Table of Contents
Using energy is an economic act that deserves close inspection by economists, as it is similar to trade, capital accumulation, and money as a method for increasing the quality and quantity of our time on Earth. While economics textbooks, both the mainstream and Austrian variety, generally avoid discussing the economics of energy as a main topic, I believe the economic reality of the modern world demands a discussion of energy production and use in any book on economics. Understanding the role of energy production and utilization is essential to all economic decision-making in the modern world. One cannot understand the economics of the division of labor and capital accumulation without reference to the increased consumption of energy that inevitably accompanies each and without which they would not be possible.
Remarkably, modern science is not very clear on what exactly energy is. The word defies clear definition, so much so that the famous physicist Richard Feynman said, “it is important to realize that in physics today, we have no knowledge of what energy is. We do not have a picture that energy comes in little blobs of a definite amount.” The world’s most popular thermodynamics textbook, written by Yunus Çengel and Michael Boles, has this to say on the subject: “Thermodynamics can be defined as the science of energy. Although everybody has a feeling of what energy is, it is difficult to give a precise definition for it. Energy can be viewed as the ability to cause changes.”
A common definition is that energy is “the ability to do work,” or “the ability to do work and transfer heat.” Wikipedia has a more precise definition: “In physics, energy is the quantitative property that must be transferred to an object in order to perform work on, or to heat, the object.” Energy is in the food you eat that makes you do what you want, in the battery that powers your electric device, in the electric socket that powers your TV. I like to think of energy as an animating force that can move or heat objects and access to energy as the ability to command this force to perform tasks valuable to humans. Energy can be defined in terms of work or heat, based on the standard international units discussed in Chapter 1.
Work can be measured in terms of the work produced by a force or through heat. A force acting on one kilogram of mass to produce an acceleration of 1 m/s2 is defined as one newton, named after physicist and polymath Isaac Newton (who, incidentally, was responsible for placing England on the gold standard). A force of one newton acting over a distance of one meter produces one joule of work, a unit of measuring energy named after physicist James Joule. Lifting a 1-kg object over a distance of 1 meter against gravity (whose acceleration is measured at 9.81 m/s2) will require 9.81 joules of work. The measurement of energy through heat is done by defining a calorie as the amount of heat needed to raise the temperature of 1 cm3 of water by 1 degree Celsius. As these are all precisely defined scientific constants, a calorie is the equivalent of precisely 4,184 joules. The joule remains the more common scientific measure of energy. Power is defined as the amount of energy brought to bear on a process in a specific period of time. The common unit for power is the watt, which is defined as joules per second.
Human bodies obtain energy primarily from eating, but also from sunlight. This energy allows humans to function cognitively and physically—it is what allows human action. And beyond the energy of our own bodies, we can act by directing outside energy sources to satisfy our needs and achieve our ends. In his book, The Moral Case for Fossil Fuels, Alex Epstein presents an intuitive way of understanding energy as “machine calories.” Energy is what machines need to consume in order to produce the output we value from them. In the same way humans need to consume energy to act, machines need their own joules to function. From ancient times, humans have used their reason to devise ways of deploying power sources to perform work for them, allowing them to achieve higher productivity with their actions. This has helped us economize time in achieving our ends, increasing our chances of survival.
Take transportation as an example, a perennial feature of human action. Assume a hypothetical man wants to transport 500 kg of butter from his farm to town to sell it. This man needs to consume food to gain the energy necessary to move his body and the butter to town. Given the amount of power the man can produce, he would have to carry the butter over 10 trips, each trip taking 2 hours to complete, which is 2 entire working days for the man. If this man had a horse and carriage, he would have a larger amount of power at his disposal to achieve his end. Provided he feeds the horse and maintains its health, the horse will be able to pull the man and all the butter to town in only one trip, taking 2 hours in total, around one-tenth of the time the man would have needed to complete the trip on his own. Should he have a car at his disposal, he would be able to complete the trip in a matter of minutes. The car is a machine that produces around 100–500 times the power of a horse, or 1,000–5,000 times the power of a human, and thus minimizes the human time required to complete tasks.
