Off the keyboard of Jason Heppenstall
Published on 22 Billion Energy Slaves on January 8, 2013
Discuss this article at the Epicurean Delights Smorgasbord inside the Diner
|Houses in Germany with solar roofs. Image from here.|
|A warehouse roof in Germany|
Off the keyboard of Monsta666
Discuss this article at the Energy Table inside the Diner.
In the first part of this two part series we discussed how the sheer amount of energy coupled by its cheap cost enabled society to increase the amount of work that could be produced at a much reduced cost. It was this cheap energy subsidy that made the process of arbitrage between human labour and fossil powered capital very profitable as the price difference between hiring labour “energy” and capital “energy” was so vast.
This huge energy subsidy not only provided great wealth to the ruling classes who owned the factories and other capital infrastructure it also enabled the workers to become more materially wealthy as the cost of producing items was reduced drastically. This happened because all work requires energy to transform a basic resource into a commodity that is of economic value. If the energy cost is reduced and the supply of energy is greatly increased then the amount of work that can be achieved by a society will greatly expand and thus the items produced well sell at lower price due to the principles of supply of demand. What is important when discussing these matters of energy availability and will become increasingly important going forward is the concept of net energy. To understand this concept it would be wise to understand the laws of thermodynamics, more precisely the first law of thermodynamics. This law was originally described as:
“In all cases in which work is produced by the agency of heat, a quantity of heat is consumed which is proportional to the work done; and conversely, by the expenditure of an equal quantity of work an equal quantity of heat is produced.” – Rudolf Clausius, 1850
For the mathematically inclined the following
formula captures the law of conservation as
any heat input will equal the work done.
dU = dQ – dW
where U =Internal energy of system, Q = Heat input,
W = work done
To many this statement may seem a little unwieldy and rather abstract but it basically describes the concept that energy cannot be created or destroyed and all energy transactions are merely conversions of one form of energy source to another. This idea is an important one to grasp since we can never actually generate energy; we merely extract it from existing sources.
This statement may seem rather obvious but since terms such as energy production and energy generation are so widespread it is easy to forget this fact. If we were to take such statements as energy production on a literal level they would be a clear violation of the first law of thermodynamics. Perhaps it can be argued this is just an argument over semantics and most people will know you cannot actually create energy but let us not underestimate the power of language and how it can shape conversations and narratives; over time people will believe such statements at face value as true even if they are patently false. This is especially relevant today when we hear so much talk about the US becoming not only energy independence but also becoming the top energy producer in the world.
But I digress, the main thing to take home is no form of energy extraction, be it from coal, nuclear fission (fusion for the optimists) and wind or solar actually generates energy. It just utilises existing energy sources. In the above examples energy is extracted either through nuclear fission/fusion reactions, potential chemical energy in coal/oil/gas or wind and solar energy. Another concept that will come from this basic idea and one that perhaps even more relevant is that it takes energy to get energy. This concept while important is something that rarely (if ever) gets discussed in the mainstream media. Much of the talk about oil, coal or gas “production” only refers to the amount of total energy that can be obtained from burning or utilising a given resource. This amount is merely the gross energy obtained from the ground. If we wish to determine the amount of useful energy available for greater society however we need to subtract the amount of energy used to obtain the resource in the first place. This is because it is only this energy that gets to be used by society for other economy activities. Thus for us to work out net energy we subtract the gross energy by the energy needed to extract the resource as described in the formula.
Gross energy = Total amount of energy obtained from energy source.*
Net energy = Gross energy – Energy required to obtain energy source.
* = Energy maybe expressed in other ways such as barrels of oil or million short tons of coal.
As a note net energy should not be confused with the similar but different term EROEI (Energy Return On Energy Invested) which describes the potential energy return from an energy source. The terms maybe used interchangeably by other commentators in the blogosphere but it would be a mistake to think they are the same thing. The way to calculate EROEI is quite different as demonstrated below:
EROEI =Gross energy / Energy required to obtain energy source.
EROEI = (Net energy/ Energy required to obtain energy source.) + 1
NOTE: Net energy is the energy available to society and thus something greater society would be interested in whereas EROEI is more of a potential concern for the person who wishes to see a return on their investment.
Since it is only net energy that gets used by the greater economy it is this value that we should be interested in knowing about rather than the gross amount. For example it is quite possible for our total gross energy to increase while our total net energy is actually in decline. If this were to happen we could easily see a scenario where we are getting materially poorer even though our total energy output is increasing. This process of increasing gross energy but declining net energy comes about due to the principle of low hanging fruit. That is the easiest and most favourable economic sources of energy – which yield the highest net energy – are extracted first and as those resources are depleted we move onto progressively worse and worse sources. It is this fact that the decline in net energy will be much steeper than gross energy decline.
This trend of declining net energy has likely already past as the newest sources of energy, a lot of which is touted as the energy source that will give the US energy independence actually yield poor amounts of new net energy. This is despite the fact this new energy sources (shale oil/gas) increase the amount of gross energy expended by the economy quite substantially. As a result from an economic standpoint these new sources of energy will deliver less economic benefit to society than would otherwise be believed as the extra net energy available will be more limited. It this reason why we should exercise caution when listening to claims that these sources of energy can offer a panacea to our economic troubles. In fact when hearing such claims it is useful to know the energy returns on energy for various sources as while this is not net energy which is ultimately the most important metric to gauge the EROEI can still provide an insight on how useful these sources will be:
As the graph clearly demonstrates; early sources of energy yielded a very high return of energy on energy invested. These high returns came about because early sources of energy such as shallow coal mines did not need much capital investment to extract the resource furthermore once these resources were obtained they would yield high quality energy such as light sweet oil or in the case of coal high quality anthracite. It is this reason in fact why net energy or EROEI has largely been ignored as historically gross energy for all intents and purposes equalled net energy.
