the need may be, in our subjective view of things.
Then, in the floating-values sphere, there is the ubiquitous element of currency : the ever changing ever so ridiculously unreliable only yardstick we have for expressing the ever changing values of tradeable items and of economic dimensions of past, present or future concern. It has, by its definition as a mere token of trust in trade, no inherent value of its own. However, where its value in trade was earlier, in the original economy, determined by supply and demand of essential goods and services, the value of currency is now disruptively affected by the overwhelming volume of trade in speculative values.
The availability of each of these two elements - energy and currency - are determinant factors, respectively, in the two domains of economic variables we have to reconcile. On the one hand, energy plays its role in the real domain of intercourse with resources. In the floating domain of economic interactions, on the other hand, there is currency. Realizing this, the fact that energy is the common denominator in all real happenings at ground level and that the value of money is intimately related to the values of all the other floating variables like interest rates, tax rates, supply and demand, the answer becomes apparent : tie the two together and all variables should stabilize around basic energy related inputs.
At first sight this may seem ridiculous : as disastrous as fixing the price of bread, for tying the two together means fixing the price of energy. But it need not be. And, surprizingly enough, it can be done in such a manner that the 'natural' process of induction of the value of money will still function, away from the anchor provided, in the realm where money must exist as a cicumstantially contracted measure of added value.
This solution can, in other words, not be a simple price setting quick-fix. Although the proposition suggested here is essentially uncomplicated (just assigning money a minimum value equivalent to energy), it involves a complete reorientation of definitive free market dynamics within a redefined environment. This has to be done to prevent the free market losing its character of freedom and its inherent power of self propagation.
The sweeping differenceFixing the price of bread causes problems, because all the cost factors related to every step, from getting the seed into the soil to slicing the bread on your table, remain variables within the system. A fixed variable within the system cannot adapt to changing circumstances. This implies eventually unbearable tensions and a breakdown of the situation, ending in pay strikes, or whatever the case may be.
In contrast with this, energy, as a tradeable commodity in the broadest and most basic sense, lends itself, as a unique exception to the rule, to be given a position outside the competitive playing field, where it cannot interfere with the workings of the supply and demand mechanism keeping its own balance.
So it is a two step solution : 1. Equate energy with currency, and 2. Get the supply of energy out of the competitive field, out of the private sector free market system, where its production factors cannot compromise supply and demand of the balance of goods and services that constitute wealth and well-being.
The trick is to, figuratively speaking, put energy behind the same counter as currency, right inside the treasury.
How on earth can this be done?That this is an attainable position may be hard to believe at first. Considering all factors though, it is no more complex than putting gold behind the same counter than currency, as has been done before. In fact, most of the security and distribution facilities for nationalizing all tradeable energies are already in place and need little more than redefinition to have the desired effect. The seemingly difficult part is to isolate the production factors of energy from the rest of the economy, but even that is attainable.
The necessary infrastructure for producing energy can be contracted into position in the same way as any other state run infrastructure.
Production costs have three main components : maintenance materials, input energy and salaries. In its simplest form salaries will be part of the civil service pay structure, maintenance part of the general state infrastructure budget and input energy a feedback of the industry to itself -- even if energy facilities have to cross subsidize one another, e.g. electricity and diesel supplied behind the scenes to the coal industry by the relevant participants.
We now have Currency-unit=c energy units (minimum), with 'c' being an arbitrary initial constant, chosen to cause a minimum of transitional disturbance in current values.
What next?Treasury can bring money into circulation as remuneration for infrastructure creating contracts, public service salaries, welfare & pensions, credits, etc., - as is practice from central banks in extant economies, except that it will be in the form of credit from the people to the people.
The total tradable energy content of energy bearing commodities in this model, the most basic input into all economic activities, will now belong to the state, or in other words, the people, and will in effect constitute the real content of the treasury. Any money issued by treasury should accordingly be exchangeable for energy. Energy for production and for consumption by the economy at large can then be purchased indirectly from the treasury, via existing fuel- and electricity distribution networks.
