This is an abbreviated version of something I have been working on for a while. Bits and pieces of the ideas have shown up here in Question Everything from time to time in the past. Longtime readers will, no doubt, recognize some of these from days gone by.
I am certainly not the first person to come to a realization that energy is the only real currency in human life and social functions [c.f. 1]. Many thinkers on the subject of the relationship between the economy and ecology have realized that the role of money in our evolving society has been as a form of informational signal about the availability of energy to do work. Money, in its earliest forms, was used to purchase work that had gone on to shape, form, construct, or extract something that someone wanted. Or it was used to buy services, human and animal labor directed at producing an outcome. In its earliest incarnations, the value of money related clearly to the value of what was purchased (as I will argue below). It is really only in very recent times, say from the late nineteenth century to the present, that the relationship between a unit of money and a unit of work started to become uncoupled and the value relationship deteriorated to a point that we find, today, that no one really knows what something is worth even if they have some sense of how much they are willing to pay for it.
This is an effort to try to reestablish the value relationship between things and services and what we should be willing to pay for them. The need to do so is paramount in that the world is about to enter an entirely new situation for humankind. We have always existed in a world in which the supplies of new energy were always expanding (even if very slowly in the early days). In a world of expanding energy access one does not have to worry too much about the relationship between prices and values. As long as there was excess energy to flaunt, what did it matter. With the advent of peak oil and the peak production of net energy we enter a world in which energy available to do useful (economic) work will be shrinking. That means less work per unit of time will be accomplished, less wealth produced, fewer services available. We will live in a contracting world in which there will be little room for discretionary expenditures of energy for unnecessary things. Energy, and hence the work it can be used to accomplish, will become increasingly precious. We will need to clearly understand the true values of things and, if we use money to represent those values, what is the right price to put on them. There will be little, if any, room for error in making good decisions about what to buy in that future. There will be no 'wiggle room'.
Below I try to tease out the concepts of energy as the currency, the value of stuff to human life and well being, and the use of monetary measures to capture those values for purposes of trade. It is unlikely that these relationships, no matter how well understood, will ever be adopted in the current political and social milieu. But, after a significant crash wrought from the current powers trying desperately to keep the system (that benefited them) going, perhaps new perspectives and new ways of thinking will prevail and a new economics based on true values will emerge. One can hope.
Life and Energy
There is a fundamental, basic truth about life. A living system is one that maintains its organization and relationships with its environment by doing biochemical work. That work requires a continual flow of energy through the system [2, 3, 4]. Energy, of the right kind, flows from a source at high potential, through the system driving work processes, and out to a sink at low potential, in the form of waste heat. Life cannot exist without the steady and reliable flow of energy. Growth, in the form of biomass increase over time, depends on increasing flows of energy. Ultimately, all but a very few living forms derive their energy from the sunlight that bathes the Earth. Photosynthesis is the process that captures sunlight and drives the synthesis of high-energy bonded sugars and starches in plants. These act as storage for the energy until needed for respiration which produces adenosine triphosphate (ATP), the little battery packs that circulate inside cells carrying energy to protein and fat synthesis processes. Since the high molecular weight molecules employed in structural and functional work in the cell are generally degrading over time, work to repair and replenish these is a constant necessity.
Biomass growth, either in the form of maturation of individuals or of the population through reproduction is also a result of extra synthesis work being accomplished. Movement (of muscle tissue) requires considerable energy to accomplish mechanical work. In simple terms, life is based on the flow of energy, the flow of materials (requiring energy expenditure to move those materials), and the control of these through message passing systems (through space and time) that allow coordination of all the various work processes.
A foodstuff has value to the degree it embodies necessary material nutrients and, most importantly, calories that can fuel the metabolic activities needed to maintain life. The fundamental basis of all value to life is the amount of physiological work that can be accomplished. Literally nothing else matters.
The hominin line (tribe Hominini) that produced genus Homo experienced a remarkable expansion of the brain that resulted in superior intelligence and creativity, the basis for problem solving capacity, in all modes of behavior, but especially food gathering [5, 6]. This increase in intelligence and creativity, what we can call cleverness, resulted in greater efficiencies in general in obtaining calories. That is, the energy investment in movement work needed to find sufficient calories to maintain metabolism and pay back the investment produced an excess that could be spent in other ways. The evolution of that more clever brain was the bootstrap key to everything else that followed.