In recent years however this has not been the case and the difference between gross and net energy is sufficiently large to warrant greater attention. Moreover another troubling fact to take note is that once EROEI reaches about 10:1 or lower the graph goes into steep decline. This steep decline means the available net energy that can be used by society will begin dropping at an alarming rate if current trends of extracting lower quality energy sources continue. If we take a recent major discovery of shale oil we discover the EROEI for this resource is 5. In net energy terms this represents 20% of the total gross energy being used to extract the energy source. So from this information we can say that if all existing resources of energy were replaced by sources that were to yield returns equivalent to shale oil then our total net energy available to society would decline by 20%. This assumes there are no efficiency gains in how we utilised this energy and total gross energy remained constant. If that is the case then this would effectively mean we are 20% poorer as less energy would be available for economic transactions.
Off course what is more likely to happen is the EROEI and thus net energy will decline even faster than suggested in the previous paragraph as worse and worse sources of energy come online to replace existing high EROEI resources. As a result we are likely to see a steep decline in net energy available to society and we can say with some certainty that this decline in net energy will be faster than the rate of efficiency gains which has been around 1.7-3.0% per annum since the 1970s. 
What is more due to the rebound effect (see this article for more info) it is likely that any efficiency gains made will need to exceed declines in available net energy by a few percentage points each year if we want sustain economic growth (which is a requirement for the financial system to remain stable). This all seems unlikely particularly if we consider that energy efficiency and conservation strategies will see diminishing rates of return as it becomes harder to increase energy efficiency after each progressing year. After all no economic activity can ever achieve 100% efficiency. Speaking of 100% efficiency this leads on nicely to the second law of thermodynamics which states:
“That the entropy of an isolated system never decreases, because isolated systems spontaneously evolve towards thermodynamic equilibrium — the state of maximum entropy.”
Like the first law, this sentence describing the second law can seem a little unwieldy. In fact it is best to breakup this statement into two sentences as the quotation above addresses two very relevant points the first of which is displayed below:
In other words no energy transaction can ever be 100% efficient meaning some energy will always be lost when converting energy into some form of work. This point while blatantly obvious is often overlooked in the contexts of economics and broader society. It is this reason why there will always be a limit to amount of economic growth that can be realised as the planet has a finite number of resources and there are limits to the amount of efficiency that can be achieved. Another major consequence that does derive from the second law of thermodynamics comes from this statement:
While at first glance, the concept of heat transfers may seem a little out there this statement does pertain to one important idea. That is over time all bodies and structures go from a process of order to disorder. For those that are really curious about this process and wish to learn more about the exact mechanics of this process please look up entropy. If this idea still seems a bit out there consider the fact that all structures, be it capital or labour, degrade over time and require maintenance to allow proper functioning. This maintenance always requires energy and thus some resources will always be needed to maintain current capital or labour.
The entropy of a system can be calculated by applying the following formula:
dS = dQ / T
where S = entropy, Q = Heat input, T = Temperature of system.
If we use the formula from the first law of thermodynamics and
rearrange the formula
shown above this statement can be derived:
dU + dW = TdS
*4 basic thermodynamic relationships develop out of this math
Internal Energy dU=TdS-PdV+ΣμdN
Enthalpy (Heat) dH=TdS+Vdp+ΣμdN
Hemholtz Free Energy dF=-TdS-pdV+ΣμdN
Gibbs Free Energy dG=-TdS+Vdp+ΣμdN
If you do a little basic algebra, you get
This equation gives the Free Energy available in a system as a function of the
Heat Content, the Temperature and the Entropy in the system. Only reactions
with positive dG can go forward without Heat Input.
In the case of labour humans need food to stay alive and remain functioning while capital requires some energy inputs to prevent it from degrading and evening breaking down over time. What is more the greater the complexity of a structure the more energy will be required for maintenance. This is because a more complex structure has a greater degree of order and since things naturally go from a state of order to disorder then more energy will be needed to prevent overcome this natural process.
This is another weakness with applying the logic that technology will save the day as increasing the complexity of technology not only increases the existing maintenance cost due to the second laws of thermodynamics; the cost of producing such items increases as more energy per unit weight are needed in the manufacture of the product. To demonstrate this example a car requires something in the region of 12-25 barrels of oil to build a car depending on the weight of the car but a computer – on a weight by weight basis – requires 10 times the amount of energy to manufacture. A similar cost will be borne in maintaining these two pieces of capital. While in theory there can be energy savings on a production basis as less energy will be consumed despite the increased weight for weight costs (we do not need 1000kg+ worth of computers after all) what will increase significantly are maintenance costs of more complex infrastructure. To give a better idea of this concept at work consider healthcare. As the capital becomes increasingly complex capital then the maintenance costs will rise for the reasons described above.
To summarise this article and the one before it; when we wish to engage in a discussion on energy we need to be aware of range of things. First we need to understand the sheer amount of energy fossil fuels provide. It is truly immense and is a miracle resource and there needs to be a greater appreciation just how much energy they can deliver. From this we can truly grasp the scale of the task an energy transition (if it is even possible) will be. It is seems unlikely to me any combination of renewable or nuclear energy can fill the gap left by fossil fuels. That is not to say renewables cannot make life easier, they do have their uses but we would be setting our expectations too high if we expect them to maintain our current industrial lifestyles.
The other important points that need to be considered is the point we should be interested in not only the quantity of energy delivered but also the quality of energy. At the end of the day it is net energy or EROEI we are really interested in as it is this energy that gets used for greater society. Finally we need to be aware that due to the increasingly complexity of society our maintenance costs will rise due to the second law of thermodynamics so these costs need to be accounted for.
 = Clausius, R. (1850). Ueber die bewegende Kraft der Wärme und die Gesetze, welche sich daraus für die Wärmelehre selbst ableiten lassen, Annalen der Physik und Chemie (Poggendorff, Leipzig), 155 (3): 368-394, particularly on page 373, translation here taken from Truesdell, C.A. (1980), pp. 188-189.