The unit price of each energy-bearing commodity can be determined in terms of its useful energy content. The amount of electrical energy that can be generated by standard methods from a litre of fuel, or a kilogram of coal, may serve as a useful standard here, seeing that the efficiency of energy converters commonly used would be taken into account in this manner. The amount of energy paid for will then in all cases be the amount of energy that can be applied usefully. In essence, the monetary equivalent of energy will be swapped for its physical couterpart.
Free energy sources in private ownership, for private application, such as hydro-electric systems on farms, wind and solar systems that do not produce energy for sale as such, etc., are negligible in terms of impact on the economy as a whole and can be ignored as beneficial private assets.
The effectsMoney issued by the treasury will partly circulate back to the treasury in exchange for energy, thus providing an instrument of control, because currency can at will be re-issued at appropriate rates into sectors of the economy where growth is desirable.
Production of energy is now effectively isolated from interfering with the free market mechanism in action, with energy literally becoming available from outside the free market arena. This enables us to stabilize the basic input costs to industry by setting the value of money equal to the prime resource, namely energy, at the point where energy enters the economy. Money, in purchasing that energy, goes back into the treasury, to be issued into circulation again wherever work is to be done.
For every amount of money circulated this way, an equivalent amount of energy enters the economy, enhancing the quality of life. The quicker money circulates, the more energy enters the open market, the higher the quality of life.
(Note that at the beginning of every cycle, money will have value by judgement of whoever receives it at the point of issue.)
Because all energy coming into the economy does so via the state coffers, all state requirements for energy=money can be expended directly from the treasury. Tax as a necessary source of state income therefore becomes extinct. Tax could of course still be applied as an optional instrument of control, should other means fail.
Interest could become a matter of private contract, should circumstances demand the use of it.
How does this system retain freedom?To this end, there will at all times have to be more money in circulation than energy, to cover the added value of items in trade. The price of any item will, as ever, be dictated by demand.
In fact, in addition to state-issues, sub-culture currencies like the 'Simec' and like 'Lets' (both community created means of trade) could have a valuable role to play, coming into existence in blind spots of the state.
In a free market system, which this is designed to be, only the most basic input into the economy will become absolutely constant in price, namely energy itself, and perhaps in some areas commodities that require little more than an energy supply to put them at your disposal, e.g. running water.
The amounts of energy per unit product, required as the most elementary factor in industry, are virtually constant. This means that with currency-unit=unit-of-energy, the most basic input costs to industry will be virtually constant. The role of energy input, compared to other constituent ingredients that make up the end value of any item, diminishes to a fair degree upwards through the range of items stretching from basic necessary items of survival to luxuries of the superfluous kind. This implies that prices of basic survival items with a high energy content, relative to other costs and value giving qualities, will stabilize marginally above the cost in terms of energy to produce them. Prices will not rise above a level that invites competition on the basis of constant energy prices.
Towards the other end of the scale, the prices of items of luxury, even in foodstuff, can fluctuate through a progressively wider range above the value of energy input, on strength of added values, like simply being rare or exceptional.
With the energy costs to agriculture constant, the input costs to agriculture will stabilize. Accordingly, the prices of basic foodstuffs, like wheat, meat and milk should stabilize quite well, because production costs of most of those have a relatively high energy content. The same goes for most mass produced essential basics, the stuff that consume most of the poor man's pension. This should in turn stabilize welfare and pensions budgets at a national level, as well as minimum wage demands.
At the furthest extreme of the supply spectrum, in the case of pure intellectual input, your thoughts will be worth their content as in the eye of the beholder, and may therefore be the most profitable potential source of income, as they have always been. No fear that thoughts will one day be sold for one erg per thought-second, or anything as ridiculous as that.
All products and services in between will find their values, as in the current free market, with viable profit margins -- everything settling automatically as they can only do in a free market system without external interference.