Subsidizing Energy Input
A very long time ago, in hominin history, the ancestors in our line of descent were hunter-gatherers. They subsisted on food that they could find just as every animal had since the beginning of time. Food is the ultimate energy input to our bodies. We obtain energy to sustain metabolism, repair tissues, grow, and reproduce (growth of the population biomass). All of our food ultimately comes from the capture of solar energy into high potential chemical bonds through photosynthesis by plants.
For all other animals in this world all the energy they have to use for life maintenance comes strictly from food sources. Even though some reptiles may use 'sunning' themselves to warm their core body temperatures for activity this is not a supplement to food. They will lose that body heat to the ambient environment at night. Only humans have used their cleverness to supplement their energy inputs with extrasomatic (non-food) sources that allow them to do more physiological work than is strictly needed for maintaining life. What it buys them is time. Life is no longer a constant and unrelenting quest for more food just to stay alive.
Humans discovered some very clever tricks to subsidize their normal endosomatic energy sources so as to have to do less work obtaining calories and to use the calories they did obtain more efficiently. They discovered the use of tools to increase their access to calories, to conserve calories already obtained, and to use those calories to better advantage. Of course, if they had more energy to work with, there could only be one real outcome under the biological mandate. They produced more human biomass.
Tools, Fire, Clothes, and Shelter
The human ancestors were not the first animals to use tools. There are numerous reports of chimpanzees and even birds using objects, say stones or twigs, in their behaviors. Chimpanzees even modify a twig in order to make it useful in extracting termites from their mounds. They remove the leaves of a suitable twig so that they can go 'fishing' for the insects. In a very strict sense, one has to admit that the twig becomes an 'artifact' that is useful in obtaining food. Many species of birds build nests (some quite elaborate) as a tool for reproduction, in a sense a method of funneling energy to the next generation.
We don't know exactly when or how the first hominin to make tools came to this practice. But the consequences were remarkable. Early humans developed the ability to perform controlled breakage of rocks such that these became cutting tools. These 'instruments' enabled the more efficient handling of food items, indeed, the obtaining of food items. Handling refers to the necessary actions to make a food item edible, such as removing the skin of an animal to get at the flesh, or cutting the meat from the bones. Spears and later arrows increased the success rate of killing food animals thus expanding the volume of food available.
Tools have two basic functions. They either increase the availability of an energy source (spear) or increase the efficiency of using that energy to do the necessary work of metabolism, repair, growth, and reproduction (clothing). The use of fire is interesting in that it can perform both functions.
Clothing is a tool in the latter category. Clothing increases the insulation of the body from colder temperatures. This is a form of conservation (need less energy to maintain body temperature) but also allowed early Homo erectus and later archaic Homo sapiens to extend their ranges away from equatorial Africa which had the advantage of increasing the food varieties to which they could then get access.
It is possible that chopping at rocks with other rocks to make blades was also the source of inspiration for another great (perhaps the greatest) feat of expanding our access to energy. Imagine an ancestor chipping away at a kind of rock that made sparks when hit just right (like flint). Imagine a particularly large spark hitting a pile of dry grass and setting it ablaze. At least one of our early ancestors had the insight to see the relation between sparks and 'creating' fire on purpose. It is likely that early humans had already begun using fire (naturally occurring from lightening strikes) intentionally for a variety of purposes. The purposeful burning of wood could be used to keep warm (another method to conserve body heat), light dark places like caves, but most importantly, to cook foodstuffs to release more calories (making them easier to digest) per unit of food weight and unit of time. Additionally, cooking plant matter would allow the denaturing of toxins that might have prevented using that particular kind of plant as a food source, thus expanding the variety of available foods. This latter helped insure that there would always be something around that one could eat.
Domesticated fire and the use of animal skins permitted early man to explore new territories and expand his range. We now know that several species, including H. erectus and H. neanderthalis (or their precursors) moved from Africa to the Middle East and then to Europe and Asia many thousands of years before sapiens emerged and followed. So the capacity and tendency to make tools is deep in the Homo behavioral repertoire. It is relatively easy to see how, as humans moved into more temperate climates, the idea of constructing a shelter — essentially extending the notion of clothing to encompass a family as opposed to an individual — followed the same trend. Shelters help conserve energy not just by providing insulation but by protecting against inclement weather which would require even more energy to face in the open. They provided protection against predators at night. Perhaps this isn't obvious, but such actions conserve already invested biomass!
In other words, the creation and use of tools is always about energy, getting more and doing more work with what you have. It is all about gaining energy leverage to provide evolutionary advantage to our particular genetic line. And it worked spectacularly well.