Off the keyboard of Monsta666
Discuss this article at the Energy Table inside the Diner
Energy despite its utmost importance is a topic that doesn’t receive much attention and is a subject that is poorly understood particularly in the mainstream media or even economics. It is curious to think that this is the case especially if we consider that without energy nothing would literally happen. Taken in this context it is easy to see why energy could be regarded as the most critical resource for without it there would be no life on planet Earth.
It seems that one of the major reasons we forget about the importance of energy and take it for granted is the fact energy is ubiquitous in modern day society. If one cares to look outside their window it is likely they will see numerous cars whizzing around at high speeds (they are high if we compared their speeds to humans and animals which was the historic norm before the industrial age). If one thinks about this last point it can be quite an enlightening process; how much energy does it take to cart an object that weighs in excess of 1000kg at around 30MPH? Then think all this energy can be found in a single gallon of gasoline/diesel. And as startling as this thought maybe we can say we consume even more energy in total in our homes and workplaces and that is despite the fact there are over one billion cars – which nearly all run on oil – running across our planet. Quite a thought isn’t it? 
So in short we can say we are addicted to using energy. However this should not come as any surprise because man has always needed SOME energy to ensure his survival. The amount needed for basic survival is relatively modest however since the only real energy source man needed at first was direct consumption through food to stay alive. However through time man found other external inputs of energy that made life easier for him. The heat from fire allowed man to keep warm not to mention allowed him to cook and provide a source of light in the dark. Domesticated animals also reduced the burden of labour in the fields and allowed great productivity not just in hunting but also in managing the fields when man shifted to agriculture.
These external inputs of energy not only allowed man to extend his natural range of environments he could live on but it also spurred growth in population and prosperity as external energy meant more of the burden of labour could be shifted away from man. As time went on the number the external sources of energy increased and so did the amount of energy used by man. It was not until man began harnessing fossil fuels in earnest however that his energy use suddenly exploded. The graph below can clearly attest to this fact.
While this final fact is widely known it is still quite difficult to fully grasp and appreciate how much of a boon these fossil fuels were to mankind. To illustrate just how much energy we can obtain from these fossil fuels I feel it is best to apply a little maths. To make comparisons between different energy sources it is necessary to know what a BTU is. For people unfamiliar with the term a BTU stands for British Thermal Unit and one BTU represents the energy required to heat one pound (454g) of water by one degree Fahrenheit which comes to approximately 1055 joules.  Now if we consider the most expensive fossil fuel, which is oil, then we will find that burning one barrel of oil (42 US gallons or 159 litres) releases 5.8 million BTUs or 6.1 gigajoules of energy.  These large numbers may seem rather abstract and arcane but if we covert this total energy content into man hours then the facts can be more easily absorbed. The energy delivered from 6.1 gigajoules would equate to a man spending 1.45 million kilocalories. If we assume a man consumes somewhere between 100-200 kilocalories an hour then that would mean a barrel of oil produces the equivalent amount of energy as 7,290-14,597 hours of labour depending on how hard the man works. Assuming there are 48 forty hour weeks a year that equates to 3.8-7.6 years of human labour. Armed with this information it makes you wonder how we can ever consider a barrel of oil is overpriced at $90 dollars a barrel when one barrel delivers the equivalent of 3.8-7.6 years labour!
To put this into an even greater context if we decided to pay the man a decent wage of $10 an hour then we would need to pay him anywhere between $73,000-$146,000 to deliver the same amount of work as a barrel of oil. With this perspective it becomes clear what a boon fossil fuels have been proven to be as effectively we have been using these fuels as “energy slaves” due to the fact they produce so much energy at such a low cost. With energy being so cheap it becomes obvious just how profitable the exercise of replacing man and animal labour with capital powered by cheap fossil fuels has been as the price differential between the two markets is simply enormous. And let us not forget in all this that oil is the most expensive fossil fuel in today’s market and its price is abnormally high when compared to historical prices so it was even more economical in the past than it is today.
Saying all that we do need to recognise the flaws in making such comparisons or more generally, using BTUs in general. That is not all work achieved with a certain resource can be easily substituted with another resource for example no amount of men dragging a car would make it travel at 30MPH as could be achieved if the car was powered by oil. Therefore the figures above can only deal with the total energy expenditure and allow comparisons on that end but they say nothing about the quality of the work achieved nor can they describe how easily the work can be substituted with another resource. This is an important concept to grasp as quite often it is stated that we can substitute oil consumption with renewable, nuclear or even coal and gas energy which while such statements are true to a certain extent, not all uses can be substituted for. Coal, renewables and nuclear energy cannot be easily made into a liquid fuel as these energy inputs are primarily used for electrical generation or home heating. It is this lack of fungiblity which results in people often making the distinction between a liquid fuel crisis and an energy crisis as these are two distinct phenomenon as each crisis poses a different set of problems and will therefore require a different set of solutions (assuming solutions even exist) to solve or manage if there are no viable solutions.
Despite these limitations or perhaps because of them we can reach certain conclusions. The increase in the availability and affordability of energy has done more than reduce the cost and amount of work that can be achieved. It has also played a big part in increasing productivity. This increase in productivity comes because, as described in the previous paragraph, there are certain forms of work that can only be utilised with fossil fuels and these activities cannot be done regardless of the amount of men employed in particular tasks. Jobs that are energy intensive such mining, steel production or heavy vehicle transport all require intense and constant inputs of energy. Since they require intense AND constant energy inputs these tasks cannot easily be substituted into labour nor is renewable energy a suitable candidate for substitution due to its intermittent nature. However it cannot be denied all these economic activities contribute to increased productivity as less labour will be needed to be deployed to accomplish these tasks (assuming these tasks could be completed at all without fossil fuels).
Many mining operations such as the tar sands mining operation in Canada would be much harder if not outright impossible without cheap abundant energy inputs provided by fossil fuels.
