The great increase in productivity in Britain accompanied its increased use of the market to determine what goods should be produced, where and how they should be produced, and who should be allowed to consume them. The explanation given for what was going on held that trade, governed by the free operation of “the law of supply and demand” was the most efficient guide to production and the fairest means of determining who should consume what.
In its simplest form direct exchange of consumers’ goods or of services between people who share a common set of values and support similar institutions can easily be defended as a way to maximize the satisfactions of both buyer and seller. Most of its adherents use this kind of argument to defend the trader’s morality. Capitalist economics relies for its moral justification on the assumption that “all other things being equal” will continue to be so even after all the results of trading have been felt. But the increasing use of capital is itself justified by the fact that it permits increased use of surplus energy that, in its turn, must result in more and other changes than the satisfactions achieved by the traders. An increasing number of variables intervening between those involved in production, and ultimate consumption and their increasing complexity make it hard to establish any connection between the simple models used to justify the trader’s morality and what actually takes place where much surplus energy is used. But the people whose lives are changed must react to those changes not to the myth of price change that has no other consequence. So, it is in terms of all of the consequences of trading that reactions reinforcing, modifying or resisting the use of trade take place.
The expansion of trade required increased use of goods used to produce other goods by at least one of those trading. So, for example it was Britain’s use of falling water, spinning and weaving machines which permitted the successful invasion of an increasing number of markets. In terms of energy, this meant an increase in the flow of energy into the construction and maintenance of water wheels and the spinning and weaving machines that they drove. Such machines are not justified by the satisfactions that their utilization gives the consumers. They are “producers’ goods,” goods used to produce either other producers’ goods or alternatively, “consumers’ goods.” They represent part of the costs of production. As such, their productions and use is justified only if it results in lowering the costs of consumers’ goods by an amount equal to or greater than those costs.
The use of large amounts of surplus energy requires the use of increasingly costly converters and the other means that are required if the resultant energy is to produce wanted consumer goods. As energy was used in larger amounts, more and more of it had to be used to produce these converters and the increasingly elaborate series of machines their use demanded. This required the accumulation of what came to be called “capital.” The whole system, which emphasized the necessity and the desirability of using high-energy technology, was given the title “Capitalism.”
It is obvious, however, that production of goods and services continued to depend upon cooperation by others as well as by “capitalists.” It also is dependent on the continued use of both recurring and non-recurring natural resources. Capital was a necessary but not sufficient means to increased production.
Overwhelming concern about the accumulation of capital resulted in the use of “profit” as an index, which represented an adequate measure of the whole economic system. It would seem to be obvious that the disregard of what was happening to labor and to natural resources must ultimately result in the failure of this ideology. Because people who found themselves worse off at the same time that profits were increasing were bound to attempt to forestall the creation of a society in which profit was the ultimate measure of goodness.
Nevertheless, economic mythmakers continued to pay little attention to the way the pursuit of profit was affecting the natural resources used and other effects of industrialization or the condition of very large segments of the population. Monetary return to the capitalist was the touchstone that should (in their minds) determine what processes and materials should be used, what goods produced, and how the product should be divided among those contributing to production.
The whole result of increased use of surplus energy, increasingly effective science and technology, more effective health measures, better education, and superior organization and management were attributed to the use of the profit motive. But very early it became clear to many critics that profits might and often could be secured from practices that constituted extremely wasteful and dangerous use of men and natural resources.
My effort in this book has been an attempt to discover how increased use of energy provided part of the means necessary to increase both production and productivity, regardless of whether it was put to use by the purveyors of the market, the servitors of the state, or by others. We will also examine the results of slowing the increase in energy flow, stopping it or decreasing that flow. The past provides evidence of the kinds of social arrangements that have accompanied energy increase under specific conditions and in specific places. In some of them, the profit motive played a crucial part. But in other cases energy was used to further collective ends, to prop up a threatened religious institution, provide military power and extend political boundaries, and for other purposive highly inimical to the profit-taker. So just looking at profits will not necessarily show what is happening to energy.
As we saw one of the more significant factors involved in the success or failure of efforts to increase the use of surplus energy was the industrialization of agriculture. But is was also apparent, increased use of surplus energy was only one factor involved in that endeavor, and so also was the profit motive. What is also clear is that many of the things necessary to create massive increases in agricultural productivity are independent of the profit motive. These obstacles must be overcome by whatever means are appropriate and effective.
Obstacles to the industrialization of agriculture are, of course, not the only barriers which must be removed if a region is to shift to high-energy technology. There are other changes that must also be made. First, the technology necessary to increase the flow of energy from fuel must itself be borrowed of invented. Converters that are needed must be produced. New forms of social organization are also required. The values that are to operate that organization must be internalized by the population.