Technology
Tools of all types were means of wrapping the processes of obtaining and biological uses of energy in our bodies in a cocoon of technology. Every tool requires an up front investment of energy to make. The payoff has to be at least break even in terms of energy gained or saved. But this would not provide a motivation for early hominins to explore the development and use of tools. Rather, there must have been a reasonable net energy gain in the process of constructing and using tools. A net energy gain would mean less effort needed to live since that gain could be reinvested in several other activities, e.g. leisure and free time to think more, art and aesthetics, and, most importantly, exploration in the forms of invention and territory expansion. Through the advent of energy subsidization made possible through a bootstrapping process, humans broke out of the mundane hand-to-mouth existence of prior times.
With more "free" time, humans could apply their increased intellectual prowess to endeavors other than getting food. As we have seen, humans are naturally exploratory; they expanded their range probably seeking novelty, new foods, and environments. And they also explored new ways of doing things. In particular, they explored ways to improve the design of tools they already had; better spear points and shafts, better ways to hurl said spears, better shelters, better fitting clothing. They explored the uses of other naturally occurring substances, like clays, for new tools (pots). They became conscious of the fact that there was always a better way to construct these tools to get more functionality out of them. For example, they learned how to construct shelters with controllable openings at the apex that allowed them to have a small fire inside. The same idea probably gave rise to the concept of an oven, an enclosed fire that could be used to cook (bake) foods. Little by little, through elaboration on the same themes of tools for obtaining energy and tools for using energy more efficiently, humans evolved a more elaborate culture.
Somewhere along the line, especially after populations started to increase, it became recognized that certain individuals seemed more adept at constructing certain kinds of tools and so some kinds of specialization ensued. This added even more efficiency to the whole process of tool manufacture. Thus even more mechanical advantage, a kind of second-order advantage, was achieved.
A New Kind of Tool — A Procedure
Another kind of tool was evolving in step with the physical tools that humans were inventing. This one was an informational tool. It took the form of a memorized set of steps required to follow in order to manufacture a given kind of physical tool. Human children learn from examples and from instruction by elders. Elders who had mastered methods for hunting or gathering could use their ability to remember the procedures they used (that were successful) and pass these along to their offspring via the mental tool of complex semantic language. It is highly possible, in fact, that the manufacture of physical tools, mental representation of procedures, and narrative language all co evolved [7, 8, 9].
As argued above, this evolution was based on an increase in the amount of solar energy available to each individual as a function of time. Each person enjoyed access to energy excesses that ultimately served the purpose of increasing human biomass. Not only was food energy essential for this, but energy used for security (fires and shelters to keep predators away) enhanced the survivability and ultimately the reproductive success of the species. Even the evolution of altruistic and cooperative behavior has a benefit in terms of enhancing energy flows. Coordinated, cooperative hunting helps increase the success of obtaining food. Hence, language used to organize hunter and gatherer groups and sharing behaviors within the group contributed to greater efficiency in terms of improving the survivability of all members of the species. Procedures for organizing the hunt and procedures for sharing food and knowledge (e.g. rituals, mores, practices, etc.) were selected for because they improved the energy flow to members of the group.
Procedures are narratives, sequential speech acts, that describe the operations that should be performed and the outcomes that should be achieved. 'Strike the rock thus, my son, and you will get a finer blade,' could have been one step in creating an axe, for example. As brains evolved to store more knowledge, both explicit (facts and rules) and implicit (tacit), humans developed the ability to commit to memory ever more elaborate procedures. Practicing the procedures over an extended time leads to their transfer from explicit memory to tacit memory where they become an unconscious part of one's expertise. This transfer is another form of conserving energy and making the operation of the procedure more efficient. The brain does less work and the effectiveness of the procedure improves over time.
Agriculture — A Procedure and Technology to Insure a Food Supply
Hunting and gathering foodstuffs is an energy consuming business. The time and energy needed to search for the food items takes a larger investment and thus the net energy gain is less than if one knew exactly where to find the food nearby. Approximately ten to twelve thousand years before the present (BP) some humans discovered that certain grasses, the seeds of which were used as food, could be purposefully grown in a circumscribed area that would allow easy collection. Additionally, some bright, observant person(s) noted that some of these grasses produced larger seeds and some produced seeds that didn't immediately fall off the stalk. The former observation led to cultivating more energy rich varieties. The latter led to selection for the trait because this made gathering much easier.