A more troubling fact does emerge from this however and that is it becomes apparent that our modern industrial society is heavily dependent on not just abundant energy but cheap energy to remain viable. Even today with oil priced at $90 a barrel which is still an excellent deal when taken in the context described above this price is sufficiently high that many developed economies struggle to grow quickly due to the “high” energy costs as we are repeatedly reminded by the media. In fact these high energy costs have resulted in much demand destruction in the major OECD countries for oil that are most sensitive to price changes as demonstrated in graph below.
This demand destruction primarily manifests itself through higher unemployment and reduced oil consumption from remaining employed workers due to a decline in real wages. This high price of oil has not curbed demand in all countries as the developing economies, which are less sensitive to price increases, continue to demand more of the product. This demand increase of the non-OECD countries is roughly equal to the decreased demand in the OCED countries so overall global oil demand has remained constant at around 30 billion barrels per annum.
The more significant trend has not been with changing patterns in oil consumption but with the changing energy mix in which the global economy utilises. Since oil is priced at $90 it is the most expensive fossil fuel in the market. In the US the next most expensive fossil fuel is coal which is priced at $68.15 per short ton. Seeing as one short ton on average releases 19.6 million BTUs of energy which is roughly three times that of a barrel of oil we see that coal is just over 4 times cheaper than oil on BTU basis. In light of this fact it would be natural to think and expect coal consumption to rise rapidly during this period however coal consumption has actually declined in recent years (for the US at least) because the cheapest fuel in recent years has been natural gas which reached levels as low as $1.90 per million BTUs earlier this year. Seeing as coal has been priced generally been priced at around $3 per million BTUs for the last three years it is easy to see how natural gas consumption has surged.
It should be noted however that at this present moment natural gas is currently priced at $3.48 per million BTUs (accurate at time of writing) and seems to be rising in the past few months. If natural gas price rise much further then coal will become the cheapest fossil fuel in the US and demand for this fuel should increase provided the trend of rising natural gas prices continues. If we talk about fuels on a global basis the story is quite different as globally coal is by far the cheapest commodity and it is these cheap prices that have caused global coal demand to surge in recent years. The high price of oil and the fact that main users of coal (Eastern Asia) have seen rapid economic growth in recent years have been other contributing factors in the increase in the amount of coal demanded.
If this trend of growing coal consumption continues it will not be long before coal becomes the top source of energy in the world and this is a fact that is likely to catch many people by surprise. Saying that, one should throw some caution to this current trend of surging coal demand as it is quite likely that growth in the global economy will slow down and may even decline. If that is the case then the rate of increase in demand will decline or demand may even decline entirely should the world enter a global recession.
Another important consideration and one that is almost universally overlooked in the mainstream is the concept of Energy Return on Energy Invested (ERoEI). In the second part of this topic I will discuss this concept in more detail and also explore the laws of thermodynamics that is largely neglected in the media and economics in general. Do not worry; it will not be a boring physics session with lots of large scary numbers. In any case I wish all diners a merry Christmas and a happy new year.
 = World Vehicle Population Tops 1 Billion Units (WARDSAUTO)
 = British thermal unit (Btu) (Business Dictionary)
 = Barrel of oil equivalent (Wikipedia)
 = Coal News and Markets (EIA)
 = What is the average heat (Btu) content of U.S. coal? (EIA)
 = Coal News and Markets Archive (EIA)
 = Commodity Prices (CNN Money)
Off the Keyboard of RE
Discuss this article at the Geological & Cosmological Events Table inside the Diner
I had a terrific discussion of Geotectonic Ocean Heat Transfer Theory with Gail Tverberg of Our Finite World in the Commentary of her recent article Reaching financial limits–What kinds of solutions are available?
It remains very important to consider the possibility/likelihood that the Global Climate Change we see occurring may not be Anthropogenic in origin. Many of the Policy Decisions and Economic decisions being made now are based on the idea that Cliimate Change is Anthropogenic, and that by pursuing Strategies like Carbon Tax Credits we might be able to alter the Climactic System enough to prevent further damage to the Ocean and Atmospheric systems currently being affected.
If it is true that the Earth is undergoing a Geological Phase Shift that is producing the effects, then it really does not pay to try and stop that, we won’t be able to do it. Rather what we have to do is figure out means by which to live in a World vastly changed in Climate from what it is now. This could include such adaptations as shifting the locations where most people live to areas which might be more survivable, growing more food through Hydroponics in areas being DRENCHED with extensive Rainfall and moving food Production AWAY from areas experiencing Extreme Drought and perhaps even developing more Underground living arrangements to Ride Out the Storms, so to speak, until hopefully the situation reverts again once this cycle is done with. If it does not revert,there really is not much to do about it, we are TOAST when the Phytoplankton Collapse.
Anyhow, below follows my discussion with Gail which clarifies many of these issues. I suggest you read this and the original Geotectonic Ocean Heat Transfer Theory article here on the Diner before drawing the conclusion that Climate Change is necessarily Anthropogenic in Origin.
Off the Keyboard of RE
In the Waste Based Society series Part I & Part II, I detailed many of the reasons why it behooves those in control of the resources of the earth to pursue such practices as Planned Obsolescence and R&D as a means to create ever more dependence on Control Conduits themselves ever more dependent on Energy Extraction from Earth resources. For the most part, this Energy comes from NON-RENEWABLE Fossil Fuel sources, becoming ever more expensive to extract from the Earth. If indeed we were able to develop RENEWABLE sources of energy to continue the paradigm, then also Industrialized Society might be a sustainable model. Diner A.G. Gelbert often makes the case that such Renewable Sources of Energy are within grasp, and he also contributed to the Waste Based Society series in Part III. I do not agree with him, but he makes a good case for this idea.
However, what neither of us really covered in that series is what DRIVES the Industrialization Paradigm to BEGIN with. Steve from Virginia who publishes Economic Undertow, one of our Cross Posting Bloggers on the Diner often posits that the choice to live the Industrialized Life is a FASHION choice.