Implementing a system like this may require a great deal of preparation and a great deal of inspiring rhetoric, but the advantages will be of incalculable value.The worst fear may be seeing all energy in the state coffers. In a worthwhile democracy though, it will be all energy in the coffers of the body corporate representing the people, instead of in the hands of multinationals, as both the money and the energy resources are at this point in time. All governments are better off with productive industries. The better they distribute energy, the better their production profiles.
More in 'Capitalism Redesigned' by Andrew FoΩppiness.Some of the topics touched on in this folder are : Why capitalism? ; What about free energy? ; The value of energy in an economy ; What about the energy companies? ; What about countries short on energy? ; The relevant qualities of the relationship between energy and delivering the goods ; Tax becoming an optional instrument ; Loans and interest ; The circular flow of money ; Instruments of control ; Financing private initiatives ; How does it protect the poor? ; Balancing the acts on ethics.
Comment by Josef Hasslberger
Dear Andrew,
thank you for sending me your labour of love in a more extended and detailed exposition. I will give it further distribution for others to see, but I also have some comments to make. Having myself thought about and studied economic alternatives for more than a decade, maybe I can give you some pointers to stimulate further thought.
While I agree that economics in its present incarnation is not geared for easy economic exchange between people but rather to enrich those few who have been able to attain a critical mass of money, I have some doubts regarding your proposed solution.
Here my specific comments:1) you propose a linkage between the price of energy and the value of money. In order to keep the energy price stable, you say it would be best to concentrate, in fact monopolize, energy production and sale in the hands of "the state".
Several cautions here:
Money, by reason of some fundamental relations which are very well explained by Silvio Gesell in his "Natural Economic Order", gains or loses value in relation only to one parameter: The amount of money in circulation multiplied by the velocity of "turnover", that is, how many times in a year does one unit of money change hands. So stabilization of the value of money, which would be a desirable goal to pursue, is not a question of what to link the value of money to, but of how much money is in circulation and how fast it circulates.
If we link money to anything but a negative feedback-loop that tends to counteract any change of value, we will have economic upheavel and a boom-depression cycle, determined by the relative availability or scarsity of the commodity we linked money to. This happened with gold in historic times and it could happen with energy in the future.
Energy, as a vital commodity which is needed for all economic activity, has drawbacks if used in the way you propose. First of all, governments have never been known to be great innovators. For that reason, giving an energy monopoly to governments would tend to lock us in a state of no or very little progress. This could, in the long run, negate all the advantages of a stable economic system. We would be stable but also in a way immobile.
Real free energy, of the kind that can be produced without using up finite resources, might become a lot harder to develop and get into use, given bureaucratic immobility. I believe healthy competition (not slanted towards one energy source as today) would be the best way to ensure progress in the way we make energy. There is in fact a great revolution brewing in energy production, which might change the cards completely in the space of a few years. I don't know how your model would survive such great changes in one of the basic premises of monetary stability.
Today, not all countries have energy resources at their disposal - most are "buying" energy at great cost from those more fortunate countries that happen to sit on deposits of coal, oil or natural gas. So, to many countries, making and selling energy is not an income producing activity but a net expenditure. Seeing the uneven distribution of natural energy resources (of the kind we are currently addicted to) energy might also be subject to great price fluctuations, depending on political climate between nations. An economic path forcing us to keep the energy price stable at any cost, would also lead us straight down the road to war - as we see from the current Middle-east conflict, where energy plays a large if not central role.
One way to ensure stability of money is sketched out in a short article of mine recently written, which comments on the Islamic proposal to re-link currency to a gold (and possibly silver) standard. The article is titled "The golden dream of islamic currency".
2) You say: "Treasury can bring money into circulation as remuneration for infrastructure creating contracts, public service salaries, welfare & pensions, credits, etc., - as is practice from central banks in extant economies, except that it will be in the form of credit from the people to the people."It might surprise you to know that in extant economies, central banks are typically not property of the state but of other, commercial, banking enterprises. Another little known fact is that central banks issue only a small part (typically 3 to 5 per cent) of the total of money in circulation. The bulk of the money supply is issued by commercial banks as debt - when "giving credit" over and above the reserves money a bank has collected from savings.