Over time the procedures for using some of the seeds to generate the next season's plantings, carefully selecting seeds with energy-increasing properties, and, eventually, cultivation practices led to a collective process of controlled food production that increased net available energy per person.
The planting and harvesting of foodstuffs, however, required the adoption of something new for Homo, the settling and ownership of a more limited territory. The latter was probably not a large conceptual leap since all primates are essentially territorial. But this had been at lower population densities and over much larger territorial ranges, often with several tribes (colonies) overlapping in space but not in time. What was different is the need to settle in one place permanently. Groups of hunter-gatherer primates have the ability to move to completely new territories if the food production of their areas is somehow hampered. They just get up and move. But farmers have a new set of issues that tend to keep them settled. Fields take more than just planting and harvesting. Cultivation includes, at times, bringing water to the fields to increase or maintain productivity. Once the soil is built up, the land becomes valuable precisely because of the investment in time and energy that went into it. It cannot be abandoned lightly.
In addition agriculture requires a new set of tools (aside from irrigation ditches) to make working the fields easier. It requires digging devices and, along with the domestication of draft animals, eventually plows, water wheels, and any number of large, heavy instruments that cannot be moved and that represent a large energy investment that needs to pay for itself over many seasons.
The advent of agriculture had another big advantage besides merely increasing the availability of calories per individual. By having focused initially on grains (grass seeds) early agriculturists hit on a very nice way to insure against future problems, say of bad harvest years due to climate shifts. Grains are relatively easily stored for longer periods, if kept dry and rodents kept out. By planting and harvesting more than was needed to feed everybody in a given year, farmers could store excess grains in granaries, shelters designed to keep the grains dry and prevent rodent pests from decimating the stores. The excess would provide insurance against possible bad harvests. It would also provide something else. It would make it possible to use a bit of the store to start new farms. By borrowing just a bit of seeds from the stores a young male, setting out to start his own patch, could get a start. He could also promise to pay back what he borrowed and if he too planted in excess of his needs, could make good on his promise.
The Value of Tools
Thus far the argument has been that tools of every sort have an intrinsic value based on either their ability to increase our capture and conversion of energy to a usable form, or help us reduce the need for energy in any given work process by providing mechanical leverage, or reducing the loss of energy to waste heat. We have been looking at the early development of an agricultural based economy from an earlier hunter-gatherer economy and paying attention strictly to the energy exchanges involved in biological necessity. We have seen that the development and use of tools was a key to increasing the amount of (ultimately solar) energy available to each individual and how these increases enhanced the survivability and reproductive success of the species as a whole.
This, then, is the basis of value placed on artifacts. Any tool, including a procedure, is valuable precisely because it's use increases the net energy available to promote the increase in biomass of the human species. More individuals are likely to reach maturity and produce more offspring. Since we, as animals, are mandated to follow the dictates of biology and grow biomass, we are locked into a positive feedback loop that is enabled by our intelligence and creativity — to invent new tools — whereby the more we gain net energy the more demand we put on obtaining even more net energy and so continually seek ways to get it. But the increased demand comes from the biological success of producing more biomass (more mouths to feed) and so the cycle continues.
At this point I assert as axiomatic that the real value of any artifact inheres in its contribution to net energy gain. This will be seen (below) to even apply to supposed non-tool artifacts (like poems!) but the relation there is more subtle and dependent on understanding human neuropsychology, especially as it pertains to group interactions.
The starting point, then, for understanding modern economic systems with the new artifact we call money, is to recognize that the worth of something that we create, what we will call our assets, has its roots in biological necessity for energy to flow through our bodies in order that we are reproductively successful and ensure our genes enter into the next generation. The latter part involves a need to be fruitful and multiply in order to have that assurance because, from our evolutionary past, before we started supplementing our energy income and using tools to protect ourselves from the vagaries of our environment, it was necessary to produce many more children than just replacing the two parents in order that some number would survive to, themselves, reproduce. That is the way of all of biology. What was new and emergent (not biological per se) was the effect of supplementing energy resources so that greater numbers of children began surviving to adulthood. A new problem arose, thus.
