Energy Returned over Energy Invested

 

We Need a New Monetary System: The complete essay as far as I got

I have entered the various parts of the following in my blog at http://eroei.blogspot.com/ ; however, since it is best read as a single idea, I have posted it to my friends, colleagues, allies, comrades, and detractors on two Yahoo! forums.  (I hope my Australian friends are not offended by a post that applies strictly to the US.)  Jay Hanson says that, if we cannot fix government, we can’t fix anything.  I agree.  We do not have to find a way to bell the cat; we need only install a government dedicated to achieving sustainability insofar as it is possible and doing the best it can otherwise.  This government must be composed of qualified scientists, engineers, ecologists, and other legitimate scholars - independent, with no corporate ties.  When the economic plan is in place, the exchange of US dollars for ANYTHING should be an extraditable capital offense.  [I am against capital punishment; therefore, I am forced to endorse a new monetary system only for those who join in an "open conspiracy" in the sense of H.G. Wells.  Then, capital punishment amounts to loss of membership in the conspiracy. The "open conspiracy" requires more discussion in the next edition of this open-ended paper.]

We need a new monetary system.

And if thy right hand offend thee, cut it off, and cast it from thee: for it is profitable for thee that one of thy members should perish, and not that thy whole body should be cast into hell. - Matthew 5:30

Defects of our present monetary system

 My Incomplete List

I do not need a list of defects to be offended by the current monetary system of the US; however, I shall mention a few fatal flaws that are likely to lead to collapse soon.

 1.  Like all fiat money the United States dollar (USD) is not tied to any real wealth such as gold bullion, barrels of oil, or acres of fertile soil.  Its value depends upon what people will give for it.  (Let us agree for the purposes of this argument only that the presence of United States military personnel in hundreds of foreign countries has nothing to do with the willingness of foreign nationals to accept it in payment for real goods.)  The quantity of money can be altered by the issuance of debt instruments by banks and others - especially the federal government; hence, we are always susceptible to monetary inflation, that is, inflation caused by a larger supply of money chasing the same or a smaller amount of real goods and services.

 2. The rules according to which economic transactions are conducted so favor talented money managers that they are able to acquire a disproportionate share of the money.

 3. Etc.  (Items can be added to this list by edits and comments; but, for now, I would like, once again, to refer to Gail Tverberg’s list and paste it below.)

 Gail Tverberg’s List 

 Primary problems

 1.   Funds are not available to pay for fossil-fuel subsidies for renewable energy projects.
 2.   Wages consistent with financial solvency and private profit are too low.
 3.   Energy production companies, especially heavily front-loaded renewable energy production such as photovoltaic solar energy installations, need to borrow money that the credit system can no longer supply.
 4.   There are insufficient financial returns to pay taxes desperately needed by governments.

 Secondary problems 

1.   Private profit from energy production is seen as inadequate by corporations.
2.  Rent cannot be paid for land used in energy production. This cost might be highest in bio-fuel operations, but it belongs to every process that harvests sunlight in real time.
3.   Insufficient funds are available to prevent pollution and mitigate its effects.  These costs are never paid unless mandated by law - if then.
4.  Energy production companies do not pay to prevent mineral depletion and degradation of soil or even try to nor do they pay fines for failure.
5.  Energy producers do not account for limitations in so-called free energy.  For example, there ought to be a cost premium charged to the process for using limited coastal or off-shore wind power sites.

In conclusion 

Let us agree then to take the advice of the fictional Jesus.  I hope nobody thinks Matthew’s character didn’t have a single lucid moment.  It remains to discuss what sort of a monetary system we do need.