All of this must be done within the limits imposed by the regional ecology, or some arrangements adequate to supplement that ecology be provided from sources outside the region.
One of the major factors here is, of course, the nature and the location of the fuel sources to be used. If no new source is available locally, it must be imported. Fuel-producing regions thus gain some control over the destiny of the systems that must import fuel.
It is difficult to make generalizations about the way the shift can be accomplished, even by analyzing the actual processes that went on in specific areas, one at a time. Nevertheless, people who seek the advantages provided by high-energy technology do try to find out just how those who were successful in achieving industrialization did so. They pick out the moves that appear to be possible for them to make, but in that process, they also become aware of some other necessary changes that accompanied those moves in various industrialized areas. They need a model to guide them as to what those changes must be and how they would fit their own situation. But thinkers in the industrialized area offer different reasons for their own success so there is no universally accepted answer.
One of the reasons for this failure to provide a single, adequate model of transition is to be found in the fact that those who believe that their particular scheme will produce industrialization point only at the places where transition has been achieved. That way, anything that was a part of the system undergoing successful change can be seen as a factor contributing to that success. However, if one looks at the numerous places where there were failures to advance he finds that many of what were elements of the successful systems were also elements of systems that failed. In fact, many times the things that are cited as contributing greatly to the successful industrialization of one area were a chief stumbling block that led to the failure of another system.
Throughout what I have said I have tried to show that the influence of factors that can be recognized as being in a sense “independent variables” can in fact be discovered and measured only in situations where they operate together with others that make up systems. That is to say that the parts behave differently if they are separated from the complex in which they have been functioning. There is value in trying to discover how a system will respond if one variable changes in a given way while “all other things remain equal.” But they seldom do. It is not often that the results in real situations will actually follow the course expected by those who have deduced logically what “should” happen as predicted through use of such a model.
In a sense this last statement makes futile my whole effort to examine the probable consequences of changes in the kinds and amounts of energy flowing through a system. However, there are gains made in the accuracy with which we can predict future probabilities by analyzing energy as a limiting factor.
I am emphasizing the limits imposed by energy flow because often a change in that flow, whether increase, decrease, or modification of form makes it impossible to preserve unaltered the rest of the system in which energy flow is changing. But, I am also concerned here with showing how inadequate are explanations that rely heavily on other “independent” variables to explain industrial development while at the same time excluding consideration of ecological and technological factors.
It is much harder to deal with such very complex relationships as those existing in industrially advanced places than it is where as in the case of food and agriculture, many of the straightforward consequences of technological and energy changes can be observed directly. But difficult or not, we have to improve our understanding of this kind of complexity if we are to more accurately predict the future of mankind.
It is obvious that part of what we observe must include human behavior. Thinkers whose work dates back to earliest times have been attempting to discover why people act as they do. They included some who spent a great deal of time trying to discover the answer by looking inward to examine the origin of their own thought, belief, and action. There they expected to find something in human nature, some kind of pattern laid down in the organism itself, which unfolded as man experienced life. Others looked to a Supreme Being that guided people directly or through their God-selected leaders to do what was required of them by their creator. Still other thinkers looked at the way the ecological factors interacted with the energy organisms including man and found reliable answers there.
On the other hand, some began to observe that what happened was often greatly affected by the social arrangements that existed at a particular time and place. They began to talk about the influence of the society which many of them identified as being “the State.” This included organizations that could legitimately use physical coercion to enforce their rules. There was a tremendous amount of speculation as to its origin.
Belief as to what that origin was had a great deal to do with the way people who shared a particular culture dealt with each other and with the ecology in which they lived. Even extremely primitive people who survived while using only very limited social organization commonly shared among them an outlook as to the way man was related to nature and to its creator.
Over time, it became necessary to provide more complex organizations which permitted the use of more energy. The cultures that were able to create such organizations gained in their ability to survive in many particular situations as compared with others that did not. So more and more elaborate organizations evolved, extending from the kinship systems to international ones. What we must accept is that over time the complexes we must deal with, technological, social, biological, physical, psychological, and cultural, have developed in interaction with each other. Technology has thus become interwoven with a variety of forms of social organization.
Technology, along with other elements of a system, functions to provide the energy required to meet all of the conditions necessary for existence. However, those who adopt new technology are seeking what may turn out to be only a small part of the results its adoption in part produces. The net effect of its use may be, as expected, an increase in the energy available in that society and the product of new energy, distributed to different people. But instead it may merely transfer control from one set of power holders to another, offering no new increased product. It may rapidly exhaust the available natural resources so that the total flow of energy through the system is reduced. The same result may come from social disorganization whether this results from technology, ecology or less and less effective social organization. However produced, the decline in available energy will force the society to regress to a level that can be sustained by that energy.
