In the Value of Fish I considered two societies where the only difference was the rate at which they could secure life’s necessities (9 fish a day). In this article I want to generalise that concept.
- d = average number of hours a day
- n = quantity of necessities that are needed
- rn =the rate of acquiring necessities
- ri = the rate of producing consumer good i
The time taken to produce the day’s necessities is = n/rn
The available “luxury time” is given by (d – n/rn) where d > n/rn
The number of consumer good i that can be produced in a day is ( d – n/rn) . ri
The quantity of necessities which can be produced in a day is ( d – n/rn) . rn
Therefore if we take that a day’s work is equal then:
1 day’s available goods = ( d – n/rn) . ri . goodi = ( d – n/rn) . rn . necessity
Thus the ratio between consumer value of item i and necessities is given by:
( d – n/rn) . ri / (( d – n/rn) . rn ) = ri / rn
Or to put it another way, the value of a necessity in terms of consumer item i is given by:
vn = ri / rn vi
Thus if the rate of producing a consumer good (shell necklaces) remains the same, but the rate at which the necessities of life doubles (from 1 fish/hour to 2fish/hour), then this means the value of fish relative to shell necklaces halves.
Because energy is a necessity in a modern economy, this also implies that the cost of energy is directly proportional to the economic activity (here given as hours of work) required to provide that energy. It also implies that if a quarter of the GDP is tied up in producing necessities like energy, then the economic activity involved in producing energy is 1/4 of the total activity and that if the price of energy doubles, then the economic activity used to produce energy will double to 1/2 the economy meaning that there will be a reduction from 3/4 of the economy producing consumer (luxury) goods to 1/2. It also means that if 1/4 of the economy is currently involved in producing necessities, then if the cost of necessities like energy (and food which is closely linked to energy costs) were to quadruple – as I think is necessary to get “zero carbon”, then basically there will be no other economy other than necessities and our modern economy will basically catastrophically collapse.
In other words, if energy costs were 4x their present value, it would be IMPOSSIBLE to run anything like our present economy and e.g. the number of hours worked by an average person would need to MASSIVELY increase. That means the effective end of free time, which in turn means the end of any opportunity for almost all individuals to engage in political campaigning such as these “climate action”. It also means, there will be next to no TV, next to no press, next to no cinema, so the wholesale wipe out of the present media, present groups like Greenpeace, Friends of the Earth. Not quite the stone-age but certainly a lot more like Dickensian London in terms of economics, culture, politics and free time.
But, more importantly than the mere total collapse of the economy as we know it, what about the idea that economies can be measured in terms of energy rather than money? Contrary to my earlier belief, there is not a direct relationship between the two, rather the availability of energy and economic activity are proportional to each other with that proportionality being determined by the ratio of the rate of production of energy and the rate of production of consumer goods.
If both rely on the same technology, then the relative value of energy and consumer goods will remain. If however, there are fundamental changes in the way we obtain energy, that significantly reduce the cost of energy, or as is being proposed now, that the cost of energy should dramatically rise, then the value of energy relative to consumer goods will dramatically change. A reduction in energy costs relative to consumer goods expands the economy, an increase retracts the economy. As such changing energy costs explain the rise in the scale of the economy, but the key to using energy as an economic unit of value, is in knowing the relative cost of producing energy compared to producing consumer goods.