Yes, it is the central bank that controls, to a degree, the amount of money that may be issued by tightening or loosening the reserve requirements (typically around 10 per cent) and also controls the velocity of circulation by setting interest rates, but these are very indirect and inefficient ways of "fine tuning" the value of currency.
Treasury would have to be completely reformed to become the "money issuing authority", taking that privilege away from central and commercial banks. Then indeed, it could (and it should) issue money as a credit to the people.
3) You say "The unit price of each energy-bearing commodity can be determined in terms of its useful energy content. The amount of electrical energy that can be generated by standard methods from a litre of fuel, or a kilogram of coal, may serve as a useful standard here, seeing that the efficiency of energy converters commonly used would be taken into account in this manner."With current resource distribution, that price fixing for energy could only be done if you controlled energy resources world wide. For the reason already stated (countries going to war for energy) I don't believe that this is a practicable solution.
4) You say further: "Money issued by the treasury will partly circulate back to the treasury in exchange for energy, thus providing an instrument of control, because currency can at will be re-issued at appropriate rates into sectors of the economy where growth is desirable."The practice of getting money back to the treasury is indeed an important mechanism for ensuring monetary stability as it would allow to decrease the money supply in an easy and straightforward way. As the value of any currency depends on supply, the treasury would have all the instruments needed - if, as said above, it was also the sole "issue authority" of money - to increase or decrease monetary supply directly, ensuring stability.
The same effect could be attained however, without having to confront the drawbacks connected to energy price controls, in a more simple manner, as proposed by Gesell. Money itself would be subjected to a monthly "tax", a devaluation of all money in circulation, by 5 or 6 per cent a year, or about one half of a percent a month. That devaluation would flow straight to the treasury to re-issue (as a credit, not debt) to the people, or to pay for community (state) expenses.
This would have several beneficial consequences:
- Money could be kept stable in value over a long term.
- The tax burden would automatically be born by those who need the most liquid resources for their economic activity. (Other taxes in use today could be discontinued.)
- Useless and parasitic speculative "market" activities would be dampened because they are exclusively based on the use of liquid currency.
- Basic needs of all people would be guaranteed from money issued by treasury and equally distributed among persons participating in the economy.
- Interest and the passive receiving of income by a few with critical money mass would come to an end or at least be very much reduced, making for a more even economic playing field overall.
For those worried about "saving money" for a rainy day, there would be no problem. Money put in the bank to be re-cycled as loans would lose value as other money, but the cost would be borne by who is currently using the money, or by the bank who did not loan it out. The person who saved and put his money in the bank, would receive equal value to what they put away, whenever they chose to withdraw.Other ways of saving would be encouraged by the incentive of a constantly degrading cash: Many would choose to spend cash to increase the value of their immediate possessions. They might invest, for instance, in the latest available (free) energy technologies, in things that make their work easier, in improvements to their home and other such - economically desirable ways.
5) A final point: You advocate the de-linking of essential economic activities from non essential and speculative movements of monetary wealth that clearly have a deleterious influence on our everyday economic activities. You do not mention however one of the basic mechanisms that have made it possible for that non-essential speculative economy to grow out of all proportion: Interest.In my view, interest, as the mechanism of transferring money from the have-nots to the wealthy, deserves special attention. Interest is indeed contained in all prices the consumer pays for essentials as well as for luxury goods, and it is the inexhaustible source of "free capital" which is put to non essential, speculative use.
While your proposal of having the treasury issue money by crediting it to people's accounts would go a long way on eliminating this distorting influence, the Gesell proposal of "taxing" money itself would do the same thing in a more straightforward way.
Gesell gives one more hint of caution: When interest will no longer be a mechanism for accumulating capital, those who have money "to invest" would seek another vital commodity to corner: real estate. I would add to that any other commodities that can be made scarce and can be "cornered" such as energy, water, food etc. Indeed, what we see today is a move by multinational companies to do just that. Energy is already monopolized, drinking water is well on its way to being available only from the multinationals and food is going the same route with genetically modified grains and animals and a growing seed monopoly being put in place by some of the larger food and biochemical multinationals.