Similarly, increased flow requires the invention of new forms of social organization that can effectively control behavior so that people do what is required to maintain that increased flow. It is clear now that there are a great many kinds of organization that have the potential to provide such control. The variety of factors that interact with various degrees of significance in various places and from time to time affect the likelihood that one rather than another of them will in fact emerge and survive. Some of the emergent forms of organization reinforce one another, but frequently they compete with one another. They gain or lose their dominance in part because of the energy they can make use of. When organizations do conflict with one another, the individual member of the society in which they operate is caught up in the process. He often faces increasingly conflicting demands that are put on him by the numerous organizations to be found in the situation in which he finds himself. But at the same time, the demand for predictable conduct increases as the number and complexity of social organization grows.
One of the most difficult problems that confront the social scientist is that of explaining how man, who is always in some degree autonomous can come to accept willingly the social controls which obviously affect his behavior. It is clear that most of the time he responds willingly. But even when he rebels, it is often possible to physically coerce him with the passive acceptance or even the active support of his fellows. We need to learn how the legitimacy of this kind of action by the authorities is created.
The sources of legitimacy
Where the immediate family is adequate to do all the things necessary for its survival, its normal activities are sufficient to create voluntary submission to the authority of others. That is to say that the child learns what to do and what not to do from other family members and his peers. If, and when, other kinds of control fail, the physical prowess of the dominant male usually provides the means to physically coerce the recalcitrant. This model of creating authority provides the basis for most systems that legitimately permit physical coercion.
For a long time, as I have shown, the family, the band, and the tribe were the most elaborate kinds of social organization used. They provided adequate means to control most low energy societies. But with the advent of extensive agriculture, as in China for example, where a very complete irrigation system is used, more elaborate forms of organization become necessary. Irrigation agriculture required control over larger numbers of people occupying much greater space than those dependent only on rainfall. The family and band were too limited to make authority, including the use of physical coercion, legitimate over such numbers and so great a region. Most commonly, such power was justified by resort to supernatural means. In this way, even the strongest and most powerful man in a group could be subordinated often without loss of dignity or self-respect. Belief in magic or religion was internalized, and men accepted the authority of those who were supported by “the will of heaven” or were otherwise authorized by God or the gods to make rules and to enforce them. Those whose religion permitted or required them to do what was technologically necessary to increase the flow of energy were strengthened by feedback from that increase. This created additional physical force to be used to bring deviants and dissidents into line.
Once control was justified through the authority of the supernatural, it was no longer necessary to utilize energy to maintain it. So among these people, power was available to do other things that might be desired. They also held an advantage over those neighbors that did not utilize supernatural authority and could not otherwise bring more people, occupying more space, into some system of common control.
Supernatural sanction was primarily used to enhance and protect the most significant values of a people. In fact, some theologians identify religion as being the supreme values of a society. Supernaturalism is invoked to protect those sacred values. The threat to weaken or destroy them thus becomes a threat to the whole society.
Innovation that threatens to weaken legitimate authority is automatically resisted using, if necessary, the physical force at the command of those with such authority. Now, in many cases, to successfully use new technology in the effort to increase energy flow does require alteration in social arrangements and in values. Its proponents must be able to direct the flow of sufficient energy, not already under control of those legitimate authorities, to overcome the resultant resistance. In a very real sense then, any social system is inertial, and the innovator who does not control energy sufficient to overcome that inertia will be defeated.
The innovators are motivated in part by the fact that they believe, if they succeed, they will have increased power to determine where the new flow will be directed and to whom its gains will go. But as we have seen, that is not necessarily so. The new organization often requires the recurring use of energy first to preserve new arrangements. For example, as food raisers developed increased energy surpluses a part of the new flow had to be used to support new organization capable of exercising more power over more people than the simpler forms previously used could provide. Transfer of power to new or modified supernatural authority was often required. So, “religious” wars often become part of the processes of change induced by the adoption of higher energy systems.
Today, even in secular, industrialized societies the power of the supernatural is often relied upon to provide ultimate sanctions. For example, “all men are endowed by their Creator with inalienable rights.” The will and purposes of the Creator are cited as the origin of legitimate authority. This provides another major obstacle to the adoption of innovations that are, in engineering terms, obviously more efficient than the old ways.
If what I have been saying is true, it has become clear that simple explanations that depend on man’s rational pursuit of material advance such as those offered by apologists for both capitalism and communism, poorly describe what goes on and inaccurately state what is likely to happen in the future.
But, on the other hand, it is only relatively simple myths accepted by the overwhelming bulk of a population that can be depended upon to supply a long-run basis for legitimate authority. Such simplistic myths will inevitably support actions that interfere with further changes made necessary by the implementation of high-energy technology. So as time passes, a religion or an ideology that once served well to promote technological innovation often becomes a barrier to change.
