We tend to think about the economy and our own personal economic lives in terms of money. Do we have enough money to afford the things we need and want? But today I want to show you how energy is the actual building block of civilisation. And how the recent agenda to shift to less efficient forms of energy creation, as well as to use less energy, is going to prove disastrous for civilisation itself.
Let’s start with the basics. All economic action costs energy to create something. The key question is how much energy you had to put in, and what value you got out.
The most basic economic act is burning wood for warmth. Getting the wood costs energy and warmth is energy itself too.
Coal is, however, an improvement when it comes to warmth. But consider that it’s a lot more difficult to mine coal than get wood, which is often found lying around. So, how can it make sense to burn coal over wood?
That question gets at the fundamental point I’m trying to make. Civilisation is determined by our ability to spend less energy to get more. When it comes to coal, large-scale mining industries were able to expend less energy on getting coal than the energy value of coal.
The process of getting coal became so efficient that it replaced wood as the most efficient source of heat. Civilisation enabled the mines that made this possible, and civilisation in turn was made much more possible too.
Coal made steam engines viable, for example. Again, it was a question of energy optimisation. Walking versus horses versus a train – what makes them improvements is their energy input to output performance.
Another example: why do we cook food?
The answer, according to food historian Rachel Laudan, is to do with energy inputs and outputs. Here’s how she explained it in an interview on Econtalk.org, with my emphasis added:
Russ Roberts: I think modern people tend to think of cooking as it makes food taste better. We have a modest experience with raw foods: we eat sushi; we might have steak tartare; we eat raw vegetables with dip at cocktail parties. But you point out that the really important part of cooking is it saves time in chewing. Can you explain that? Because that’s remarkable.
Rachel Laudan: Both chewing and digesting. Animals, if you think of the standard picture of a cow, they first of all spend a lot of time wandering around, chewing grass, which is tough. And then they have stomachs and they spend much of the day digesting this food. It takes a huge amount of energy to digest food. So that when you cook, what you are essentially doing is outsourcing digesting–chewing and digesting–into the kitchen. And doing it previously. And that saves a lot of energy for the humans who are lucky enough to eat the cooked food. Of course, the energy has to come from somewhere, and part of it is from the thermal energy of the fire; but part of it is from the energy of the people or animals or later on wind or water or steam that are doing the hard work of grinding.
The point being that cooking optimised the relationship between energy inputs and outputs – how much energy it took us to get a unit of energy. Before cooking, we used a lot of energy to get our calories. Cooking requires less energy, despite the need to get fuel and do the cooking, than digesting uncooked food. And so cooking was an improvement.
The idea applies to far more than just cooking and coal, of course. But, because food and coal both represent energy themselves, they’re good examples. We are comparing like for like – energy in, energy out.
In the podcast, Russ Roberts and Rachel Laudan also focused on grains because they appear to be a very poor form of food, unless you understand the importance of the relationship between energy inputs and outputs. After all, grain takes a lot of energy to turn into food. How can it be energy efficient to do so?
Russ Roberts: Why are grains so important in the history of food, and why did they remain important?
Rachel Laudan: Well, let’s go back to the Paleolithic. Human beings, it’s pretty clear, were incredible careful and intelligent about inventorying the world’s food sources. They knew what was edible and what was not. They experimented and found out what was poisonous and what was not. And the trick was to find something that was nutritious, that was storable, that was transportable. And most foodstuffs just don’t live up to this. Most foodstuffs are available only episodically, in the summer, in the harvest season, or, if they are big game, they are only available when you’ve got a big catch. The really neat thing about grains is that they satisfy all those criteria. They are highly nutritious because they are food [?] plants. They are highly storable because they are hard and dry, and they don’t rot and go bad. And they are highly transportable because they have a high food-value to weight ratio. Unlike, say, potatoes, which are very wet and heavy and therefore are hard to store and transport. So you have these little things that are potentially very, very useful year-round human food. The downside of them is that they are absolutely the worst foodstuffs or raw materials in the world to turn into something we can put into our mouths.
Russ Roberts: Yeah; that was one of the most fascinating parts of the book–the length you have to go to. We think, ‘Oh, bread comes from wheat; isn’t that nice?’ But it’s a little more complicated.
Rachel Laudan: Absolutely. It was brought home to me when my father, who was a farmer and who grew hundreds of acres of wheat decided it would be interesting to make bread out of his own wheat. And in those days, you couldn’t just google and find out how to do it. So he set about taking these grains of wheat; and he beat them in a pestle and mortar, and he ground them through a meat grinder, and he hit them on the stone floor of the kitchen. And all he got was squashed grains.
Russ Roberts: As opposed to flour.
Rachel Laudan: You have to use a shearing action–I learned that many years later when I moved to Mexico, where people still grind grains. And you have to use a lot of weight with both a vertical and a horizontal force to break up the outside husk and get into the flour in the middle. And that’s after you’ve cleaned them, and washed them, and threshed them, and done all the preliminary processes. That’s just to turn them into flour.