The role of power in economics is similar to the roles capital and technology play. In fact, the three are often intertwined and even overlap in what they signify. Capital accumulation is a process that is usually accompanied by increases in the amount of energy brought to an act and to any technological improvement used in its performance. The move from transporting the butter by foot to horse and then to car involves an increase in energy consumed in the task, a technological improvement, and the deployment of increasing quantities of capital.
Energy in Human History
In nomadic, pre-agricultural societies, humans used the raw energy of nature to survive. The sun helped them stay warm and grow their food, and running rivers washed their bodies. As humans became more sedentary and settled, they developed the capacity to invest in more powerful, sophisticated, and reliable power sources. The domestication of animals offered us the ability to direct the power of these animals to meet our needs, such as transport and soil tilling. The fat of these animals was used for lighting. Humans were likely to settle near rivers to utilize the energy of the running water through watermills, as well as to construct windmills that turned the energy of wind into usable power. Logging wood provided warmth and allowed for cooking. The productivity of human labor was enhanced by these sources of energy, and the likelihood of survival increased through the protections these energy sources afforded us.
Around the middle of the second millennium A.D., humans began to extract and burn coal, which had a higher energy content than wood, allowing us to pack more energy into smaller weights of fuels, thus increasing our productivity. By the nineteenth century, humans had also learned to utilize crude oil and natural gas from the Earth for their energy content. The most obvious testament to the incredibly transformative and valuable power these fuels provide is the speed with which the utilization of these energy sources has spread around the world in the past two centuries. The levels of productivity afforded to workers who have access to these fuels made the fuels highly desirable worldwide, resulting in increased standards of living wherever they are available. The twentieth century witnessed the invention of nuclear power, a technology that allows humans access to fuels with a much higher energy content per unit of weight than hydrocarbon fuels. The utilization of nuclear power has, however, been limited in this century due to popular opposition and fears about its safety.
At all points, technological progress would provide power sources that would contain a higher energy per unit of mass. Wood contained 16 MJ/kg, and in comparison, coal, a solid hydrocarbon fuel, was a significant leap forward, with 24 MJ/kg. Liquid hydrocarbon, oil, has a higher energy density with 44 MJ/kg, and natural gas is the densest of the hydrocarbons, at 55 MJ/kg. Nuclear power, on the other hand, is in a completely different league, with 3,900,000 MJ/kg.
One of the most common misconceptions about energy is that it is limited and scarce. In the popular imagination, the Earth has a limited supply of energy that humans consume whenever they heat or move anything. This scarcity perspective views energy consumption as a bad thing because anything that consumes energy depletes our planet’s finite supplies of it. The reality is very different.
The total amount of energy resources available for humans to exploit is practically infinite and beyond our ability to even quantify, let alone consume. The solar energy that hits the Earth every day is hundreds of times larger than the total daily global energy consumption. The rivers of the world that run every hour of every day also contain more energy than the global energy consumption. The same is true of the winds that blow and the hydrocarbon fuels that lie under the Earth, not to mention the many nuclear fuels we have barely begun to utilize.
To begin with the most obvious of energy sources, the sun alone showers the Earth with 3,850,000 exajoules of energy every year. That is more than 7,000 times the amount of energy humans consume every year. In fact, the amount of solar energy that falls on Earth in one hour is more energy than the entire human race consumes in one year. The amount of wind energy blowing around the world alone is around four times the total energy consumed worldwide. Some estimates put the potential hydroelectric yearly power capacity at around 52 petawatt hours (PWh), or one-third of all energy consumed worldwide. There are no accurate estimates of the amounts of hydrocarbon fuels that exist on Earth, but the closest estimate we have (proven oil reserves) is constantly increasing as a result of new discoveries, which occur at a pace greater than the increase in oil consumption, as discussed in Chapter 3.
