Following on from the last article: Energy price: the effect on the ratio of tangible/intangible I was chatting to my daughter, and she brought up the issue of supply and demand.

The short of it is that in a totally efficient and free market, that goods should be traded at a price which only reflects the tangible value of the goods. That is to say, that people would have all the information they need to ignore brands and buy the best product at the best price, and producers would be able to supply the best product at the lowest price possible so that consumers would not pay above the tangible value.

This therefore suggests that the reason that prices fluctuate above the “energy” or “tangible” value in a market is due to intangible added value. Or to put that in a slightly different way, a fully efficient & free market will reduce the cost of products so that it reflects only the tangible value – or least energy cost. Thus it follows that a fully efficient & free market intrinsically reduces the energy usage (for creating goods) to a minimum.

Implication

The original aim of my theory of “enerconics” was to devise a method of measuring value in an economy which did not involve money, because money has many problems not least of which is inflation,but also many societies in the past did not use money. My innovation was to measure value in terms of energy. This seemed, and I think still is, a good idea, because it would allow very different economies such as those with and without money to be compared. Indeed, it could even allow a natural eco-system to be compared with a human economy.

It also gave an avenue in, to understand how massive changes to energy costs would affect the economy. The problem with traditional economics is that “money” has no intrinsic value, except for what it can buy. So, it doesn’t represent value itself. This means very different amount of money can have the same “value” after a period of inflation. And because raising energy prices will lead to massive inflation, the traditional way of looking at the effect of changing energy costs created a confusing and difficult to interpret model. However, energy does have an intrinsic value, and because much of the economy requires energy to be produced, energy is a fairly universal necessity and therefore potential measure of value in an economy and because the need for energy is fixed over long periods, it is free from the effects of inflation. (the energy used to climb a hill remains constant because it is determined by physics and so, unlike money, energy value doesn’t suffer from arbitrary inflation)

However, I ran into several problems.

1. What it meant to have different types of energy having different “costs” for the same energy content?
2. If the entire value of an economy could be expressed in terms of energy, how can the total GDP in an economy be much greater than the total monetary value of energy (+food) being consumed?
3. How can supply and demand could change the apparent “value” of goods when the energy value was not changing?

It now appears that by adapting my idea that everything has an energy value, to one where everything “tangible” has an energy value, but that there also exists “intangible” non-energy related value in an economy, I’m now able to begin explaining all the points above.

In a free efficient market, the value of each energy source will reflect the actual value of that energy source to the user. The difference in value is because some require added energy to be input by the user to make them useful. As an extreme example, coal is free in the ground, because anyone could just pick it up. The reason coal costs is because there is energy consumed in mining and distributing it.

Total GDP is much greater than the total energy use, because of the enerconic multiplier … that is that energy value is reused withint an economy.

Now I can also explain that prices can be greater than the tangible value of goods, because there is intangible (non-energy related) value in addition to tangible value (energy costs in production).

And finally the meaning of a “energy price increase” is that it changes the ratio of value between intangibles (like the man-hours) and tangibles (energy-related costs).

Conclusion

I have now taken the idea of energy as being a way to measure value in an economy and found a potential way to explain the key issues that I had found. However, the theory is now more complex.