The observer can look either at the myths used to make the use of power legitimate, or at the distortion of those myths that is required in order to permit new technology to function.
The diffusion of myths
It is not too hard for most of those acculturated in a society to accept the accommodations and rationalizations of the myths that are commonly made by their peers. But for anybody who is looking for a model to use in inducing another set of people, living under a different set of rationalizations, to use the “pure” myth found in the sacred documents of an old culture is to court disaster. That is largely what has been going on since the shift to high-energy systems has been taking place. A great deal of attention has been given the idealized version of the theory, less attention has been given to variations from it, which in many cases were absolutely necessary if increased flow of energy was to be secured. To the purist, “capitalism” and “communism” are monolithic truths. They have become shibboleths in the struggle to protect the former and achieve the latter. Evidence has been piling up which shows that what has been happening in the real world does not closely correspond with what is envisioned by idealists in either camp. We need to look at some of that evidence.
Since, as we have seen, it was in Britain that the inertia of the old regime was first overcome, those who seek to industrialize have in many cases taken it as a prototype. This in spite of the fact that a great deal of what happened there can never be duplicated elsewhere and a great deal that was supposed to have happened according to traditional wisdom never did occur.
British technology, culture and ideology were diffused jointly, particularly by Britons’ emigration to other parts of the world. There, elements of the British system were modified and produced even more revolutionary results than in Britain itself.
Like most of the societies before it, British society relied for authority upon custom and tradition backed by supernatural sanction. One way or another, God was supposed to have determined rights and duties, the just price, the just wage, the fair return that each should give and receive. He also determined who was to be the legitimate head of the state.
It was only as the trader began to introduce new goods not produced under traditional controls that it became necessary to provide a new, rational, secular explanation, or an effective connection be made between the old and new. The new economics was developed in the effort to make arrangements moral that traditional morality and religion had held to be immoral and illegitimate. It was difficult to justify changes that resulted from the trader’s morality that undermined the sacred system in use.
As you saw earlier, gains made by trade were in the classical economies held to be responsible for increased production. Trade permitted increased use of the division of labor. It also utilized more fully gains to be secured through exploiting ecological differences that God had established among the different regions. He was responsible for the fact that lands differed in their ability to produce crops and raw materials. The difference in yield from different lands, even where labor inputs were the same, meant that all kinds of productivity were affected by God-created ecological variations. Only through trade could man maximize the product of each area. Through competition in a free market everybody would get his fair share of the increased product such specialization made possible. The trader’s morality thus was to have the same kind of supernatural sanction as that previously provided for the low energy systems.
It was true that the production of most of the things traded at that time was limited to what could be produced using low energy converters. So it was not possible for the British trader to become completely dominant over those who controlled food production. Towns based on trade could not survive if they used the wealth accumulated by the trader to hire mercenaries, and with their aid to coerce farmers to the point that the agrarian world was impoverished of destroyed, and with it, urban society.
Mercantile Britain threatened traditional Britain based on agriculture, but could not effectively dominate it until increased food supplies and other goods from the colonies, delivered to Britain by ship, became available. Then, the British farmer, owner, serf, or peasant was stripped of much of his power.
The trader’s morality is still a basic element in the theory of international trade today. It continues to be pragmatically justified by the fact that trade helped diffuse industrial technology that in turn made increased use of surplus energy from fossil fuels possible. But the basic thesis that it was trade itself that produced the original surplus, is, of course, false. Trading makes it possible to make more effective use of whatever the domestic energy system makes available to the trader, but it is still confined to what that energy system is able to produce. Areas in which physical productivity is so low that little or nothing can be exported can benefit little from trade.
As we have seen, early British economic theory was based on the proposition that fundamentally there were only two types of factors involved in production. One of these was land, the costless gift of God. All the other factors involved in transforming the elements found on or in the land into economic goods and services depended upon human cooperation. The costs of production, then, were to be found in the “pain” experienced by those required to perform acts that were not sought by them as ends in themselves. All the goods produced were presumed to be consumable or capable of being made consumable at the will of those who held claims on them. To secure capital, or “goods used to further the production of goods,” the holder of some claims on these consumable goods must abstain from exercising his claims immediately. This abstinence was itself a pain, similar to that experienced by those who must sacrifice in production the time which might otherwise be spent in the pursuit of immediately desired ends. Interest, which compensated for this pain, was thus justified, even though the goods that the capitalist abstained from consuming had their origin in land and labor. Since, as will be recalled, land was a gift, all the costs of production could be reduced to the pain involved in securing human cooperation.
Increased productivity through reduction in costs must come, then, from the more efficient use of men. Adam Smith’s famous illustration of the gains to be made by subdivision of labor in pin making was used as an example to explain all the gains deriving from specialization of labor.