The belief that resources are scarce and limited is a misunderstanding of the nature of scarcity, which is the key concept behind economics. The absolute quantity of every raw material present on Earth is too large for us as human beings to even measure or comprehend, and in no way does it constitute a real limit to the amount humans can produce. We have barely scratched the surface of the Earth in search of the minerals we need; the more we search and the deeper we dig, the more resources we find. What constitutes the practical and realistic limit to the quantity of any resource is always the amount of human time that is directed toward producing it, as this is the only real scarce resource. As a society, our only scarcity is in the total amount of time available to members of a society to produce goods and services. More of any good can always be produced if human time is directed toward its production. The real cost of a good, then, is always its opportunity cost in terms of goods forgone to produce it.
In all human history, we have never run out of any single raw material or resource, and the price of virtually all resources is lower today than it was at past points in history because our technological advancement allows us to produce them at a lower cost in terms of our time. Not only have we not run out of raw materials, the proven reserves of each resource that exist have only increased with time as our consumption has gone up. If resources are to be understood as finite, then the existing stockpiles would decline with time as we consume more. But even as we are always consuming more, prices continue to drop, and the improvements in technology for finding and excavating resources allow us to find more and more. Oil, the vital bloodline of modern economies, is the best example, as it has fairly reliable statistics. As shown in Figure 5, according to data from BP’s Statistical Review, annual oil production was 46% higher in 2015 than in 1980, while consumption was 55% higher. Oil reserves, on the other hand, have increased by 148%, around triple the increase in production and consumption. In Energy: The Master Resource, Robert Bradley argues that proven reserves will usually be in the range of 20 times annual consumption because there seems to be little incentive to speculate for more reserves beyond this point. As consumption increases with time, more reserves are invariably found.
There is no energy scarcity problem, because energy cannot run out as long as the sun rises, the rivers run, and the wind blows. Energy is constantly available for us as humans to utilize as we like. The only limit on how much energy is available to us is how much time humans dedicate toward channeling these energy sources from places where they are abundant to places where they are needed, in the time frame in which they are needed. All energy is ultimately free, but the costs lie in paying the supply chain of individuals and firms involved in transporting this energy to where it is needed, in a usable form. It thus makes no sense to discuss energy itself as a scarce resource, which implies there is a fixed, God-given quantity for humans to consume passively. In its usable form, energy is a product that humans create by channeling the forces of nature to where they are needed. As with every economic good other than bitcoin, there is no natural limit to its production; the only limit lies in how much time humans dedicate to producing it, which in turn is determined through the price mechanism sending signals to producers. When people want more energy, they are willing to pay more for it, which incentivizes more of its production at the expense of producing other things. The more people desire it, the more of it can be produced. The scarcity of energy, like all types of pre-bitcoin scarcity, is relative scarcity, whose cause lies in its opportunity cost in terms of other resources.
The non-scarce nature of energy implies that it cannot be an economic good, as discussed in Chapter 2. Further, based on Menger’s work, a good is something useful that can be directed to the satisfaction of human needs. Energy sources in the abstract cannot be viewed as goods in that regard. The total quantity of energy available on Earth is not a metric with any relevance to any individual. It is neither scarce, nor can it be directed to the satisfaction of our needs. Solar, wind, hydrocarbon, nuclear, or hydroelectric energy that is not directed to satisfying human needs is not a good any more than the energy of a distant star is. Only when directed to the satisfaction of our needs can energy sources be considered goods, and only when directed to the satisfaction of our needs does energy indeed become scarce, and thus, an economic good. Energy, then, is not an economic good, but power is.
Humans cannot value energy sources in the aggregate, but only at the margin; they value the next unit of energy directed to the satisfaction of their needs over a forthcoming period. Applying the framework of subjective valuation at the margin to understand energy is a powerful explanatory tool that illuminates the nature of energy markets.
Whereas energy is understood as the capacity to do work, power is a measure of that capacity divided by the period of time in which the work is performed. Power measures the intensity of energy over time, which is what is necessary to make energy sources useful for satisfying human needs. The latter are time sensitive, since time is finite and scarce, and time preference is positive. The total amount of solar and wind energy that hits your home in a day is irrelevant to your economic needs, as is the amount of energy contained in the hydrocarbon fuels under your house. Consumers do not pay for these energy sources, nor should they, as they are not performing any tasks valuable to human beings.
