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Long Term Trends: Energy Economics

Money is an abstraction of value. Value is the reality, determined by necessity, for which all social exchange takes place.

A U.S. Army Lieutenant with the 101st Airborne in Iraq preparing to pay former insurgents for their work with U.S. forces.
A U.S. Army Lieutenant with the 101st Airborne in Iraq preparing to pay former insurgents for their work with U.S. forces. in Balad, Iraq by Tim King

(EUGENE, Ore.) - Economics, or to be precise money, rules the day-to-day lives of many people in our society. When people go to vote in elections, they are told by pollsters that the most important issues are jobs, the economy, and taxes, all of them questions of money.

In this article I will seek to shed some light on money, filthy lucre, the paper chase, the rat race, and the real world that these symbols, metaphors, and analogies represent.

If you know anything of economics as an academic pursuit, you most likely know it as an abstract and convoluted mess of indecipherable mathematical theories and dubious assumptions, on the basis of which many a self proclaimed expert has given you advice on how to live your life.

Buy gold. Buy stocks. Buy land. Sell all of the above and invest in pork bellies.

Such is the advice given to those who have money, and by definition, it is always aimed at separating said money from its possessor.

The other type of economic advice is that given to the poor, the jobless, and the families being evicted from their homes.

The economy is bad. Downsizing was necessary to increase efficiency and eliminate waste. Children in China, Malaysia, Vietnam, and the Philippines are more productive workers. An increase in interest rates decreased the availability of capital for new mortgage lending.

This type of economic proscription can always be reduced to its most basic form: I have more than you, and I would like to talk you into letting me keep things that way.

The obtuse and arcane, that which cannot be easily understood, is always sandbagging. It is always an attempt to hide what would be unacceptable if it were stated in plain language. Such is the nature of most “economic theory.”

It is always easier to create doubt and uncertainty and to hide the obvious when one speaks in abstractions as opposed to discussing matters of observable fact. Thus money, which is purely an abstraction, is the best footing on which to place a deceitful and misleading discussing of social affairs.

Money as an Abstraction for Value

Money is an abstraction of value. Value is the reality, determined by necessity, for which all social exchange takes place.

The necessities of life such as food, water, and shelter are well known. Life cannot perpetuate itself without the maintenance of these necessities, and it is to satisfy these necessities of life that the vast majority of social exchange takes place.

The introduction of money, “filthy lucre,” into social exchange is the narrow end of the wedge by which middle men insert themselves into the process of social exchange in order to get a cut for themselves.

Money, in the form of gold and silver, originated amongst traders (middle men) who created by example the adage of all speculators and marketeers: “buy low, sell high.”

Money was transformed in its social relevance by the creation of centralized governments that possessed the military force to coerce the payment of taxes. Taxes must be paid in money, and consequently, taxation makes trade in money a necessity for all the subjects of a government that imposes taxes on its citizens.

Taxation fundamentally changed the dynamic of social exchange from one where only suckers and dupes were swindled by money changers and purveyors of commerce, to one where any citizen had to fear for their life and property if they refused to debase themselves in commerce.

In the early days, taxation was always imposed with gruesome violence. The basic model of taxation was that a certain tax was required of every person. In order to earn the currency to pay that tax, work had to be performed or goods had to be exchanged for the currency in which tax could be paid. The penalties for failure to pay tax were generally something along the lines of a severe beating, removal of a limb, crucifixion, or hanging.

Such are the foundations on which this glorious thing called capitalism was built.

The Greek and Roman philosophers, and the ruling classes in those societies, considered the mere handling of money itself to be a debasing act. Thus the term “filthy lucre,” which is used in the King James Bible, and literally means “dirty money.”

The reasoning of the Greeks and Romans was that to be motivated by money, a mere abstraction, and something of no value in and of itself, as opposed to being motivated by truth and reason, was inherently debasing. They argued that the use of money puts an individual into a subservient relationship with the money changer or money issuer, which is unfitting for a free individual.

The Greeks and Romans were undoubtedly high minded people who adhered to an idealistic philosophy, and according to the annals of history continuously failed to act according to their ideals, but their opinions should not be discounted entirely.

They saw quite clearly the disconnect between abstraction and reality that money introduces, and understood perfectly how the introduction of money into social exchange upsets the social order, and puts everyone who deals in money into a subservient position with those who have mastered the arts of commerce and trade.

Needless to say, we have come a long way since the Greeks and Romans. Money, as an abstraction, has reached progressively new heights.