From Steve’s Debt-o-Nomics Part III:
– The productive sector isn’t productive, this is so generally by design. Production answers the dictates of fashion and nothing else. The production enterprises are supported by borrowing. Finance provides enterprise profits, to ‘entrepreneurs’ who are shills. Finance provides essential initial capital without which enterprises cannot be born. Finance provides required enterprise cash flow when it is not natively available. Fashionable enterprises which have no hope of gaining a productive return are supported entirely by borrowing over extended period. Given fashion demand — for supersonic jet fighters, for instance — tens of trillions in any currency can be borrowed without end.
Bombarded as we are by all the Propaganda to buy Automobiles, GINSU Knives and Salad Shooters, every last person in the Industrialized World buys this paradigm because it is Fashionable to do so. Certainly true is it IS much more Fashionable to live this way than to live as a Kalahari Bushman feeding off Grubs, Lizards and Roots in the Kalahari Desert. Crap, the KBs don’t even have Wireless Internet or I-phones! Talk about being Out of Fashion! A KB is like a Beatnik showing up at Andy Warhol’s Factory or a Hippie showing up at Phillips Exeter, Andover or Choate! You just do not FIT IN with the crowd there Dude! Get With the Program!
However, is it REALLY true there as in we are immersed in this Industrial Civilization as simply a FASHION choice? Not at all. In reality, Industrialization is the outgrowth of the Will to Power as a Sentient Species evolves, first just attempting to SURVIVE in a Hostile World where many other species view you as FOOD.
In the beginning, without TOOLS, incipient Homo Sapiens was little more than a modern Chimpanzee. As such, said Great Ape was quite vulnerable to other Predators running around the Savannah once we dropped down out of the Trees to try to make a go of it out there on the Plains, where lots of FOOD for us was available. We are talking Africa of course here, with a wonderful variety of Predators running around. Lions and Tigers with Big Teeth and Big Claws of course. Cheetahs that can run a whole lot faster than the typical small child can run. Pack Animals like Hyenas that will Gang Up on you. Very tough environment overall for a two legged creature with no Claws and no Big Teeth to make a go of it. Not too big either, and for a lot of time there was Mega Fauna around MUCH bigger and stronger than we ever have been. Bears 12 feet tall, that sort of thing.
Given our apparent Weakness relative to the other Predators out there, you would figure that we couldn’t make it. Except we did, for two reasons mainly. Our Hands with their Opposable Thumbs, and our VERY BIG Brains relative to all the rest of those other predators. Smart suckers who figured out how to use TOOLS to lever up an ADVANTAGE over all the rest of them. Just some Rocks and Sticks at first, but always Improving on these Weapons. Spears came along, then Atlatls, then Bow and Arrow. Death at a DISTANCE, something no other Animal in the whole Kingdom can accomplish. For a Lion to make a Kill of a Wildebeest for example, it has to actually JUMP it and sink in the Claws and the Teeth. Wildebeests are not without their own defense here, that got some nice Horns to GORE with, and they can KICK mighty hard with legs strong enough to run that kind of weight around the Savannah. Lion makes Mistake ONE in his attack, he is likely to be STOMPED in a big hurry. A swift Kick to the Ribs cracking a half a dozen of them and puncturing a lung, Lion is TOAST. So it is a relatively Even-Steven Battle between the Wildebeests and the Lions, and a Balance is achieved in the ecosystem, though it varies from year to year in cycles between Predator and Prey. Lions being no complete dummies of course try to prey on either old or young or sick or injured Wildebeests rather than the tough suckers in their reproductive Prime years, but Wildebeests gather together to PROTECT AND DEFEND their weak ones. they are at the Center of the Herd, the tough guys run the Perimeter. Only if a Lion manages to catch a weak one outside this perimeter does he make the EZ Kill. Otherwise, if he is Hungry he HAS to take on a Tough Guy. A relatively even battle most of the time in that situation.
No such danger in preying on a Wildebeest for Homo Sapiens armed with an Atlatl and Spear though. From 20 yards away, HS can easy hurl a spear with an Atlatl so hard and fast even equipped with a roughly hewn Stone Point on it the spear will penetrate toughest Hide and go clear through the unfortunate Wildebeest before it ever knew it was even coming. Not only that, Brainy Homo Sapiens figures out how to Enlist the Assistance of a whole other Species, the Canines. They become Good Buddies, and work together. The Dogs run down the Wildebeests chasing them right into a fucking Ambush, traps laid to break their legs as they run, whatever. HS is now SUPREME KILLER out there, no other higher level Animal can stand up to his tools, his dogs and his SMARTS. Eventually he also enlists the aid of Horses, which allow him to run down all but the very fastest and nimble of other creatures as well.
Once this level is achieved, HS now begins to expand over the whole Globe with the Hunter Gatherer paradigm, knocking down just about all the slow and lumbering Mega Fauna as they go. Quickly enough by Geologic Standards, HS comes to completely dominate the entire Planet as an HG, actually migrating all the way from origins in Africa right down to the tip of South America by around 15,000 BC or so, after recovering from the Toba Supervolcanic Eruption which likely knocked down Human Population to around 10,000 Human Souls or 1000 Breeding Pairs approximately 75,000 years ago.
It is at this point that the Weapons once used just for Hunting purposes against other species become turned on each other. Why?
Essentially because the H-G paradigm takes a LOT of territory to support a relatively small number of HS, but HS was now reproducing faster than this amount of territory could support, so each group or Tribe of HS is now in COMPETITION with each other for territory. So now the Tribes of HS begin to use their weapons on EACH OTHER, in the attempt to gain or retain their territory. We are now Full UP as can be on Planet Earth for H-G style living, which began to decline probably around 10,000BC or so except for a few areas we were real late in making it to, like the Big Island of Hawaii, the very last pristine environment of good size H-Gs found and colonized around 1000AD.