The “entrepreneur,” who made such subdivision possible, must also be rewarded for the pain involved in spending his time on production rather than in direct pursuit of consumable goods. (He also must be paid insurance for the risks taken.) The law of comparative advantage stated that ecological differentials could best be utilized through free exchange among geographical regions. It was cited to prove that differentials in the cost of production, based on the productivity of labor, justify nothing less than a world market, where labor subdivision could be carried out to the nth degree. So values measured in the market must not anywhere be made subordinate to any other values, lest labor’s productivity thereby be reduced. One way or another supernatural authority is still being invoked in support of free trade.
It is true, as I have already pointed out, that the minimum cost of the labor that went into the production of anything could not be less than the energy cost of producing the food consumed by the laborer, plus that of feeding his necessary dependents. Malthus theory that people will increase the number of their offspring until all that they produce is consumed in keeping them alive seemed to be justified by the great growth of Britain’s population which accompanied increased production. So wages were said to always be limited by natural law to what was necessary for the workers survival. Workers inevitably would have to struggle against each other to get the more fertile land. On the other hand, since God had created land with different potential fertility it was legitimate that the owner of land claim for himself the difference between what his land produced and that produced by the same amount of labor on the worst land that could be cultivated. Land rent was thus justifiable even though the landowner neither toiled nor spun. The dismal science Economics thus at once justified poverty for the worker and luxury for a leisure class of landowners. Little wonder that their sons eagerly espoused, or the Universities taught this economic theory as a God-ordained or natural “Law.” Nor, on the other hand, that critics concerned with the way Britain’s Iron Age was destroying sacred elements of Britain’s culture condemned it.
The Marxian alternative
Marx was perhaps the most erudite, and certainly the most influential critic of the emerging Capitalist system. He held much of what was becoming the classical Economics. But he regarded “labor” as the creator of all economic goods. The Labor Theory of Value held that all goods and services, whether for use or for exchange had their origin in the work done by people, who were thus entitled to the full value of those goods and services. Since nature created all land, men were entitled to share its product in accordance with their need. Since land was productive only through its use by labor, only workers were entitled to be paid for holding it. Managers were workers, primarily with brain instead of muscle, but in any case they were to be compensated for their work, not for inherited position of status conferred by the state whose legitimacy depended upon religion which was “the opium” that induced them to accept exploitation.
Neither those who promoted Capitalism nor Marx and his colleagues recognized the way the shift from dependence on work done by food and muscle power to that done by fossil fuel and new converters had wiped out and the hitherto necessary direct connection between the amount of product and of human labor.
Nothing in Marx’s system would account for the fact that instead of increased poverty for the proletariat, which he predicted, the use of high-energy technology produced far more goods than could ever be produced by human labor alone, no matter how effectively it was deployed and motivated.
For their part, capitalist economists noting that increased use of goods used to produce other goods sometimes resulted in great increases in production, looked to “capital” as the source of that productivity, and capitalist as the legitimate consumer of the increase.
As we have seen, the range of productivity among societies dependent on muscle power can’t be greater than what can be produced with about a thousand calories a day. So in most low energy societies there was little incentive to elaborate the means of production.
Saving largely took the form of stored consumption goods, like grain, for a period of scarcity, or elaborate, conspicuous display, like festivals, pyramids or cathedrals. Investment in capital then had little effect on productivity.
But as a society moves from this situation, where surplus energy either in the form of food or human converters can’t vary much, to a situation where one man may direct the flow of thousands of times his own energy, the organic connection between the work a man does, and his output is shattered. In the physical sense, almost all of the work is actually done by a converter of surplus energy. Man’s “work” may be a miniscule part of that done. However, there was no recognition of the fact. Instead, the confusion was worse confounded by the usage which confined the use of the term “work” to only part of man’s physical activity that was not its own reward.
Exactly the same act may be considered play or recreation when done for its own sake as is considered “work” if extraneous reward must be given to induce the worker to do it. It is not surprising that with such a definition the connection between the physicists “work” and that of the “economist” has been so distorted as to create endless confusion.
Men continue to be paid in terms of time periods, hourly, daily, monthly, yearly, and productivity continues to be stated in terms of the man-hours, -days, or –years involved. So the illusion is preserved that productivity is solely a product of the human labor involved in the operations required in production. The energy costs of producing the machines necessary to convert fuel to desired forms of energy, and in turn to machines producing desired consumption goods, are let out of account in the labor theory of value. And capitalist theory operates on the idea that the owner of capital can eventually recover what was put into those production goods.
What we must recognize is that the time and energy so spent is forever gone. Time is irreversible. And the stock of known sources of energy, apart from the recurring rays of the sun, is limited and is diminished every time it is converted from one form to another.