We are already seeing what Gesell predicted almost a century ago, and those monopolies will all have to be "brought back" into the control of the people that need their products. So your proposal on energy is certainly going in the right direction - getting energy away from the multinationals. What I would not advocate is state control, that is, substituting a private monopoly with a public one. Making the right conditions for free competition would seem the better route to go.
Thank you for affording me the opportunity to comment.
Kind regards
Josef
Related articlesWhat is wrong with our economy?
Interest suffocating the world
And (partly) A political program for the next century
Here another recent exchange of e-mail messages between Andrew and myself (24 September 2003) on the question of the usability of energy as an anchor for the value of currency:
Andrew's mail sent 23 September:It is true that energy may not be a stable measuring stick in its own right. And also correct is your statement that there are huge variables in effiency of energy transformers (even if the effiency of electric motors is already over 95%).
What is also true is that energy wil have different degrees of usefulness, alias values, in different situations, also for different people.
What is important with respect to the proposed model though, is that the maximum amount of work that can be done by a unit of energy is indeed fix und fertig -- a law of nature captured in the various definitions of energy in its different forms : mechanical energy is the amount of work done by a force over a distance; electrical energy is defined by the voltage drop in an electrical current over a period of time; heat energy by the increase in temperature of an amount of matter, etc.
But even that hard and fast fact does not make energy a useful yardstick in economical terms.
This basic quality of energy, the fact that a specific amount of energy can do a specific (maximum, if you wish) amount of work, only comes in handy for reference purposes when we see it in perspective with the most important function of the economy, namely that of sustaining life.
With the fact in mind that a specific amount of energy represents only a specific amount of work, we can quite easily demonstrate that it requires a specific amount of energy to sustain the life of an average person over a period of time. I could be miles out, but a very roughly estimated 100 kiloWatt-hours of energy may be sufficient to supply all the necessary basic foods and drinks, water, transport, heat and maintenance work required to sustain the sheltered life of an average person for one week (expressed in terms of an electrical energy equivalent). This is of course only meant in the basic sense of survival in a healthy state -- no luxuries included.
By taking energy as a monetary reference value, we are in fact indirectly establishing the (more or less) fixed amount of energy necessary to sustain life as a level of reference for economic values.
To make this work without losing the advantages of a free market though, we have to do something else : we have to remove energy as a tradeable commodity from the free market. We have to get it as close as possible to something like fresh air, a necessary ingredient, but not interfering with the free market mechanism.
By simply declaring all tradeble energy commodities to be state property (which should not be as impossible as it may sound incredible), we create a scenario within which free market forces can function as in any other free market, except that energy now does not enter the playing field from the outlets of a handful of international monopolies, but over the counter of the treasury.
The fear that we are now going from a handful of monopolies to a single and therefore more detrimental monopoly is not valid. By the very definition of this model we avoid that trap : At the outset, the 'anchor value' of money is declared to be a certain amount of energy. We declare the 'exit value' (or 'anchor value') of the currency unit to be e energy units for ever and a day.
By constitutional law treasury must give you e energy units in exchange for every currency unit you offer. You cannot buy energy anywhere but from treasury. There is no bargaining and no right to alter the price of energy anywhere. That is why we can talk about an 'exit value' for money. When you buy energy, the money you give in exchange for it goes out of the market, back into treasury. Only at that exit point from the free market does money have the value of e energy units per currency unit. Everywhere else, from the point where it is originally issued by treasury, through all transactions in between, right to were it is exchanged for energy again, the value of money will reflect the value of ware as determined by prevalent market conditions -- it will have a 'market induced value'.