Non-Tools and Consumables — Value to Life
Early in Homo sapiens history we have evidence of something that is not often seen in the biological world, the attempt to create aesthetic artifacts. Some early tools were made with artistic flair, e.g. knife handles shaped like female forms. The cave art of, for example, Lascaux, France, is famous as representing early true artwork (around 10,000 BP, at the end of the last Ice Age glaciation period). There is much speculation about why humans started producing such art. I suspect it had something to do with rituals (procedures) that were practiced in relation to obtaining success in the hunt (most were depicting prey species). And if this were the case then it is clear that even artistic endeavor becomes part of our efforts to obtain more energy. Decorating tools may have been thought by these peoples as somehow increasing the worthiness of the tool. But worthiness in what sense? The worth of a tool is in how well it gains more net energy or saves wasted energy. Did these people believe that embellished tools were somehow more efficient in performing their work? They certainly didn't think about efficiency per se. That concept had to wait until the late 19th century to be developed. But the concept of efficacy might have been foremost on their minds. Efficaciousness simply means it works well for its intended purpose. Perhaps the origins of art and aesthetics lies in the evolution of superstitions associated with increasing the efficaciousness of tools (and good fortune in the hunt and harvests).
From that perspective it can be conjectured that religious practice (and the associated procedures of rituals and prayers) derived from a desire to insure and increase the gain of net energy for humans.
It turns out that aesthetics do have an impact on the efficaciousness, even the efficiency, of the prime tool at man's disposal — the brain. Humans work better when refreshed and when their minds are not occupied with worry about from where the next meal is coming. Additionally, human sociality still depends a kind of ranking. Chimpanzees, but less so with bonobos, have a hierarchical social structure, a kind of pecking order. Humans appear to have some similarity with chimps in this regard. We care about status. And status derives from how much energy we control. Someone possessing or in control of an excess of energy can afford to demonstrate that control with unnecessary elaboration (artistic qualities) of their tools. In other words, they can afford to decorate to show off their superior situation. Naturally this is not more than a signal of genetic quality for purposes of reproduction. A successful male or female (in obtaining excess energy) is more than able to fulfill the biological mandate. Human psychology has evolved to attend to such signals. Sexual attractiveness has a great deal to do with signs of success in controlling sufficient (and better still, excess) energy to assure reproductive success.
Controlling excess energy flows can also be signaled by conspicuous consumption of that energy. Wasting a resource that otherwise would require more energy to replace is another way that those with energy prowess could attract sexual attention. Those who could waste (and also give away as gifts) energy were clearly superior beings and much better able to raise offspring.
Biology rules our minds. As much as you might want to believe you are above the biological fray that produces wasters and indulgers in unnecessary opulence (excess expenditures on aesthetics), you are not. You cannot be. We evolved to be that way because we were so clever that we found energy sources to spare. And some of us developed the combination of aggressiveness and cleverness to win more than our share of control over those excessive resources. The rest, as they say, is history!
Information Flow — The Regulation of Energy Flows and Work
Barter between neighbors and later between tribes and villages proved to be cumbersome. It was one thing to realize that you needed some wheat when you had been growing nothing but barely and you could figure the relative energetic value between the two grains. If your neighbor figured about the same way and had been growing all wheat the two of you might be able to strike a trade that left you both better off. You each had the requisite variety of foodstuffs (variety of tastes and nutrient mixes) with approximately the same number of calories in the trade. Maybe two bushels of wheat were worth three bushels of barley (I have no idea but I'm pretty certain farmers would have figured it out). You haul your barley to the neighbor's house and he gives you two bushels of wheat in exchange. Simple, clean, and easy. More or less.
The reason different farmers might have raised mostly one kind of crop was the same as we've seen with the production of tools. Specialization produced efficiencies in larger scale operations. As villages grew there must have been more and more specialization in both farming and tool making. At some point simple trades no longer sufficed. Village markets began to spring up. These allowed farmers and tradespeople to bring their goods to a central location to facilitate trading. But it also produced a new problem. How many bushels of wheat is a chicken worth (or maybe the other way around)? How many cows do you trade for a new plow? We started to see some difficulties arise in estimating the energetic equivalence between highly dissimilar products. Nevertheless, people being very close to the work that was being done had a pretty good idea of what kind of effort they had expended in doing that work and so, indirectly (subconsciously) how much energy gain they needed from the trade.
At the time that trade was starting to expand, between eight and ten thousand years BP, civilizations as we normally think of them began to emerge as ways to better organize the work of agriculture. Economies of scale were recognized and hierarchical governance arose as a natural response to managing the agricultural enterprise more efficiently. Farmers were required to bring their products (grains mostly) to a central storage facility. In later versions these storage facilities were "owned" by the king or titular head of the government. In any case a system of representing the quantities being stored or owed was needed in order to keep track of this wealth. Early forms of this system of representation were embodied in simple pictographic marks on clay tablets (see Sumerian cuneiform). These marks, the first forms of intentional writing, were for the purposes of accounting (humorous note that will not make it into the book form: some people feel that accounting was the second oldest profession!)