Mises and Menger’s explanation of marginal valuation can be applied to thinking about the energy market. Mises explained that nobody ever has to choose between all the iron and all the gold in the world; they only have to make choices concerning the next marginal unit of these substances they want to consume. Whereas iron might be more useful for humans than gold, this will not be reflected in a higher price on the market, because nobody ever has to choose whether to bid on gold or iron for his entire life. People only make choices about the next marginal unit, and due to the relative scarcity of gold next to iron under normal market conditions, people usually value the marginal unit of gold more than iron.
Energy is analogous to the total supply of gold and iron in that they are more akin to nebulous concepts than economic goods that can be directly brought into satisfying human needs. People do not buy the total supply of iron, but only the marginal quantity they need to satisfy their marginal need at the particular time and place in which they buy it. Similarly, people do not buy energy in total. They buy definite quantities of energy delivered with a desired intensity over periods of time in which they want work done. They buy energy over the marginal time unit. They buy power.
It makes little sense to speak of “energy markets,” or “buying energy.” Energy as a good cannot be divorced from the time in which it performs the work required for it to satisfy human needs. A breeze blowing at your house for a week may be enough to operate the lights in your home for an evening, but managing to concentrate that energy into operating the lamps over a week is what matters. The breeze blows for free, but channeling it to light the lamps is not.
Energy’s scarcity lies not in its absolute availability, but in its availability in sufficient quantities when and where it is needed, in the form in which it is needed. Energy in its raw form is not an economic good because it is highly abundant, and because it has very little utility in its naturally occurring levels without being channeled into productive uses, at the margin, as power. In order to operate a car, airplane, computer, phone, loudspeaker, ventilator, or any of the many critical and ubiquitous technological devices of the modern world, a specific amount of energy needs to be directed at the device per second of operation. The economic value that accrues from operating these devices is dependent on this continuous stream of energy entering the machine at the required rate—i.e., the power supply. To the extent that energy provides utility to humans, it does so at the margin, in the form of power.
As humans value goods at the margin, humans value energy in the form of power, the quantity of energy provided per second. With valuation being performed at the margin, we can understand the enormous value humans find in energy sources that can deliver high amounts of power over short periods of time, in particular, hydrocarbons. Hydrocarbons are also a highly mobile form of stored energy that can provide high amounts of power virtually anywhere an engine can be taken.
Hydrocarbons have enormous value to humans because they are chemically stable, light, and easy to transport and lend themselves to being used for purposes that demand high power on demand and on location. Individuals, small groups, or large populations anywhere in the world can access large amounts of power on demand by acquiring hydrocarbon fuels and putting them into increasingly cheap and ubiquitous engines. There are several billion engines deployed in various capacities worldwide to meet the human need for light, warmth, transportation, production, and construction, among many others.
The introduction of hydrocarbon fuels has vastly increased humanity’s potential for generating power, as is explained thoroughly in Vaclav Smil’s Energy and Civilization: A History. It is instructive to use Smil’s analysis of the evolution of energy and power consumption over history to examine the technical possibilities for the division of labor and productivity, and how much they were enhanced by the development of hydrocarbons.
The amount of power that a strong man can produce by treading a wheel is around 200 watts. A Roman waterwheel turning a millstone produces 1,800 watts. Around the sixteenth century, German windmills could deliver 6.5kW to crushing seeds. By 1750, a large Dutch windmill could drain a polder by producing 12kW. In 1832, the first water turbine could produce 38kW. With the invention of Newcomen’s atmospheric engine for pumping water in the early eighteenth century, humans could direct 3,750 watts to performing work by burning fuel. A modest start, but hydrocarbon fueled machines would take off. James Watt’s biggest steam engine, in 1800, delivered 100kW. A steam turbine in 1900 delivered 1MW. By 1970 a gas turbine powering a pipeline compressor would produce 10MW. In 2022, Siemens Energy’s SGT6-9000HL gas turbine, the world’s most powerful gas turbine, generates 410.9MW.