Monetary Systems in General

Good old Dave Kimble has offered to help me write the following in plain English, which I am trying to learn.  It deals with community currency because of the perceived benefits of decentralization.  What is needed now is a central (national) currency; but, the principal ideas in the following apply just as well if only they can be understood:

 

On Designing a Community Currency (January, 2007)

 Thomas L Wayburn, PhD

This is a draft - nay, a draft of a draft.  - Herman Melville, Moby Dick

To walk in money through the night crowd, protected by money, lulled by money, dulled by money, the crowd itself a money, the breath money, no least single object anywhere that is not money, money, money everywhere and still not enough, and then no money, or a little money or less money or more money, but money, always money, and if you have money or you don’t have money it is the money that counts and money makes money, but what makes money make money?  - Henry Miller, Tropic of Capricorn

 

Economic Value

 

Introduction

One of the principal reasons for replacing the current national monetary system is that money is created by banks when they lend more than the sum total of the money deposited with them.  This money cannot be repaid unless the economy grows, that is, the total cash value of sales and purchases is greater this year than it was last year regardless of the quantity of real wealth such as food, clothing, housing, energy represented by each unit of currency.  The total amount of currency must increase continuously; and, each unit of currency can be divorced completely from physical wealth.  We wish to replace this currency, which represents only a number in a computer somewhere and not anything tangible with a currency based upon measurable quantities of real physical wealth.

If there were one physical quantity, such as emergy (with an M), that could be used to measure all physical wealth - in particular, all wealth necessary to sustain human life on this planet - we would do well to base our new currency upon it.  We cannot do this at the present time for two reasons: (i) the emergy values of water, land, and human labor have not been established nor is there any on-going effort to establish them or even to determine how they should be established and (ii) temporarily the government will need to issue un-backed scrip with which to pay the workers to do the necessary work to transform the United States to sustainability.  The workers can use the scrip to purchase goods and services that formerly were paid for with United States dollars (USDs).  Hopefully, in time, the economy will be a net producer of real wealth and the new fiat currency will be redeemed with currency described below.  Clearly, among the necessary jobs will be the production of sufficient energy, food, and health care to sustain citizens who obey the new sustainability laws. 

I need to explain “sustainability laws” and to show that enough workers will be available for essential occupations after the government furloughs workers who serve the market currently but produce nothing that we actually need to live.  In “Energy in a Natural Economy”, I analyzed the Bureau of Labor Statistics data from one of the last years in which the United States produced almost everything it consumed.  We should now try to establish a small list of fundamental economic entities in terms of which all economic goods and services can be evaluated.

Currently, provided we use Howard Odum’s concept of emergy to as great an extent as currently possible, we can evaluate every economic good or service in terms of land, water, energy, and time.   Therefore, we could design a new rational monetary system with four types of currency: 

(1)    Emergy certificates that would pay for almost all economic goods and services in terms of energy properly weighted by transformities to account for the cost of conversion to a useful form

(2)    Water certificates to pay for fresh water as it is found in Nature - as opposed to desalinated sea water

(3)    Land certificates to pay a rent for all land use based upon ecological characteristics to be described later.  (Clearly, not all land has equal value.) 

(4)    Certificates to pay for the time spent by workers at essential jobs.  The government may not issue these any faster than they are needed to pay workers; so, they are not fiat currency in the sense that the USD is. 

The government needs to establish the conversion factors so that workers can pay for economic goods.

Special Characteristics Needed to Avoid Economic Collapse
Our crisis has a physical component and an imaginary component. The physical component comes from limitations in the quantities of land, water, consumable energy, and the environment itself. The ecological footprint of the human race exceeds the carrying capacity of Earth. The imaginary component is instability in the monetary system caused by excessive debt and excessive monetary inequality. To ameliorate the physical crisis we must eliminate the imaginary one. I do not mean that indebtedness, poverty, and wealth are imaginary; but, rather, that we can eliminate all three with the application of our imaginations without affecting the physical universe. Stabilizing our population and reducing our ecological footprint will ultimately have a desirable effect upon the universe.
Regardless of what the people want, the owners of the country want to retain their positions of power, privilege, and wealth. Naturally, they despise the idea of government control of the economy and the means of production; however, when a crisis arises that they cannot handle, they readily accede to crisis socialism to save them. During World War II, without adopting socialism completely, they allowed rationing, wage and price control, and management of vital industries by government employees even if they were paid only one dollar per year.

