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The Role of Energy in Production

The Role of Energy in Production

Chapter 13 from my forthcoming book Rebuilding Economics from the Top Down

Human society is energy blind. Like a fish in water, it takes for granted the existence of that without which it could not survive.

This is Chapter 13 from my forthcoming book Rebuilding Economics from the Top Down, which will be published by the Budapest Centre for Long-Term Sustainability and the Pallas Athéné Domus Meriti Foundation. I am serialising the book chapters here. A watermarked PDF of the manuscript is available to supporters.

Like so many other aspects of our blindness to the true nature of our society, the failure to comprehend the vital role that energy plays in enabling human civilisation to exist can be traced back to economists. But for once, the culprit is not a Neoclassical economist, but the person that most economists of all persuasions acknowledge as “the father of economics”, Adam Smith.

Smith’s mistake occurred in the very first sentence of The Wealth of Nations:

THE annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes… (Smith 1776, p. 10)

The error is obvious when you compare this opening to the remarkably similar—in all but one respect—opening sentence to Richard Cantillon’s An Essay on Economic Theory, which was published 21 years before Smith’s second magnum opus:

Land is the source or matter from which all wealth is drawn; man’s labor provides the form for its production, and wealth in itself is nothing but the food, conveniences, and pleasures of life. (Cantillon 1755, p. 21)

The critical difference between the two is Smith’s substitution of the word “labour” for “land”. By seeing labour, rather than land, as the source of the material wealth of civilisation, Smith set economics on a course that put it in conflict with the fundamental laws that govern the Universe: the “Laws of Thermodynamics”.

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