A horse can produce around 750 watts of power, and an elite cyclist can produce around 400W for a period of about an hour. The Ford Model-T at full speed produced 14.9kW in 1908. A modern compact car like the Kia Picanto produces around 45kW. The world’s most powerful sports car, the Rimac Nevera, produces more than 1.4MW of power. By 1890, a large steam locomotive would run at full speed on 850kW. By 1950, a powerful German diesel locomotive would run at 2MW, and in 2015, a high-velocity Japanese train ran at 17MW. By 1960, A Japanese diesel-powered merchant ship would run on 30MW, while in 1969, a Boeing 747 would run on 60MW, while a supersonic Concorde’s four engines would produce 108MW at a cruising speed of 2,400 km/h. The HMM Algeciras’ engine delivers 60MW. From the horse to the HMM Algeciras and Boeing 747, humanity has seen an 80,000-fold increase in the power it can bring to transportation.
Smil also compares the maximum power in field work across time. Whereas a peasant hoeing a cabbage field would produce 50W, a farmer plowing with two small horses would have 1,000W at his disposal. With a small tractor, in 1950, a farmer could harvest with 50kW of power at his disposal. And in 2015, with a large diesel tractor, a farmer could have 298kW of power at his disposal. In three centuries of technological progress, the amount of power at the disposal of a farmer has increased 6,000-fold.
Before hydrocarbons, humanity was only able to access limited amounts of usable power, and only near waterwheels and windmills. With hydrocarbons, large amounts of power can be conjured anywhere at any time, allowing for growing population centers, growing trade link between these population centers, and higher labor productivity.Alex Epstein makes a compelling case for how hydrocarbon fuels are the root of modern prosperity. Until the sixteenth century, life everywhere primarily relied on burning wood for the provision of energy. Compared to modern hydrocarbons, wood contains much less energy per unit of weight. After the utilization of coal started in the sixteenth century, later followed by oil and gas, the amount of energy available per person expanded enormously, and with it, our quality of life. To visualize the true benefit of energy to our lives, Epstein invites us to imagine the energy we consume today in terms of the energy consumption of humans performing tasks for us. By that measure, he finds that the average American has 186,000 calories at his service daily, or the energy equivalent of 93 humans. Before modern fuels, this amount of energy was rarely ever available to anyone. Only the richest kings could dream of having as much energy at their daily disposal, either in the form of combustible wood or enslaved humans.
The Industrial Revolution, which transformed standards of living worldwide, was inextricably linked to the invention of the steam engine and the mass deployment of coal power to raise worker productivity. Coal was the predominant source of power until the turn of the twentieth century, when the invention of the internal combustion engine allowed for the mass utilization of oil, which has a higher amount of energy per weight, and is thus more efficient to transport and use in transportation. The twentieth century witnessed a rapid rise in the deployment of oil worldwide, and in the second half of the twentieth century, the use of gas power grew the fastest. Currently, around 80% of the world’s energy consumption comes from these three hydrocarbon fuels.
As technology advances and standards of living improve, one would expect more of a shift to natural gas for energy generation, since it produces the least pollution among hydrocarbon fuels. However, there will realistically still be enormous demand for coal power because the only practical alternatives to coal power for many people around the world are low-power energy sources, which are intermittent and unreliable. Coal is cheap, and the technologies used to generate energy from it have been perfected over decades, and modern clean coal technology drastically reduces the amount of harmful emissions generated by its consumption. The benefits of reliable power have proven acceptable to the vast majority of people who have moved to areas with coal plants and reliable power, and away from areas with no coal plants and no reliable power.
In 1802 Richard Trevithick built the first working railway steam locomotive, which burned coal to run train cars. Around the same time, the steamboat was invented, operating on the same principle. The automobile was invented in 1885, and the airplane in 1902. For more than two centuries, these technologies reduced the cost of transportation and increased its availability. Moving goods today costs a tiny fraction of what it cost before hydrocarbon energy, and as a result our capacity for trade has expanded significantly, and the extent of the global division of labor has grown enormously, further increasing human productivity.