These clay tablets had wonderful properties. They could be carried by courier around the kingdom to provide information about how much wealth was produced and stored in various storage areas. This was the first form of money. The reason is that these tablets could also be used by a "bearer" to lay claim on the represented wealth. A few additional kinds of marks representing this concept and the clay tablet and they became "notes" giving the bearer possession of whatever wealth was in storage. Naturally this method of keeping track of stuff, not just foodstuffs but other stuff as well, caught on as being a whole lot less effort than carrying things to a central market or hauling a lot of stuff over long distances to see if anyone at the destination wanted it. All you had to do was mark off how much of some type of wealth you had, let the clay bake in the sun (or an oven) to harden it and then send your boy off to the potential customer to inform them of what you had. If they wanted everything they took the tablet as a note and would later come pick up their prizes. Of course this would occur only if they gave you a tablet of equal value!
And that is where things started getting a bit dicey. Even though we now had developed a really great way of effecting trades using information bits instead of carting the actual stuff around, we still had the problem of comparing figs and donkeys. We had a way to represent a storehouse of wealth but not a convenient way to represent relative worth. That required something a little different. Suppose you were to take your bushels of barley (which by the way was most valuable for its use in beer brewing) to a central store. Instead of giving you a clay tablet the store master gave you a batch of individual tokens that collectively represented the whole number of bushels but with one token for each one bushel. Now you could take those tokens to a market where everyone agreed to use them as tokens of exchange, either because the store master was known to be good for it, or the king mandated it. At the market you could bargain with the guy who sold chickens. One coin, you could claim, was worth three chickens (the value of barley had gone up since they figured out how to make beer!) He might not agree. Two chickens only. A lot would depend on how anxious you were for a chicken dinner and he to be able to get some tokens to buy something he wanted. Note that he wouldn't have had to turn in the tokens for barely. Rather the tokens would buy anything for sale and eventually they could buy some beer. In which case the beer maker could then buy more barely. It was an incredible system. But it did depend, still, on people participating in it having a good sense of what something was worth to them. Labor was still a relevant factor in the decisions. In the end, everyone had to come out with at least a net energy break even in order to keep going.
But, of course, merely break even was never a real option. There were still opportunities to expand the flow of net energy. Tools that could be seen to increase a person's productivity (efficiency) were being developed more or less continually. I would gladly give ten bushels of barley (ten tokens) to buy a better plow, one with a yoke, that would allow me to expand my operation and produce twenty extra bushels for the next twenty years. You bet I would.
The Evolution of Money
Money came to represent the fruits of labor in a rather straightforward way. You worked. Then you sold your product to someone in exchange for the tokens, soon in the form of metal coins, and then you could buy just about anything you wanted that you could afford.
And energy flow was expanding. The whole basis of wealth production was on the ascendant. More real wealth meant more money was circulated. And on average, over time, the amount of money in use tended to accumulate in occasional pockets of excess. Rich land owners could hoard the coins or currency of the realm against the day when something didn't go quite right. This was exactly the same instinct that early farmers had had in storing excess grains as insurance. Eventually someone started specializing in holding and protecting other peoples' excess currency. Accounting really took off then. It got much more sophisticated because people started thinking of these coins as valuable precisely because they did represent purchasing power for real wealth. They could buy food and tools, of course. They could also buy aesthetics and excess consumption if you had enough of them. The earliest bankers were probably no different than the early granary keepers. They got a little of the coinage for providing the service of protecting the money. As coins evolved to various denominations especially smaller ones, it became possible to purchase human labor more easily. And as cities got bigger and more things needed getting done more people were happy to offer their services (labor) for the cash.
Remember the farmer's son who borrowed a little seed to start a new farm? Well it isn't a big leap to imagine the temptation to do essentially the same thing with stored money. Bankers eventually caught onto a neat trick. Since people tended to leave their hoarded money in the bank, it occurred to someone that they could loan out a little bit of everybody's money to someone who would use it to start an enterprise. If the latter was successful in producing products and selling them they could then pay back the loan principal and a little more (interest) to cover the risk the banker took (he couldn't sleep at night worrying about the success of the venture). This was both a wonderful invention, the seed form of capitalism, to fund growth of general enterprise and it was a horrible idea in that this trick is at the base of all of our current problems. As long as our access to net energy was expanding through improving technologies this idea was not just a great way for someone, the banker, to make money without doing any real work, it was a way to absorb that new energy and channel it to the production of yet more biomass.
