BOOK REVIEW

Making energy the basis of our money supply

Not By Money Alone

Economics as Nature Intended

Malcolm Slesser and Jane King
Jon Carpenter Publishing
ISBN 1 89776 672 6 (pb) £11.99

review by Brian Davey

The basic idea of this book is that economics, although useful within limits as a way of understanding the world, has become a dangerous encouragement to self deception when it comes to understanding humanity's relationship with nature. The contribution of nature to economic activity, including its capacity to supply materials and to act as a sink for wastes, cannot be measured through money. Economics, the authors say, can tell us where people would like to go, but we must supplement this with calculations based on physical science in order to tell us where they can go. An action can only be economically feasible if it is also physically feasible and conceptualising our options solely by examining market processes, measured with money variables, can never tell us this. What is lacking is a physical method of quantifying the economy to parallel the monetary quantifications to be used in policy. So the authors argue that energy units must be used as indicators to guide policy if development is ever to be "durable" - the term they propose to substitute for the degraded concept of "sustainability".

Energy is the motor force of all productive activity. It largely accounts for the massive productivity of our industrial economies. The time has long gone when people were employed for their labour power, where that term could be considered a description of a physical expenditure of effort. Labour is now almost exclusively decision making and payments to people are for the management of resources - not for the physical energy that they put into the labour process. A horse could do the physical work of six human beings. A hundred horse power tractor can do the work of 600. The energy that drives it is its fuel - the muscular effort of its driver in steering is miniscule. Like virtually everyone else in an industrial economy, the tractor driver's main function is to make decisions.

A simple example helped me to take in the distinction between decisions about durability (sustainability) based on economic measures, involving slippery monetary valuations, and decisions based on physical measures. The authors compare two investments - one in a wind turbine and another in a diesel generator - to see which option is the more sustainable investment. Making and running both types of generator can be considered in physical terms and in economic terms. The comparison in physical terms involves looking at the energy in MegaJoules that is involved in making and running each of them over and against the energy that they each generate over their 20-year lifetimes. The economic decision is based upon the monetary costs arising from constructing and running each of them compared to the monetary revenues arising from the electricity that they generate.

The chief difference, of course, is that, after production, the wind generator requires no further (paid for) energy inputs to run it, but the diesel generator requires further purchased inputs of diesel energy. The authors show that only the physically-based calculation can tell which is the sustainable investment. The diesel generator may appear to be "more economic" here and now - but only because the price of diesel is low and an assumption is being made that currently low oil prices will be stable over the next 20 years. In reality we cannot know what the price of diesel will be. If oil prices rise, which seems likely given what is known about the prospects for the depletion of reserves, it will probably not be the best option, seen in hindsight. An economic calculation based on current market prices tells one nothing about a project's long-term sustainability.

Of course, many economists might protest that when the price of diesel rises that will encourage the switch from investment in diesel generators to investment in wind turbines and the market, informed by price signals, will be working properly. But it doesn't help us to make decisions today and if a switch to renewables is left too late it will become less and less feasible because there will be less and less available energy both to sustain our high consumption lifestyles and to provide the power required to manufacture and install the equipment needed by a new renewables-based economy.

Slesser and King were part of the team that developed the ECCO model for energy forecasting purposes. Its unique feature, compared to other economic models, is that the main technical energy and resource parameters are included and computed as part of the total picture. Using ECCO it is possible to calculate what the effect of switching from fossil fuel and nuclear power generation to power generation from renewables will be on other dimensions of the economy - for example the implications for consumption, employment, imports and exports.

That enables the authors to be confident that many solutions commonly put forward to address sustainability issues are, on deeper examination, not practically feasible. Thus Greenpeace comes in for some criticism because it is simply too optimistic about what is involved in a switch from an oil- and nuclear-based economy into one based on renewables. Using the ECCO model "a dynamic analysis of the investment requirements for renewables demonstrates that it would take a considerable time, maybe a century, to achieve a renewables-based economy".

Energy is the key to addressing other environmental issues too ­ like the depletion of raw materials and the use of the environment as a sink. In regard to the latter, the authors argue plausibly that energy use per unit of land area is probably the best indicator that can be used for policy purposes to measure the burden different nations are putting on their natural environments compared to the other possible indicators of population density, or GDP per land area. In regard to raw material depletion, although optimists point to the immense mineral resources still available on the planet, making them practically available requires energy expenditure in mining and extraction - and the energy available to do that is itself on the brink of decline. On this, Slesser and King confirm the analysis made by Colin Campbell and colleagues in the Oil Depletion Analysis Centre - that we are nearing the peak for conventional oil, while the peak for gas is a few years behind.

Armed with their analysis, the authors explore a range of policy instruments which could be used to enable and oblige us to live reasonably comfortably both within technical constraints and within the limits that they have highlighted. This includes ideas like Personal Energy Rights and/or the Unitax on primary energy sources or a local fuel based so-called Ulitax. These would replace taxes on income. Slesser and King are concerned that these are administratively feasible and they show how they would work. Their assertion, stated briefly early in the book, is that "With our ability now to analyse and understand the system, it should not be beyond our powers to create a durable economy and environment by legislating for appropriate negative feedback loops, like the checks and balances of a democratic legal system." Their discussions towards the end of the book are an attempt to grapple with how that might be done and how, if only the mental model used by the public as citizens can more accurately reflect the realities of the physical world, we can "cajole our politicians" into this.

Here I part company, at least to a degree, with the authors. The book was published in 2002, before the Iraq oil war, and I wondered if they would write it in the same way now. All the way through their book, Slesser and King acknowledge repeatedly the forces and vested interests working against the adoption of their ideas. Against these vested interests they raise a voice of reason and of moral protest - an argument about the awful consequences of global decline if no preparations are made for it. Since its publication we have seen the USA, with Britain following behind, lying, stealing and killing to get access to oil supplies.

Because the oil interests are so highly integrated with the arms interest and military logistics, these same interests appear to be profiting highly by the accumulating chaos that they are, in large part, causing. In that sense, the people who King and Slesser deplore, those who say that "to be successful we will have to be more ruthless with each other", are already driving the political and economic process. On the other hand, large sections of the population are becoming aware of the energy crisis, indirectly, through the horrified knowledge that it has motivated the war politics of their leaders, leaders who can no longer be trusted. If there was ever a politician that could be "cajoled" it might have been Michael Meacher, but he is no longer the British environment minister and look at his views now!

What this suggests to me is two things. Firstly, that the problems that this book raises require more than new government policies. It requires new government systems and new concepts of democracy, as well as new information and media networks which we will have to develop out of, and during, the crisis as it evolves. Secondly, we are already entering the period of chaos that the book predicts would occur if we do not act. It is too late, the chaos is under way. Accordingly, the changes in the government system and policy will be developed less to prepare for, and to forestall chaos, and more as emergency ad hoc measures to cope with it. An important part of that will be people acting independently of government to support each other at a local level, as best they can, sorting out improvised energy saving, food, transport and rationing arrangements while counterposing a higher citizens' ideal to the viciousness that is becoming prevalent at the level of policy. This book may provide such a citizens' movement with some broader orientation as to why things are in such a mess. Those who are lucky enough to survive the social chaos in intact communities, if indeed any such communities do survive, will perhaps be able to make use of the economic concepts and tools described in this book in building a more sustainable (durable) form of human civilisation.

Continue to Patrick Mangan's review of We The People, by Perry Walker

This book review is from Growth:The Celtic Cancer, the second Feasta Review. Copies of the Review can be ordered online from Green Books, priced at £9.95 plus postage and packaging.

=========================