Modern capitalism and the global division of labor that emerged in the nineteenth century would simply have been impossible had it not been for the introduction of hydrocarbon energy sources, which increased labor productivity significantly and raised living standards. Without these energy sources powering modern engines and machinery, labor productivity would not have risen to the point where workers were able to produce far more value than they needed to survive, and thus had considerable resources to trade with others. Capital accumulation took off in a fundamentally different way after these fuels allowed humans to use rapidly growing quantities of power.Comparisons across the world today, and across time, can vividly illustrate the enormous value that access to high power entails. Our modern world is largely the product of the development of technologies that give us regular access to increasing quantities of energy. Modern civilization and most of its achievements would not be possible without levels of energy consumption that are complete outliers by historical standards.
Data from 118 countries with populations larger than four million in 2005 shows the correlation of energy consumption per capita with improved water access, life expectancy, infant mortality, mean years of schooling, electrification, and gross national income. The relationships are very clear: The more a society is able to harness and consume energy, the more it is able to provide itself with the basic needs of modern life.
Taking a closer look at GDP, the relationship is very clear and has been for a very long time: Greater power consumption is strongly correlated with greater economic production, and consequently, better standards of living, as is apparent in Figure 13.
Figure 14 shows the relationship between energy consumption per capita and the share of the population living in extreme poverty. No country that eliminated extreme poverty consumes less than 10,000 kWh/capita/year, and no country that has more than 20% of its population in extreme poverty consumes more than 10,000 kWh/capita/year.
The progress of humanity has been driven by technological advancements that unlock the energy latent in hydrocarbon fuels. The fact that most humans today live protected from most of nature’s harms, can stay warm in the winter, and can travel faster than their running speed is the result of Industrial Revolution innovations that gave us various forms of engines to access the energy present in the three main hydrocarbon fuels: coal, oil, and gas. As John Cross put it:
The history of economic development is the history of the amount of energy brought under human control. Economic historians have observed the close relationship between economic growth and energy consumption as we put more energy to work for us. American economist Deirdre McCloskey called the surge in energy use that began around 1800 “the Great Enrichment.” The benefits to mankind have been enormous, extending life expectancy, increasing food output to sustain burgeoning populations, and lifting the standard of living for most people to levels not even royalty could aspire to just a few centuries ago.
The late Italian economic historian Carlo Cipolla attributed both the Agricultural Revolution thousands of years ago and the Industrial Revolution starting in the late eighteenth century to people harnessing energy power. In the Agricultural Revolution, humans evolved from hunters and gatherers to cultivate and tame the energy in plants and animals, even if most plants and animals are not very efficient converters of energy. Fire, wind and water also increased the energy at the disposal of humans. Over time, people became more efficient at using all these energy sources, through rudimentary farm tools, irrigation, fireplaces, water-powered mills and sailing boats.
Fossil fuels played a negligible role in supplying energy until the Industrial Revolution. While everything on the planet is a possible source of energy, fossil fuels proved especially efficient and convenient in meeting the energy demands of industrialization. In Cipolla’s words, the Industrial Revolution “can be regarded as the process whereby the large-scale exploitation of new sources of energy by means of inanimate converters was set on foot.” Coal was the first widespread source of inanimate energy, rising from 10 percent of Britain’s energy supply in 1560 to 60 percent by 1750, in the process ending Britain’s deforestation. This began a cumulative process, where a rising supply of energy stimulated more economic growth, which boosted education that led to the discovery of new sources of energy, notably other fossil fuels.
The first commercial use of hydrocarbon fuels was kerosene to generate light and end our perpetual plunge into darkness after sundown. (This stopped the widespread slaughter of whales, whose oil until then was the main source of indoor light.) The U.S. pioneered the exploitation of oil in the 19th century, a mantle it is reclaiming today thanks to innovative technologies to develop shale deposits. By 1860, the oil age had begun in earnest due to the development of drilling technology in Pennsylvania.
As humans continue to discover new technologies for utilizing power to meet our ends, we continuously reduce the cost of power in real terms. In a study of energy prices in the UK in the seven centuries between 1300 and 2000, Fouquet estimates that heating costs declined by more than 80%, the cost of power declined by 94%, transport of freight by 95%, transport of passengers by 91%, and the cost of lighting declined by 99.98%. These declines are illustrated in Figures 15 and 16.