By the accounts of the bank the same amount of money that had been deposited was still "there". If a depositor demanded their money, no problem. They would take a bit more from each other depositor's accounts to cover the demand and life would go on. The borrower was officially in debt to the bank for the principal and interest charges, but meanwhile was out spending the money on materials and labor to get their business venture going. Amazingly, as far as everyone was concerned in this trick, there was actually more money in the system than had originally been the case by the simple act of marking a debt down on a piece of paper! Money was created out of nowhere. By the time of Shakespeare's Merchant of Venice bankers and money lenders had this pretty well figured out. What a racket! All you needed to do was convince some rich people to put their excess change in your bank and then you could make money by loaning it out to ventures that were busy further expanding the access to energy. Of course they didn't know about the energy flow part. That became taken for granted as people forgot more and more how money was tied to labor effort and started thinking only about relative values of stuff as measured in monetary units. In general farming had gotten so efficient that the farms were producing more than enough food to feed city folk. And biomass was increasing.
The Final Plunge in Meaning
Money always represented an amount of work that had been done or soon would be done. The more energy available to a society, the more work they could do and the more real wealth, what we now can call capital, would be produced to support the burgeoning biomass of humanity. This story was progressing rapidly by the middle of the eighteenth century. Science and engineering were racing ahead to produce one energetic wonder after another. And then toward the end of that century we broke into the veritable big energy bank that had been beneath our feet. We found fossil fuels and very soon learned how to exploit them to do work. So much excess energy flowed from these finds that our economic system literally exploded in the virtual wink of an historical eye. We were swimming in highly usable energy. Moreover science and technology exploded as well. More than enough energy allowed us humans to become incredibly exploratory. And our explorations produced more ways to exploit the energy sources. It also produced new and entertaining ways to use up energy — to demonstrate our status, to signal our reproductive potential. And we generated even more biomass than could have ever been predicted by observing our early Homo predecessors.
There was so much energy available, and as a consequence so much money, that no one really knew what to do with it. Back in the sixteenth century someone got the bright idea of getting rich people to invest directly in ventures of various kinds. Kings and princes were rich so they were the first to take up the offers. Later rich merchants could afford to invest a little. Several got together to form a company for a particular purpose. They did this by purchasing stocks in the venture where the stock had a payback greater than its face value if the venture succeeded. This was a more elaborate form of gambling on the future than had been the case with traditional banking. Since energy flow was steadily increasing these ventures generally paid off more often than not. So the form of a stock company developed and matured over time. Sometime in the eighteenth and nineteenth centuries the notion of a corporation, a stock company protected by legal status where the investors would not be held liable for misadventures if something went wrong and greater costs were incurred, came into being.
Stocks were great devices for making money without lifting a finger to do any labor. The company could purchase all the labor it needed, including the second and third order labor necessary to extract raw materials and form them into parts. The company could purchase non-human labor in the form of great machines that did tremendous amounts of work in place of human labor. Since we were awash in "cheap" energy using more machine power made tremendous sense. The monetary link between human labor and value of products was all but severed. We substituted machine labor and abundant energy flow for human effort making the "price" of products not representative of actual value. And with all that excess energy we could all become wasters and conspicuous consumers, at least most of us in countries that had access to cheap energy. The price of a product no longer had any real relation to human effort and so it really didn't matter what the price was. As long as someone felt they could afford a widget and that widget gave them psychological satisfaction, then why not buy it? It no longer even mattered if the widget was a tool (even a fancy one) or not. If it existed and captured the imagination of what sort of "happiness" it would bring, then we went for it.
The Party Comes To An End!
For the past one hundred years we have plundered the energy banks beneath our feet. But like any bank this one has a fixed sized vault. It only holds so much energy supply. And at the rate we have been pulling it out of the bank, guess what? We've made a significant dent. Actually it is a little more complicated than that. Since energy extraction takes energy to do the work of getting it out, the net energy is all that is available to make widgets. And since fossil fuel energy gets progressively harder to extract, that is it takes more work to get the next increment of energy and thus more energy used up in the extraction, the net energy is starting to go down.