Despite the fact a form of Warfare has now begun between tribes of Homo Sapiens, it’s mostly a pretty Level Playing Field, all armed with similar Weapons and similar Numbers. We essentially maintain a fairly steady-state in the environment through this period as well, and our numbers Level Out to just what the environment will support in terms of our numbers on a sustainable level.
This all CHANGES again on one Fateful Day when some Homo Sapiens somewhere probably in the Fertile Crescent around the Tigris and Euphrates rivers grasps that many of the veggie foods he eats grow well in his Latrine and Garbage Dumps. He realizes the SEEDS grow well in these well Fertilized locations. AGRICULTURE IS BORN!
This REVOLUTION completely changes the balance in nature for Homo Sapiens, both with respect to the rest of the animal kingdom as well as with respect to other HS stilll living the H-G life. Ag allows for a group of HS to reproduce even FASTER, remain sedentary on a given plot of land and then develop out of the excess population a Class of Warriors, aka an ARMY. The job of the Army is to protect the area already taken for Ag, and also to rid the surrounding neighborhood of H-Gs so that land also can be converted to Ag. Even without better Weapons, the Ag CIVILIZATIONS now developing start to overwhelm the H-Gs just by virtue of greater Numbers. Then it gets still WORSE for the H-Gs. Why?
Reason, now that the Ags have lots of people and no need for all of them to be involved in food collection, they have time to mess around with their Big Brains and they develop METALLURGY! Their new Bronze Pointed Weapons are better than the Stone Age weapons of the remaining H-Gs. Same Metal stuff also makes Ag more productive as well. Now the Ags are basically STEAMROLLING over the H-Gs just in the Bronze Age, but it gets still WORSE when the Iron Age hits.
But of course, the Ag Civililizations themselves start running up against each other here, now fielding some Big Ass Militaries to go up against each other in Full On Warfare we have become all too familiar with over the last few millenia. Again though, for the most part they all are armed with similar weaponry and something of a Balance is achieved with respect to each other, but we are now out of balance with Nature as a whole because Ag is pushing out of existence many other species and also soaking up resource faster than it gets replenished. Desertification begins in some of the areas earliest transformed to the Ag paradigm, the Middle East in particular there. We also run up against another Limiting Factor to further Exponential Growth at this time, the “Beasts of the Earth” in the form of PESTILENCE, or disease vectors.
8 And I looked, and behold a pale horse: and his name that sat on him was Death, and Hell followed with him. And power was given unto them over the fourth part of the earth, to kill with sword, and with hunger, and with death, and with the beasts of the earth.
By around the 1300s, because of increasing population density as well as the practice of keeping so many Domesticated Animals in such close proximity with so many Homo Sapiens, a whole HOST of diseases begin to appear knocking down vast SWATHS of population every time one of these PLAGUES crop up. At this time, the HS population more or less stabilizes again at around 500M Human Souls walking the Earth at any given time, JUST prior to the NEXT REVOLUTION, application of Thermodynamics to Metallurgy which results in FIREARMS. AKA, Guns and Cannon. This preceeds the full on Industrial Revolution by a couple of centuries, but Tips the Balance of competition between the Ag societies towards the ones that made use of this Weaponry FIRST, the Europeans who made the Scientific Discoveries. Together with Sail and Navigation technology this set of discoveries now allows this Civilization to begin overwhelming all the other Ag Societies. The understanding of Thermodynamics leads then to the Steam Engine, from there to the Internal Combustion Engine, and thereafter it is another Total ROUT as the Europeans proceed to waltz all over the world in the colonial era from about 1750 through to 1900 or so.
The process results in Mechanized Warfare which really got underway with WWI, though you can see its beginnings in the War of Southern Secession (aka the Civil War) here in the FSofA . Finally after WWII, the powerful Industrialists are pretty much in control of the entire World, and they have built a HUGE Industrial Plant to build the Weapons of War, but now that they are in control of everything, unless they can put these Factories to other uses, they are malinvestment that will not pay off anymore. To make them continue to pay off, the Bomb Plants are turned into Fertilizer Plants, the Tank Factories are turned into Sports Car factories. The Green Revolution and the Mall Culture is BORN! Here in the FSofA, biggest WINNER after WWII, credit flows out fast and furious as Levittowns are built for the Victorious GIs to come Home and Breed Up the Boomer Generation. Over in Eurotrashland, the Losing Krauts are handed the Marshall Plan to allow them to rebuild what was destroyed of their Industrial Infrastructure, with the SAME folks who owned them before the War STILL in control of them! Together, the Anglo-American Illuminati and the Teutonic Illuminati join forces to turn the world into the Konsumer Paradise of Strip Malls and Ring Roads and Suburban Subdivisions all run on the OIL they now control worldwide, making themselves RICHER THAN GOD, far more wealthy and powerful than any Pharaoh or Chinese Emperor ever was, and really we do not even know who most of them ARE at all.
Industrialization did not arrive because it was FASHIONABLE, nor does it hang around because of that either. It evolved from the Will to Power, a gradual accretion of knowledge over many millenia which first allowed Homo Sapiens just to survive and prosper in a Hostile World where other Predators were Out to Get Him, and then allowed one group of H-S to dominate and squash out of existence other groups.
Where does the EVIL crop up in all this stuff? Tough question to answer, but IMHO it comes once one group becomes vastly more powerful than another group. At this point the Playing Field is no longer LEVEL, and one group can exercise POWER over another group willy-nilly without Consequence to themselves, at least on this side of the Great Divide anyhow. Once nasty consequence to your actions is removed, Evil begins to grow inside the Individual and inside the Society Unchecked. Today, for the top .01%, there are NO nasty consequences to THEM for their actions, only nasty consequences for EVERYBODY ELSE. So they have essentially become completely CONSUMED by Evil at this point.