And model that effectively deals with industrialization must include the place of energy in terms of both its effects on costs and the long-run effects of its decline. Explanations that take into account effect only in terms of current human values and attitudes are bound to be abortive.
What really did happen?
Let us look, not at the theory that was designed to make moral the newly emerging high-energy system, but at what actually happened. Perhaps that way we can find some of the arrangements likely to be made as energy flow increases.
The sailing ship, the first high-energy converter, was very expensive. To build the ship required the cooperation of many people living in different situations. It also required that some persons divert into the building of the ship part of the goods and services what they could otherwise immediately have consumed. Often it was inability to get the money necessary to secure the requisite cooperation that prevented ships being built. Reward to those “savers” who could divert to shipbuilding money that might alternately have been spent on other things thus became acceptable even though landed aristocrats vilified the moneylender and merchant who made the gains from the ship possible.
In time, money from the trader and the sea lords was used to gain high social and political status for the merchant, banker, and other city people. The taking of interest and profit from a venture became as moral as was the taking of rent. The Church also responded by altering its position on “usury.” However, since merchants in the interest of trade controlled the ships, increased productivity was ascribed to the trader and those who supplied the capital rather than to the use of a new energy source.
The portion of increased production that represented the creation of new converters using new energy sources was not treated differently than the part that represented increases due to more effective organization, the more strategic social and political position of businessmen, or other means by which the capitalist might be enriched.
In the business world, what is left of the income from a venture after all those who can legitimately claim on it except the capitalist have done so is called profit. This is what is said to motivate people to undertake business ventures. So long as there is profit, it is not particularly important to them that they know how much of that profit originates in physical processes, and how much comes from other sources.
Of course, as they decide whether or not to emphasize physical changes or other means by which price measured productivity may be increased, businessmen do have to compare the costs and benefits of changing technology with those of other means of making profit. The important thing for us to note here is that both costs and benefits resulting from proposed alternatives are measured in terms of price. The underlying physical, ecological, biological and geographic causes and consequences are important only as they affect price-measured productivity. Other effects evaluated elsewhere than in the market do not count. Efforts to modify those business practices that are inimical to these other concerns are treated as violations of the supreme value-profit.
What is called capital today may consist in part of energy converters. It may include fixed structures like buildings, roads and bridges. It may also include the monetary claims that represent a patent or other monopoly, good will, or even the capitalized value of going concern.
What I have been trying to do here is to separate the effects of the part of capital that consists of converters from those due to social organization and other things that the use of high energy technology makes necessary and/or possible. So to avoid confusion, I have not used, and will not use without special modifiers, the world capital.
What does "capitalism" mean?
Capitalism has become a word with more connotative than denotative meaning. Most writers now describe our mixed economic arrangements as Free Private Enterprise, which also is emotional rather than descriptive.
Advances in psychology have modified the meaning of “pain” as it was used in the hedonistic calculus. But words like deprivation, postponed gratification, or abstinence carry much the same message in modern economics.
In this book, I talk about opportunity costs - what must be sacrificed to obtain a particular objective. In both cases, the emphasis is placed on the human reaction to what is taking place.
Supply is held to be a function of the values of the potential provider and demand depends upon those of the purchases. If the reason demand falls is that the potential buyer or supplier is short of money, then credit becomes the great multiplier which brings forth additional supplies. So demand can create supply, if the only limit on supply is the value placed on goods by the supplier. However, if the goods demanded required physical work and material goods, supply can expand only as the physical factors involved in production are expanded, then the error in looking at the whole economic system as being totally a social psychological process becomes apparent.
Anyone who has witnessed the horrendous rise in the cost of food that sometimes accompanies drought or other natural causes understands. Those who have looked at millions of acres that are desert know that no expansion of credit will bring forth the water necessary for them to yield crops. Today most people do not accept the idea that the rapid decline that is taking slack in the sources of energy and of other natural products such as minerals while less dramatic, is equally unresponsive to price phenomena.
Those who look at the economic system in terms of the physical means required to satisfy some human desires can find in increasing debt no solution to the problems of diminishing surplus energy or in inflation which permits much of that debt to be written off through increased prices. Nor do they maintain the illusion that as resources become scarcer and will bring higher prices mankind as becoming wealthier. Nor is a solution necessarily to be found by using the power of the state to coerce unwilling servitors to supply goods or services whose price is fixed by the bureaucrats who operate both the political and the economic organization.
During wars when a great deal depends upon the ability physically to coerce, a great portion of what was considered in peacetime to be “productive” solely because it resulted in goods that could be sold at a higher price, is wiped out. In war, the physical capacity to produce becomes paramount. Various devices created in peacetime to limit supply so as to secure high prices are seen to be what they are. Monopolistic and monopsonic devices like patents, copyrights, some professional and union practices, and advertising are increasingly jettisoned.
