Friede Gard Prize Lecture 05 Energy In Production Functions

Both Neoclassical and Post Keynesian economic models have been “energy blind”: postulating output from inputs of Technology, Labor and Capital, but ignoring energy (and matter, for that matter…).

In this lecture I show how tautological and wrong the Cobb Douglas Production Function is, and that incorporating energy into it does enormous damage to the Neoclassical paradigm. On the other hand, the empirically-based Leontief Production Function only needs to acknowledge that what has been called the “Capital-Output Ratio” is in fact the inverse of “the efficiency with which machinery turns energy into useful work”, and Post-Keynesian economic models are now energy-aware.