Energy will flow into the market exactly on par with the rate of currency circulation. Conversely, the rate of currency circulation will depend on the demand for energy. We will of course have to safeguard the economy against being constricted by a too low supply of currency by treasury. There will naturally allways be an input of currency in the form of public service salaries, pension and welfare, but it may be wise to have a constitutional obligation invoked on treasury to provide funds to any entrepreneur with a healthy initiative to enhance quality of life for the community.
Coming back to the efficiency of energy transformers : in this model there will be a direct incentive for ever greater energy efficiency in all industries.
My reply sent 24 September:Dear Sebastian (Andrew),
let me add a comment or two on energy, as you are tenaciously holding on to your view - proposing to use energy as a reference value for currency.
In my view, energy cannot be owned - neither by individual companies or a monopoly formed by an alliance of international "seven sisters" types, nor by the state as you propose. What CAN be owned are the rights to extract and trade with certain raw materials we currently use to "produce energy", which would be coal, oil, gas, uranium, to name the major ones.
While these "high energy content" substances can be fairly easily controlled, what do you say about firewood, the original form of these "fire sustaining" energetic substances? Is there a way to control everyone on earth so they will use treasury-supplied electricity instead of firewood to cook their meager meal?
And what about making your own electricity (or the electricity for a village for instance) by using naturally present forces such as the sun, the wind or the waves/tides? Surely we can't forbid such a practice.
Also, technological research - as suppressed as it may be - shows us that energy is not even necessarily connected to these obvious natural energy carriers. One could "make energy" by tapping into zero point, the ubiquitous energy sub-strate of the universe, or use ambient heat that is quite widespread, or even convert gravitational energy into useful electricity.
In my view, once you have "treasurized" energy, the free market will turn its energy (excuse the pun) towards new methods of how to get around the need to spend your money for something that is actually universally available. Energy production has long been suppressed by a greedy monopoly based on fossil fuels. If you add more suppression by making energy the undisputed property of the state, to be given out only against good money, with alternatives forbidden by law, you might just find that people, just to spite the state, will pull all kinds of energy gadgets out of their hat, which of course then would lessen the efficiency of your yardstick, if not make it completely unuseable - unless you were prepared to eliminate the alternatives in bloody suppression.
See more comments in between the lines...
It is true that energy may not be a stable measuring stick in its own right. And also correct is your statement that there are huge variables in effiency of energy transformers (even if the effiency of electric motors is already over 95%).
What is also true is that energy wil have different degrees of usefulness, alias values, in different situations, also for different people.
What is important with respect to the proposed model though, is that the maximum amount of work that can be done by a unit of energy is indeed fix und fertig -- a law of nature captured in the various definitions of energy in its different forms : mechanical energy is the amount of work done by a force over a distance; electrical energy is defined by the voltage drop in an electrical current over a period of time; heat energy by the increase in temperature of an amount of matter, etc.
But even that hard and fast fact does not make energy a useful yardstick in economical terms.
This basic quality of energy, the fact that a specific amount of energy can do a specific (maximum, if you wish) amount of work, only comes in handy for reference purposes when we see it in perspective with the most important function of the economy, namely that of sustaining life.
With the fact in mind that a specific amount of energy represents only a specific amount of work, we can quite easily demonstrate that it requires a specific amount of energy to sustain the life of an average person over a period of time. I could be miles out, but a very roughly estimated 100 kiloWatt-hours of energy may be sufficient to supply all the necessary basic foods and drinks, water, transport, heat and maintenance work required to sustain the sheltered life of an average person for one week (expressed in terms of an electrical energy equivalent). This is of course only meant in the basic sense of survival in a healthy state -- no luxuries included.
Is there such a thing as an average person? If an American uses on the average 200 kilowatt/hours per week, someone in Africa might have to make do with 0.5 kilowatt for the same time span. Are we to make everyone dance by the same tune?
By taking energy as a monetary reference value, we are in fact indirectly establishing the (more or less) fixed amount of energy necessary to sustain life as a level of reference for economic values.