I still hold out the HOPE that Homo Sapiens can make it through this trial, where Evil has now become so dominant a force in society. If we are to do that, there must be CONSEQUENCES for Acts of Evil. It is up to the GOOD people of the Earth to step up to the Plate now and administer the consequences, or suffer the results of leaving Evil to run amok unchecked in our society.
One of the first Economic/Monetary threads begun when we openned the Doomstead Diner for Bizness a few months ago was a Hyperinflation vs Deflation thread. As often as this debate has been engaged in all across the internet, it still remains one of the most vehemently argued topics from both sides, and no clear “Winner” in this has emerged as of yet.
The arguments surrounding HI & DF crossover into arguments about the worth of Precious Metals and their possible value in resolving the monetary crisis we have confronting us now. Particularly lively arguments come off the keyboard of a Blogger who goes by the Nom de Plume of FOFOA, or “Friend of a Friend of Another”. Apparently, all Austrian School Gold Bugs are very Friendly people, at least with each other. LOL.
Anyhow, I got into discussing the HI vs DF questions with Ashvin Pandurangi of The Automatic Earth a while after trolling and plugging the new DD Blog and Forum on TAE. Ashvin has now decided to resurrect his analysis of FOFOA’s “Freegold” Theory, and is also soliciting other critiques, so I’ll pitch in my 2 Gold Eagles on this subject now. I’ve been over the fallacies in the thought process of what conventional economists of both the Austrian and Keynesian variety come up with many times already, but I haven’t really addressed specifically the work of FOFOA. So I will do that here and now.
Like Ashvin, I will also make my disclaimer. I don’t profess a complete knowledge of WTF the Freegold advocates are talking about, and frankly I have a whole lot of issues as far as wading through the stilted prose style FOFOA writes. I am just going to look at some underlying assumptions made in this most recent justification for Freegold and for a likely Hyperinflation of the Dollar in the near term, though FOFOA refuses to make any real timeline predictions.
Let us begin here first with a major fallacy underpinning FOFOA’s entire Worldview as far as Money is concerned:
The answer is the concept of money. This is the ability, unique to humans, to use numbers, mental constructs, to relatively value the goods and services of barter in a way that enables economic activity and commerce. It is the enabler of economic activity and commerce. It is a primeval instinct.
Emphasis there is mine of course. Primeval? It seems FOFOA believes that Homo Sapiens dropped down out of the trees with the innate ability to create and use money, and the subtext is that it goes back in ALL cultures into the great myst of Prehistory. He is cock sure that money in some form is an essential ingredient to the primeval Homo Sapiens mindset, but this is so untrue as to be completely laughable. It’s pretty clear that money only evolved around the time Agriculture did, and that is only around maybe 10,000 years old. This does not qualify as “Primeval” by any stretch of the imagination. There is a good 60,000 years here between the time Toba erupted and the beginnings of Ag and Money, and Homo Sapiens appears to have been quite successful through that whole period.
Moreover, its not some mythical Xanadu or Utopia in which large cultures flourished without the use of money, really only once the Europeans arrived on the West Coast of the Amerikas was any Money introduced to a very large culture of First Nations people who used a Potlatch or “Gift” Economy. FOFOA sweeps all that stuff under the rug, because it doesn’t fit the construct he wants to make regarding Money, and then more specifically Gold as Money.
Here you get into a real problem with the “Primeval” argument, since metal working, even in Gold and Silver which is a bit easier than Iron working is a VERY late coming technology here overall, and again doesn’t fit the description of “Primeval”.
Now, FOFOA does get some of the early history right in the use of PMs in barter, but he never does cover the Coinage issue here. Metals in early tech worked very well to form difficult to counterfeit Tokens to represent stored wealth in a Warehouse. Because of their scarcity, a token could be made with an ascribed VALUE to it representing a certain amount of grain held in a warehouse. The Coin doesn’t have INTRINSIC value, the value gets Stamped on the coin by Da Goobermint.
Using Gold and Silver worked OK for a while, but suffered problems all along the way. First off, Hoarding is a problem, Savers will hoard the metals and take them out of circulation. This runs you into Money Supply problems for commerce purposes. Worse still, in periods of famine either nature caused or induced by Human Greed, the actual amount of Food or other necessities can decrease, and then when saved Gold comes back out to buy now scarce items, there isn’t enough of the stuff to go round to redeem with the Gold. So the Gold value isn’t really Steady, its only relatively steady during periods of surplus.
The next problem is Increasing Population size. If the amount of Gold is relatively fixed, but the Population is growing rapidly, in each generation there is less Gold to go round per capita than the last generation. Today, with 7B people on the Earth, there is less than 1 ounce of the stuff for each person walking the Earth at any given time. If Gold is the ONLY money around, then as the population grows larger the Gold becomes increasingly more scarce and valuable, so its value is NOT steady. Its ALWAYS going to increase in value in this situation. Increased productivity can keep prices more or less stable, but at the point at which real productivity does not match the population increase, a fixed quantity money supply will skyrocket upward in value. It doesn’t work the same way as fiat, but it is still not truly a stable form of currency when you have a fixed supply working against a population that is growing rapidly.
We still have not worked our way into the biggest problem with PMs though, which is that of consolidation over millenia. FOFOA himself describes the “Big Players”, long term consolidators of the Gold resource who have sequestered away MOST of the Gold ever mined up here.
Modern bullion banking is a carryover from this past. When Nixon abruptly took the dollar off the gold standard in 1971, the billions of ounces in private ownership didn’t just disappear. They weren’t cast into the streets in disgust. And these giants with 100,000 ounces or more didn’t take those tonnes home to the basement. No, they stayed right there in the bank vaults and literally JUMPED in value.
FOFOA goes on to register his complaints with the Gold ETF market (“Paper Gold”), and the fact that there is fractional lending of this through the Bullion banks just as there is Fractional Lending of Fiat (and no doubt a good deal of Rehypothecation going on with that asset as well!)