The period of industrialization has been filled with recurring wars. Under these conditions a great many economic arrangements that were once justified by the fact that they produced profits have been scrapped. A large part of what is produced today is seized by the state “to provide for the common defense.” Taxes are levied and loans made to pay for the accoutrements of war. Often the physical arrangements that are thus made necessary are provided through profit seekers who now depend, not on the market, but on the state itself to provide them with rewards.
Further, a great many services like education and “welfare” are procured through reliance on the ability of the state (using coercion when necessary) to provide goods and services to those not rewarded through the market. Yet there is still widespread belief in the “capitalistic” states that decisions made through trade in the market place represent unavoidable economic laws that derive from God given conditions. These “laws” should never be subjected to alteration by others not operating through the market.
As I indicated above, the British made the fundamental error of assuming that all of the goods produced could serve as stimuli to further production because they could ultimately become goods consumed for the satisfactions they gave. The illusion was preserved because the right to buy and sell stock or other evidences of ownership provided any particular stockowner the alternative of selling it or retaining future rights to profits. So long as the firms continued to earn a profit no one was concerned about the fact that time and energy had constantly and forever to be devoted to the replacement of that used in producing machines and other converters. Only when after all costs had been paid and there was no margin of profit did it become apparent that the now unusable physical assets could not bring back the time and energy that went into their production. Nor could their consumption bring men any satisfaction.
When the basic premises of the classical economics were first developed the amount of time and energy that went to produce goods used to produce other goods was relatively small. Such tools as could be manipulated by men even with the aid of draft animals represented only a small cost as compared with the total yield that was produced by labor and land.
The error in looking upon tools merely as stored labor was not great. This does not mean that tools and social organization were not considered important in determining the relative efficiency could and did at times determine the survival and spread, or the shrinkage and disappearance, of low-energy societies. Producers’ goods could not as such represent very large amounts of energy in these situations where the prime mover was small and could itself be reproduced only be organic processes which it was not possible to speed up very much. It is true that tools were decorated, sometimes at great cost. This cost was, however, met by the aesthetic or status satisfactions derived from the decorations. It did not have to be justified by the gain in efficiency with which tools performed their function as means to other ends. Tools then were likely to be produced only as they served rather immediately, either as ends or as means, their maker or those who exchanged consumption goods for them. The social relations necessary to assure that they be produced were fairly and easily maintained by motivation arising “naturally” out of the situation in which they were produced.
However, when the prime mover is increased in size and power, and power tools replace hand tools, the amount of energy that must be diverted from the flow between the producer and ultimate consumer of the goods it is used to produce is greatly increased. Then, the social conditions necessary to support sufficient diversion of energy and to make converters become much more difficult to calculate and to maintain. Power tools are not provided in proper quantities by the judgment of people who look upon converters merely as labor stored in the form of goods that can, at will, be consumed by those whose past abstinence made them available. They represent the instrumental cost of making consumables and should not ever be considered income. On the average, to employ one person during the year 1976 in the United States requires the expenditure of 850 million BTUs; most of that will have to be provided through the use of expensive converters.
In high-energy systems, the converter may be extremely costly. A machine costing 100,000 kilowatt-hours of energy is introduced quite casually into even a small business. To build such a machine in a low-energy society, or to set aside goods produced with low-energy converters which could be exchanged for such a machine, might require the total surplus of a large community over a considerable time. After all, the equivalent of 100,000 kilowatt-hours is about 134,000 man-days of human effort.
More importantly, such machines begin to become obsolete and to wear out as soon as they are created. Those who have invested in them must plan to divert a considerable part of what they product into channels that will provide for their maintenance, repair and reproduction. Otherwise, there will not be any means to assure that their replacements will be made. Very often improvements are made in machines that do more cheaply the same things as do those already in use. They are physically more efficient than existing converters. So, in terms of opportunity costs the continued use of the old is not desirable. Thus, part of the product of the new converter must be diverted from what might have been used to produce consumers’ goods, and instead, go to compensate for retirement of the obsolete as well as for the outworn converters.
In an advanced high-energy society, this endless series of claims may require that a very large fraction of that which is produced can never become goods whose consumption itself justifies the cost of production. In capitalist countries the general solution to this problem has been inflation that disguised the real losses suffered which result from refusal to count instrumental costs as being real.
These costs cannot be disguised in a society that does not already have a stock of converters. It must produce the necessary converters before it can get the benefit of increased surplus energy. Classical theory says that this can be done by paying interest on savings and profit from investment out of the increased product flowing from the new system.
How is capital created?