Perhaps for the past twenty to thirty years we have actually had less net energy available on a global basis for the production of real wealth. We have, moreover, turned to more abstract forms of work, so called services, in the OECD countries, that produce no real wealth to speak of, but do direct energy flows to biomass. McDonalds Corporation has been exemplary in this process.
During this time of a switch from increasing energy flows to decreasing something very interesting has been happening. One of the first phenomenon signaling the reversal of growth in energy access was globalization. Mostly an attempt to find the cheapest labor for producing goods (even wasteful ones like salad shooters) jobs were shifted from the OECD to several developing countries that had adopted development supporting laws that enabled the shift. The reason that labor in these countries was cheaper, however, is that they had much lower energy demands. They simply didn't consume energy intensive goods and services the way, say, Americans did. American workers, as an example, had grown used to the high energy flow economy and all its goodies like large flat screen TVs and forty sports cable channels. The average Chinese laborer had no such requirements for high wages to support such a life style. Of course that is now changing due to the slightly increased energy flow toward their lives and the effects of western culture (shown on TV) pervading their lives. Unfortunately for their growing expectations they started getting the stuff right as we are starting a major global decline. Yes the Chinese have a lot of coal that they will increasingly have to turn to for power, but as diesel supplies get scarcer and more expensive, even the extraction of coal will become increasingly difficult.
The second interesting phenomenon involves money. Or rather something that passes as money. Even before energy started being even a little restricted for the OECD economies something remarkable had happened in the banking and stock market worlds. Remember that bankers and stock investors were always betting on the future. They were depending on the old pattern of more energy producing more wealth, even though they didn't understand the basis of that wealth production. They had gotten used to things working out as evidenced by the concomitant flow of money into their coffers. So betting on the future looked like a good way to go. The stock market, which had originally been developed as a way to provide investors with some liquidity in case they needed to get out, turned into a casino open to everybody. Stock brokers and market information made it possible for people to invest even when they weren't particularly rich and might not have been in a good position should something go wrong. Remember the whole idea of making excess stuff (food) was for insurance. Now we had created the antithesis. We had figured out a way to construct elaborate bets and play the market, not against the fundamental value of the company, but for the relative movement of stock prices in the market. Money was being created by betting on bets! Well, that is, money on paper or in computer memories. This money wasn't tied to actual real energy flows but to presumed future flows. Worse still a lot of this paper wealth was based on speculation on higher growth in the flow of future energy.
Similar attitudes pervaded other commodity markets and even real estate markets. Since humanity had always gotten more energy, could always do more work (and there were always more workers to do the increasing number of jobs), and had always created more real wealth since Homo erectus first set foot out of Africa, it was axiomatic that this pattern would go on forever. That is codified in modern neoclassical economics. And since that is a given we can bet not just on the immediate future but the far future. We have been confident that in that far future we would produce fabulous amounts of wealth that would easily pay back all our debts and all our bets on those debts and all our debt taken out to make those bets on all those debts... Of course it was all a pyramid scheme. It worked as long as energy flow was increasing. But it can't work when energy flow is contracting.
Money has always and only been good as a token measure of the amount of energy that is available to do useful work. Human beings need a fundamental flow of energy through their bodies to maintain life. That means, at a minimum, adequate food. But humans need something more than just food. They need shelter, clothing, and some basic aesthetic diversions. What constitutes appropriate wealth per person is open to much debate. In the end it comes down to what energy we actually can have and what size population can be sustained at that level of energy use. The former depends on appropriate technology. The latter will require something extra-psychological to counter the normal human (life) tendency to expand biomass.
One thing is certain. We will be getting less and less energy from fossil fuels. The energy cost of extracting more fossil fuels is going up radically (the energy return on energy invested is declining). At some point it will no longer be worth the effort and we will have to revert to real-time solar energy to fuel our society. It is vague, at best, what kind of society we can have with only real-time solar inputs. It is true that sunlight is abundant and essentially free. The problem is the energy capture and conversion technology. To make solar energy useful in ways we've grown accustomed to (e.g. pushing large transportation vehicles long distances) we need to concentrate vast expanses of collection area. It really isn't clear, in spite of all the current hype (or hope) that we can really do this. We keep hoping for some version of solar technology that will at least let us have rewarding if not much simpler lives. It is highly unlikely that such lives can be had by expected population levels or even the current world population. To say the least this is unfortunate in the extreme.
The future is dim, as in a fog at dawn. If there is a future for some humans on this planet they would do well to remember the relationship between energy, their well being, and what the tokens represent in real wealth.
References
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