I must disagree that there is such a thing as a fixed amount of energy necessary to sustain life. You need only your own body's energy to survive (admittedly in a poor way, but many have done so for millennia). All the increase in energy use depends exclusively on availability and price of energy. That is why the Americans use so much of it and why the Bantu or the Nomads in the Arab deserts survive on almost no "added energy" input. You are taking our typical western "civilized" person. Look the other way - into the future - maybe you see someone in a hypothetical space-faring civilization who uses not kilowatt/hours per week but megawatt/hours. Just think of how much energy that person might spend for a trip to Saturn.
To make this work without losing the advantages of a free market though, we have to do something else : we have to remove energy as a tradeable commodity from the free market. We have to get it as close as possible to something like fresh air, a necessary ingredient, but not interfering with the free market mechanism.
By simply declaring all tradeble energy commodities to be state property (which should not be as impossible as it may sound incredible), we create a scenario within which free market forces can function as in any other free market, except that energy now does not enter the playing field from the outlets of a handful of international monopolies, but over the counter of the treasury.Removing energy from the free market, you practically institute a controlled market that you can no longer call a "free market within the energy constraints imposed by the treasury". I fear it will not be a free market any more.
The fear that we are now going from a handful of monopolies to a single and therefore more detrimental monopoly is not valid. By the very definition of this model we avoid that trap : At the outset, the 'anchor value' of money is declared to be a certain amount of energy. We declare the 'exit value' (or 'anchor value') of the currency unit to be e energy units for ever and a day.
I do not quite understand how we are avoiding the trap of a government monopoly. If all energy resources are declared government property, then - apart from people finding their own way around the law - there will be a de facto government monopoly on producing energy. How would "anchoring the value" of the currency unit to energy change the fact that the government now has a monopoly on energy - with all the negative consequences we know from previous monopolies.
By constitutional law treasury must give you e energy units in exchange for every currency unit you offer. You cannot buy energy anywhere but from treasury. There is no bargaining and no right to alter the price of energy anywhere. That is why we can talk about an 'exit value' for money. When you buy energy, the money you give in exchange for it goes out of the market, back into treasury. Only at that exit point from the free market does money have the value of e energy units per currency unit. Everywhere else, from the point where it is originally issued by treasury, through all transactions in between, right to were it is exchanged for energy again, the value of money will reflect the value of ware as determined by prevalent market conditions -- it will have a 'market induced value'.
There is no constitutional law that will hold when treasury finds it cannot supply enough energy to meet demand. You will see prices go up by the sheer pressure of people (or companies) vying for their share of a fixed amount of energy available. There is no way to make a monopoly and control the price of what that monopoly produces. As the exit value for money goes up (because even monopolies are not exempt from the laws of supply and demand) the price of everything else will go up as well.
Energy will flow into the market exactly on par with the rate of currency circulation. Conversely, the rate of currency circulation will depend on the demand for energy. We will of course have to safeguard the economy against being constricted by a too low supply of currency by treasury.I believe the first thing to safeguard the economy against would be too low a rate of energy production. If the state does the producing, you can be sure that a bottleneck will be developing in the not too distant future. No monopoly has enough agility to incorporate new technologies - it's in the definition of monopoly, there is no need to change as there is no competition. Please don't believe that state employees have any more need to change than the current energy monopoly.
There will naturally allways be an input of currency in the form of public service salaries, pension and welfare, but it may be wise to have a constitutional obligation invoked on treasury to provide funds to any entrepreneur with a healthy initiative to enhance quality of life for the community.
Coming back to the efficiency of energy transformers : in this model there will be a direct incentive for ever greater energy efficiency in all industries.How will the incentive for ever greater energy efficiency in all industries be stronger in your model than in the current environment? What would be different to make that incentive appear?
Sorry for beating on your model again, but I think the process is healthful for both of us.
Kind regards
Josef
posted by Sepp Hasslberger on Friday September 5 2003
updated on Tuesday December 21 2010URL of this article:
http://www.newmediaexplorer.org/sepp/2003/09/05/energy_based_economy_or_roaring_debt_growth.htm
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