To respond appropriately to resource and environmental limits, we need to establish crisis socialism. However, to eliminate debt, we need to repudiate the US dollar; and, to eliminate inequality, we need to pay everyone the same even if no work can be found for them to replace the inessential work from which they were furloughed to reduce our consumption of fossil fuels and our ecological footprint. After all, the requirement that every citizen does useful work to get paid and the requirement that the pay should be commensurate with the value of the work are completely imaginary. The idea that everyone should be allowed to get as much money as he can is completely wrong.

More on Land, Energy, and Time

 

Land

 

We may assume, then, that every economic actor* in a community has been assigned a portion of contiguous land of equal value excluding the most desirable locations of all - normally coast lines, river banks, the best scenic outlooks, and the best locations for intensive energy collection, which will be retained by the community as part of the commons.  In many cases, this common land will be made available to economic enterprises owned in equal shares by their own workers according to the maxim that every worker should own his own tools - or, as stated in the ancient Hebrew rabbinical writings, a carpenter without tools is not a carpenter.  No person may control land upon which he does not live or labor.  The land upon which men and women labor is held in common by all of the workers who labor upon that simply-connected (not disjoint) piece of land.

* Dependent children are not economic actors.

Energy

 

Energy* is the most important fundamental economic quantity.  It should be the basis of every currency.  It is the life’s blood of every economy.  Howard T. Odum is famous for the following words: 

Real wealth is food, fuel, water, wood for houses, fiber for clothes, raw minerals, electricity, information, …

·       A country is wealthy that has more of this real stuff used per person.

·       Money is only paid to people and is not proportional to real wealth.

·       Prices and costs are inverse to real wealth.

·       When resources are abundant, standard of living is high, but prices low.

·       When resources are scarce, prices are high, more money goes to bring resources, a  few people get rich, but the net contribution to prosperity is small.

·       Real wealth is mostly the work of nature and has to be evaluated with a scientific ... measure, emergy.

Therefore, to place a value on an economic good or service, the first quantity to be assigned is the emergy (with an M) or embodied energy.  I have completely reworked Odum's great concept.**

* In this essay, and in the rest of my writing, the term energy refers always to either Gibbs availability or Helmholtz availability depending upon context.  Please see http://www.dematerialism.net/Chapter%202.html#_Definitions  This is not a frivolous personal definition.  To go about referring to energy consumption is barbarous and technically wrong! 

** See http://dematerialism.net/onemergy.htm

Time

 

The only time a person has is the time of his life.  Clearly, every person’s life is equally valuable to himself.  Until a thousand years have passed after an individual has died, there is no valid way to evaluate his contribution to the community.  Therefore, every person’s time must be assigned the same value, namely, one hour per hour since time is fundamental and cannot be evaluated in terms of anything else, least of all money.

But, it is said, “Some people spend many years in engineering school, medical school, apprenticed to a tailor, etc. preparing to render useful services to the community.  Clearly, the time of such people’s life when they render such services to the community must be compensated at a higher rate than the time of unskilled laborers with no preparation.”  This can be finessed in the following way:  Time spent learning a skill must be compensated at the same rate as it will be compensated when they are rendering service to the community.  Thus, if a person spends 1000 hours* in classrooms being instructed in the great art of engineering with an average of nine other people, he will have earned 900 hours that he can use to support himself and others until he is able to contribute time practicing engineering.  (Each student contributes 100 hours to the time spent by the professor.)  In addition, he will spend about 2000 hours studying alone.  This too represents earned time with which he can buy books each of which carries a price tag compounded of the land, water, energy, and time that went into its construction by the author and the book binder to name only two.

* The number 1000 is chosen for convenience in writing this essay not as a reflection of the actual time needed to learn engineering.