The actual history of the regions, that have shifted to high-energy technology shows that in fact there are great differences between the ways in which a society that has reached the critical ration of population to converters can secure new converters and the methods that must be used by one that has not achieved this ratio.
In the low-energy society, diversion of energy from its regular channels may occur in the form of a rich and powerful man selling his jewels and his castles, breaking up his harem or his court, and foregoing any further conspicuous expenditure and display - the flow of energy which previously went into these goods being directed into the production of high-energy converters. But the recurring sources of energy of this type, even in a large and highly exploited domain, yield only relatively small increments of power. These have in the past rarely been sufficient to supply those initiating a program of this kind of diversion with the means to overcome the resistance of those whose positions and way of life it threatened. Usually it was not from the rich and powerful classes that the flow of energy was diverted. Rather, there was a lowering of the plane of living of a large part of the population. Thus in low-energy societies an increase in the accumulation of converters has usually to be preceded by a fall in the amount of energy normally claimed for consumption by various groups in the population; particularly is this so when much of the energy diverted must be expended in the coercion or corruption necessary to secure it.
On the other hand, in a society which has passed the critical ratio there results, as a normal part of the operations normally expected from various groups, the formation of “pools” of surplus energy which sometimes cannot be “legitimately” claimed by those following codes based upon the past normal expectations of the people in that society.
Here the problem is to channel the new surpluses into new streams, or to enlarge the flow of surplus to some groups of individuals not previously entitled to control it. Such an accumulation of previously unclaimed energy comes into existence only where the stock of converters is sufficient to meet all the costs of change previously mentioned. It must also be great enough to supply energy in amounts sufficient to allow any accompanying growth in population to be offset so that the population may continue its level of living. If in order to get these converters the society has raised the standard and plane of living, these new expectations must also be met. The new claims sometimes now only use up all the new surplus, preventing the formation of new pools of unclaimed energy, but actually place greater claims on the system than it is physically capable to meeting even though great increases in physical productivity are being made.
The most effective mobilizer of converters is, of course, a set of values generally shared which, like that of the Puritans, while sanctioning increased physical production, frowns upon widespread increases in consumption. Under a pure system such as this, the transition from low to high energy could be made rather rapidly, provided the necessary demographic and geographic conditions existed. Most of the increased surplus could be immediately converted into more new means of creating surplus, which could immediately again be converted into more means of creating surplus, and so on, up to the limits of the natural resources of the area in which the social system existed. In practice, of course, no such pure system could exist. For “diversion of energy into surplus-creating converters” represents not only the physical facts denoted, but also changing people from what they have been into something else. It means the creation of new groups who will use different techniques, have different experiences, and depend upon different reasons from those they previously used to justify their behavior. Unless some way is found of effecting overnight the transformation of human habit, emotion, memory, intellect, and identification, no system capable of giving full reign to technological progress will ever exist.
Nor is the picture of saving and investing as a pure function of individual wishes an accurate one. In a social sense, the production of converters represents a change in way of life for the many people who stop doing the things they have been doing and begin to do other things. They frequently have no other choice. Either they must produce converters for an employer and, in return, be permitted to choose between consuming and saving, or refuse to do so and, being then denied access both to the necessary land and to tools and machines, be also denied the choice between consuming and saving.
All societies establish exclusive claims on some of the factors of production. Thus, the power of individual choice is always limited. The choice to save may even be deliberately divorced from the opportunity to invest; in many areas, the power to determine who can invest is held by those already in control. Their decision to make use of the saving of others, to divert their own present earnings directly into production, or to prevent further investment in their particular field frequently cannot successfully be controverted. The holding of land by those whose status depends upon holding idle land, of patents by those who regard as adequate the present supply of goods of the kind they produce, of union cards by those who feel that labor - displacing machinery has already threatened them - these are merely instances of situations where social structure serves to reflect specifically the values of those in a position to exercise choice, not the values of just anyone who is willing to abstain from present consumption.
Actually , then, the amount of energy diverted into new converters tends to reach and remain at a point at which the claims on energy are about equal to the flow of energy produced, and such a flow is then traditionally justified. Once established, the equilibrium between the claims and the energy that satisfies them is broken only when some factor makes it impossible to keep the system functioning at this level. Growth of population may threaten existing standards of living, or exhaustion of resources may make the flow of energy diminish. A neighboring system, itself out of equilibrium, may upset local stability by withdrawing energy from its customary channels to “defense.” Invention, or creation of new converters, is frequently a result of the effort to bolster up the old system by introducing new elements intended to strengthen it. It was thus, for example, that the use of the steam engine was introduced into the world of sail, with disastrous consequences for the sailing ship.
This is a chapter from Energy and Society: The Relationship Between Energy, Social Change, and Economic Development (e-book).
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