MANY claimants to this Gold now, but who REALLY gts to claim it in the end? Generally speaking it is whoever owns the Keys to the Bank Vault. The LAST person in the line responsible for making exchanges keeps the Asset, like MF Global whisking away depositors accounts into their own account, which then gets shifted to JP Morgan accounts. How does Gold as a currency backer stop this from happening? It doesn’t, and in fact probably makes it easier to accomplish.
Anyhow, with so much of what is admittedly already a pretty limited supply of Gold for 7B people on the Earth already sequestered, its pretty clear that only a very small subset of that population has sufficiently high claim and control to actually take possession of it at some point. The amount leftover from this for people to actually do some commerce with is exceedingly small, far less than the sub 1 oz in theory available to each person based on what has been mined throughout history. How do you De-consolidate Gold already Owned and Sequestered away by powerful people and families and then use it once again as a currency medium? You can’t do it, and so you are left with the creation of Notes or Digibits created to represent Gold, but not Gold which ever is really available for most people to redeem.
In reality, the best arguments for how money works come from the world of Thermodynamics and Heat Flow across gradients. In order for any Work to be done Heat has to flow from a Hot reserve to a Cold one.
PMs in their Consolidation phase measured the amount of work being done as the PMs were mined and collected up. The energy was used to reverse the Entropy process of dispersal and consolidate the piles of metal. During this time, the metals flowed through the economy and could be used as money. They represented the work being done. However, all along the way there was a lot of waste Heat expended, and you are not going to get the same amount of work done by taking the piles of Gold and sending them back the other way.
This brings us to FOFOA’s arguments regarding what “Capital” is.
I’m not going to go into great detail on the concept of capital, other than to give you a mental exercise. Because the term “capital” can be quite confusing in our modern paper/electronic world, I want you to imagine a much simpler human civilization. Imagine an ancient Greek city. All the buildings made of stone and mud, the horse carts and agricultural tools, the linens and skins worn as clothing, the knowledge base passed down through generations; all these creations of man’s intellect were the capital of the time.
Now imagine the destruction of capital. Imagine an earthquake or volcano that destroys the fruits of many generations. Or a plague or war, perhaps, that destroys the knowledge base. That’s the loss of real wealth you are imagining. And it is this cycle of capital creation and destruction that tells the story of mankind throughout many civilizations.
The modern analogy to FOFOA’s Stone and Mud Huts and Horse Carts in the Ancient World are today’s McMansions and Carz. In his version of Capital destruction it takes an Earthquake or Volcano to destroy this “Capital”, but he doesn’t address the fact that Capital of this kind can become worthless even if it is still standing. The McMansions and the Carz are losing Value because the Energy is no longer there to use them. The “Capital” that was expended to build said infrastructure was the Oil burned, which now exists only as molecules of CO2 in the atmosphere. What “Capital Destruction” has been going on for the Age of Oil came in the form of the burning of that Oil. The OIL was the Capital here, not the stuff that was built with it.
Finally, WRT arguments about Hyperinflation and the relative worth of Gold in a monetary system collapse such as the one we are undergoing now is concerned, most of the perceived value of the Industrial Era has been “accounted” for by using the Dollar as a measure of the relative worth of goods and services through the era. In order to try and keep nominal values from collapsing even though the real value of assets is decreasing, more dollar liquidity is being pushed into the center of the system at the TBTF Bank level. However, said liquidity is not escaping into the real economy as of yet, and until there are some signficant Policy shifts, it is not likely to escape either, except into the pockets of a few well connected thieves.
Shifting onto Gold at this point in the Game would be outrageously Deflationary, which I think the Austrians overall view as a Good Thing as the Credit Cycle gets a Reboot that way, but in practical terms it would pretty much halt all trade since most of the Gold in the world is sequestered in the vaults of only a few people and Sovereign holdings, to which there is also likely Private Claim on. Such a shift to Gold WOULD of course be Hyperinflationary for the Dollar, so for Gold Bugs that is a self-fulfilling prophesy. In essence, the constant propaganda being written by Gold Bug websites for people to take their Dollars and convert to Gold is meant to increase the perceived value of Gold and in turn force a hyperinflation of the Dollar. This is proving a bit harder to accomplish IRL than in the mind of the Gold Bug.
Because the Fiat structure is so large and complex, the value system of all assets including the PMs are being subjected to tidal forces as it implodes on itself, resultant from the fact the Capital underpinnning of Oil is becoming more scarce. Oil however isn’t disappearing overnight, and the overall game is being balanced out some by Demand Destruction. The Dollar’s preemminence as World Reserve Currency isn’t yet being challenged effectively, despite Chinese claims that Renminby will soon be the World Reserve Currency, or Gold Bugs claims that it will soon be Gold. This is not to say the Dollar will not eventually collapse in its value, it most certainly will. However, many more parts of the peripheral economies and other currencies will get hit on here first, and during that period the Dollar is likely to remain perceived as the Safest Haven in a War Zone.
In the deleveraging that must occur by any economic argument, all asset classes are going to come under pressure, that includes Gold and it includes Oil too. The CBs may work in concert to try and maintain nominal values, but this will simply turn their own balance sheets into TOAST as well. The Market in turn will react to that, and eventually you do get your currency collapse of the Dollar as well. Whether Gold is turned to as an alternate Currency Medium in this phase remains an Open Question. I do not think so based on my thermodynamic arguments or in sheer practicality terms, but I wouldn’t rule it out.
Far as FOFOA, FOA and A are concerend, they are all just shills for a very old concept of money, and who all also likely have skin in the game for making their prophesies come true. Anyone who does hold a lot of Gold in the Basement safe clearly would be ecstatic if it rocketed up in value to $10K/oz or more. I will be very surprised if that occurs, I think the whole trading system would collapse if PMs took on those kind of valuations, but only time will tell on that one. In the medium term here though, an HI of the Dollar seems unlikely to begin inside the next couple of years anyhow. The Euro definitely has to collapse first, and that will take some time yet to play out.