Russ Roberts: It’s an amazing thing that someone thought to do that. I mean, I assume that in the beginning people just chewed it, and it wasn’t very good or very appealing.
Rachel Laudan: I think if they just chewed it–really the grains passed through you. Their cover was a little hard-skinned on the outside. And you can’t get much nutrition from them unless you break them up. And we have speculations about whether or not they were made into popcorn by just simply eating a popped wheat, puffed wheat; whether they were sprouted and made into beer; whether they were ground; whether they were boiled. You have to do one of those things. It’s a really cute debate: Did humans start agriculture in order to have beer because they wanted beer so much? But I think that misunderstands the extent to which people were experimenting. I think long before agriculture–by about 20,000 B.C., humans were experimenting with grains. And I think they did absolutely everything to them. They treated them, they heated them, they ground them, they treated them with lye, they popped them. They probably treated them with acid. They sprouted them. Anything to be able to get access to that nutrition.
Everything discussed in that exchange is directly related to energy. Transport and storage of food is an expenditure of energy, so making it easier by way of grains means you use less energy, for example.
The bigger idea is that humans figured out how to apply energy to grains in a way that converts them from a poor form of food into an excellent one. An excellent one in the sense that a small amount of energy applied to grains generates a huge amount of available energy in the form of food that can be stored and transported with less usage of energy than other foods.
Importantly, the equation of energy inputs and outputs was better than having to hunt endlessly for game or travel to places with sufficient food at the particular time of year it happened to be – all energy-based problems. It’s all about energy in relative to energy out.
And civilisation can be seen as a steady improvement in our ability generate more energy with less energy.
From burning wood to coal, from steam to petrol, from paddles to propellers – it’s all about minimising energy inputs relative to outputs.
Eventually, we got so good at converting small amounts of energy into larger that we could even spend some of our surplus energy on other goods and services we don’t strictly need to survive. Those are not obviously energy related. But they would still cost energy to create, so they have an energy equivalent value. Progress in terms of what we produce comes in the form of using less energy to produce them, or making energy abundant enough that it becomes possible to produce them.
So, even today, energy economics is crucial in our lives. Especially when it comes to the production of energy itself.
How much energy an exploration company expends to find oil, an oil drilling company expends on drilling, a production company expends on pumping, a pipeline company spends on moving, a distilling company expends on distilling and a distribution company spends on distribution must be smaller than the amount of energy you and I get when we put petrol in our car. That is the definition of productivity and the source of prosperity – putting less energy in than you get out.
Over time, that equation can change though. It is getting ever more costly, in terms of energy, to extract a barrel of oil, for example. This marks an enormous challenge because it puts a great deal of our economic activities offside in the sense that such activity begins to cost more energy than it produces.
Fertiliser, for example, became uneconomical recently because of the amount of natural gas used to make it. This eventually results in less food – a form of energy. The same goes for Dutch greenhouses which turned off their heating during the gas crisis.
The results of such changes are less abundant oil and food. This is all because the energy equation changed and it no longer became economical to use natural gas to produce more food by way of fertiliser, heat and electricity.
We notice the reduction in production in the form of higher prices, unless you are the marginal buyer and can no longer afford to buy at all. But that tends to take place in poorer countries, which nobody seems to worry about when it comes to the energy transition.
And that brings us to why I’m explaining all this. I see the current energy transition as being the first ever reversal in our trend of building ever more complex and prosperous civilisation. For the first time ever, we are transitioning to energy that is less economical rather than more. We require more energy inputs to get less.
That is because renewable energy needs more resources (and therefore energy), it takes up more space and it is intermittent. All other energy technological progress throughout history was the opposite. It involved denser, more reliable and greater energy.
The consequences of our attempt to go back to technology like the sun and the wind for energy will be… precisely what you see on the news. Specifically, we are talking about inflation, recession, less manufacturing, shutdowns of energy intensive industries, limits on our economic activities and blackouts.
The Germans are burning wood to heat their homes, coal to power their grid and are shutting down swathes of their economy. They are going backwards in civilisation – which precisely supports my claim.
Those seeking to reduce pollution should focus on technological development and finding the next big source of energy that offers greater output for lower input, rather than trying to force us to reduce consumption.
The path of reduced consumption is downright dangerous for any civilisation to attempt. And it won’t be attempted for long.
Those backing the future of energy rather than reductions in consumption will be the winners in the madness of an energy transition to uncertainty.
Of course, the green energy transition is hardly the only mad government scheme being imposed on UK investors. Another grand political plan dreamt up by our betters is opt-in pension schemes. They want us all to be speculators in the stock market together.
But I wonder if they ever stopped to think what effect this would have on the stock market itself. What happens to share prices if a chunk of every worker’s paycheque is automatically ploughed into an unknown bundle of stocks?
Editor, Fortune & Freedom