Power of Hydrocarbon Alternatives
In spite of the amazing and undeniable benefits that high-power hydrocarbons have brought to our world, a majority of economists and the public believe they should, and will, be replaced with alternative energy sources. This animosity was initially based on the increase in the prices of hydrocarbon fuels in the 1970s, caused by inflationary monetary policy, and popularizing the doomsday cultists to prophesize that we are on the cusp of running out of these incredibly abundant fuels. As production continued to increase for decades while proven reserves increased even more, this particular hysteria has died down, but anti-hydrocarbon hysteria has found a new rationale. Incoherent and untestable pseudoscientific superstitions about greenhouse gas emissions being the control knob for Earth’s weather are now the reason why we must get rid of hydrocarbons and move to “sustainable” alternatives, such as wind, solar, and biofuels. In The Fiat Standard, I argue the hostility of modern government-funded science to hydrocarbon fuels has its roots in inflationary monetary policy, which at once raises the prices of these essential fuels and allows the government to finance and dictate science. The government would like to promote fuel-free alternatives because they are less sensitive to monetary inflation than high-power fuels mass-produced on a global market.
It is common for promoters of wind and solar energy to argue they are cheaper than hydrocarbons because their fuel is free, since there is no charge for sunshine and wind. But this is a good example of faulty economic reasoning, because it does not analyze decisions at the margins. Marginal analysis can help us understand the irreparable problem with wind and solar energy as alternatives to hydrocarbons. Energy is not purchased in the aggregate or abstract; it is purchased at the margin, in specific quantities at particular intensities over time. Energy is not the economic good; power is. High-productivity machinery that makes modern civilization possible requires power to be provided at specific controlled intensities on-demand. Power from windmills and solar panels is intermittent and unpredictable, since it is only available when the wind blows and the sun shines. By contrast, hydrocarbon power sources are easily transportable and storable, allowing them to be present in large quantities when and where they are to be needed. Once the modern machinery and infrastructure have been constructed, hydrocarbon power becomes available on demand at the precise intensity needed, at a very small marginal cost.
Whether it is the electric grid, hospitals, baby incubators, refrigerators, heating and cooling, internet servers, countless online services, airports, or numerous forms of modern infrastructure, modern civilization needs its machines to operate continuously regardless of the condition of the weather. No modern company can have its factories, servers, or offices operate at the whims of the weather. For high-productivity machinery to function, it does not just require a low marginal cost of energy; it requires a low marginal cost of energy at all times. While the marginal cost of renewable energy fuel is indeed free when the sun is shining and the wind is blowing, when they are not, the marginal cost is infinite. No amount of capital investment will make the sun shine and the wind blow perpetually and whenever a machine is needed. When the sun is not shining, the marginal cost of solar power is infinite, and when the wind is not blowing, the marginal cost of wind power is infinite. If wind and solar power were indeed used as an alternative to hydrocarbons, a modern industrial society would no longer be possible.
As government policies have promoted wind and solar power with heavy subsidies, their use has grown, but reliance on them has come at catastrophic consequences, as it reduces the predictable load peak for any particular utility, since peak demand can now come at a time when some of the fuels are unavailable. Hydrocarbons must be relied upon to provide the entire peak load capacity, making investment in expensive wind and solar infrastructure almost superfluous. While it can indeed reduce consumption of hydrocarbon fuels, its intermittency and unpredictability make the management and maintenance of the hydrocarbon plants and grids more expensive, largely negating the consequences. It is for this reason that power generation from wind and solar only exists to the extent that it is subsidized through government spending.
As humans economize, they continuously seek ways of increasing their productivity. In the context of energy, this has constantly come in the form of increasing the energy density of the sources of power we apply to meet our ends, measured in terms of MJ/kg. To make solar and wind power suitable for modern life would require using battery technology, which has an abysmally low energy per weight, in the range of 0.5 MJ/kg, which is roughly 1% of the energy density of oil or natural gas. Batteries are also very expensive, and so their use is primarily in areas where engines are not practical.
Energy and Freedom
When human productivity was very low, and technology was primitive, there were very few ways for humans to get work done to meet their ends beyond performing their own labor. One of the most effective sources of energy was the labor of other humans. But if man had very low productivity, he needed his own labor for his survival, which meant he could rarely afford to pay others to work for him, and others could rarely afford to pay him. Opportunities for mutually beneficial employment would be scarce in such a setting. If one man wanted to procure the energy of another to serve his needs, he would likely have had to coerce the other person into providing his energy at the expense of his own needs. Slavery as an institution was more common in a world of primitive energy sources because having the energy of another human at your service meant a very substantial increase, almost a doubling, in the total amount of energy available to meet your needs. Low productivity makes survival a critical and uncertain ordeal, and the labor of others becomes enormously valuable, making enslavement profitable.
As productivity increases through the development of technology and increases in nonhuman energy sources, it becomes possible for humans to secure their needs through the deployment of increasing quantities of energy-intensive capital rather than the slave labor of others. The pressing need for the labor of others that could drive one to enslave them declines.
Machines can do much of the work of the slave, and they cause fewer problems than a human with a constant desire to break free. Because machines increase the productivity of a worker, it is possible for him to satisfy his own needs and those of an employer who provides the capital. As the machinery becomes more expensive, and a more integral part of the economic production process, the worker’s importance and responsibility increases, and slavery becomes a wholly unsuitable avenue for accomplishing the work. Slave laborers employed in high-productivity tasks using expensive machinery are unlikely to be motivated to use it productively, and they may very likely engage in sabotage. As machines and energy raised the productivity of labor, they increased the likelihood of workers being hired voluntarily rather than coercively.
In the context of energy poverty, having another human being provide you with their energy was extremely significant. But in the modern context of energy abundance, where an individual in a rich, industrialized, developed country uses the energy of 100 humans every day, adding an extra human as a slave contributes very little power at the margin. As energy sources invaded human life, increasing our productivity and standard of living, the marginal benefit of enslaving a human shrunk significantly. Further, as capital accumulation and modern machinery became more central to the production process, the worker’s ability to maintain the machinery and not damage it became far more valuable than the power his hands provide. A slave’s dedication of their energy to their master was no longer valuable when a machine could cheaply provide many multiples of the energy needed for grunt work. The intelligence and integrity of workers in managing and maintaining machines became far more valuable than their brute force. It is no coincidence that the abolition of slavery spread across the world with the spread of industrialization. Britain led the world in the abolition of slavery precisely because it led the world in industrialization. Wherever the steam engine and the electric generator went, slavery quickly disappeared. To the extent slavery survives today, it does so in industrially primitive societies with little capital accumulation and energy consumption. The economics of machinery make slavery far less workable economically. It makes the hard labor slavery provided available at a very low cost, and increases the productivity and value of a worker’s time to the point where his voluntary cooperation is more valuable than any slave labor they may perform.
High-powered machines are also an underappreciated driver of the liberation of women. In a primitive economy with little high-power machinery, human strength was an extremely valuable commodity, and the strongest humans were the most productive. Given that men are, on average, stronger than women, with bigger bodies and greater muscle mass, men’s labor was more valuable than women’s labor, and women were heavily dependent on men for survival and protection. When modern energy-intensive machinery took over the most physically demanding tasks, like transporting, lifting, pumping, tilling, and protection from nature and animals, the importance of physical strength declined in comparison to the need for cognitive strength, reducing the advantage that men’s strength gave them over women. In a modern, energy-rich economy, the most productive and highly rewarded jobs no longer require physical strength. The strongest and most powerful individuals in society are no longer the ones able to secure the most resources. Machines perform the grunt work, and the highest rewards go to those whose cognitive skills can manage these machines. Women are far more likely to be able to support themselves independently in an industrial and informational economy than in a primitive economy. It is no coincidence that female liberation has come about with industrialization. The richest and most industrialized societies are the ones with the highest achieving and most independent women, while the preindustrial societies continue to witness widespread female repression.