Evolution of Money: from Gold to Paper to Digital Currency

Coined currency replaced pure bullion, offering the opportunity for debasement of the currency in the smelting process. Paper money replaced coined currency, creating the opportunity for even further debasement by the printing press. Computers are replacing paper currency, creating the possibility of a near infinite expansion of the currency supply.

Paradoxically, the debasing of currency to its ultimate limit also creates the opportunity for real reflection on the role of money in society, which further creates the possibility of a fundamental reordering of the mechanisms of social exchange.

To put it poetically: we now walk on the razors edge between two epochs of social organization. The one is the hierarchical organizations built by middle men – bankers, traders, managers, salesmen, etc – which is built on paper currency, itself a recent derivative of gold and silver. The other is digital exchange, which connects people directly, eliminating middle men, and is thus a great leveler of the hierarchical social structures of the previous epoch.

The collapse of hierarchical social organizations, precipitated by the development of computer technology, has been accompanied by conflict and chaos in society.

The tearing down of hierarchical social organizations results in dislocation for the lower members of those organizations, as those at the top use their relatively advantageous positions to offload their losses on the people beneath them. At the same time, those who held power in the previous epoch are making frantic attempts to shape the emerging epoch in a way that will allow them to perpetuate their power.

For the time being, the transition to the digital age has been beneficial to those at the top of existing hierarchical social organizations. Computer technology was invented and disseminated for the purpose of managing and controlling hierarchical organizations, and in the short term, it increases the relative wealth and power of people at the top of those organizations, because it eliminates middle men beneath them who they would otherwise have to share their money with.

However, if computer technology develops to its furthest extent, it will eliminate social hierarchies based on paper money entirely. If middle men can no longer insert themselves into social exchange, there will be no basis for accumulation of wealth through commerce, which will destroy social hierarchies that are built precisely on this basis.

Consequently, those who hold power in the paper money epoch are making every effort possible to assert their control over the technology that forms the basis of the digital epoch. This grasping for control is futile though, because the destruction of hierarchical societies also destroys the real power base of the people at the top of those hierarchies.

For a concrete example of this abstract proposition, consider the evolution of military technology.

Over the past decades there has been a pronounced trend in the U.S. towards smaller armies equipped with superior technology. North Korea, Iran, China, Russia, India, and Vietnam all have larger armies, as measured by number of soldiers, than the U.S., and yet the U.S. is considered to be a superior military force to all of those countries.

The U.S. military is building all kinds of technologically advanced weapons systems that allow for the projection of force without military personnel on the ground. It is their stated goal to develop weapons systems that allow for a target missile strike anywhere in the world within 30 minutes, initiated by the press of a button in a high office of the military bureaucracy.

On one hand, these technological capabilities result in a fearsome consolidation of power in the hands of a very few individuals. On the other hand, they are entirely self-defeating.

If one man has the power, by means of technology, to launch a war anywhere on the globe, then fighting that man becomes incredibly simple. All you have to do is cut off the hand that presses the button, and the war is over.

By comparison, if one man leads an army of a million, you have to kill a million men before you reach the man who controls that army, and decisively claim victory.

As this example shows, the consolidation of power by means of technology that destroys social hierarchies is actually self-defeating for those who seek power by this route.

Social hierarchy is the basis of power and wealth in the current epoch. Unchecked greed and lust for power on the part of the individuals at the top of these hierarchies has driven them to create the technologies that are resulting in the destruction of the foundation on which their power and wealth is based.

Money and Industrial Production

On that note, this is a good point to stop, step back, and once again look at the relationship between the abstraction of money and the real world.

Keep in mind that I am discussing money as a facilitator of social exchange, and looking at the transition between two types of money: paper currency and digital currency.

Also keep in mind that paper currency is a derivative of gold and silver currencies, based in the real world, while digital currency is entirely imaginary, and not subject to meaningful limits.

The use of digital currency as an abstraction of value for real world social exchange runs into a major road block, which is perfectly obvious if you consider the fact that the necessities of life are not infinite, while digital currency is practically infinite.

In our modern economy there has been massive currency creation, much of it digital. This has severely destabilized housing prices, stock markets, currency markets, and other commodity markets. It is clear that using digital currency as a means for social exchange creates problems because digital currency can be “created” out of nothing, even more rapidly than paper currency, which only increases the ability of the middle men in the paper currency system to perpetuate their frauds.

The dichotomy of an infinite digital money supply as an abstraction for finite real world resources is made ironic by the basis of digital technology on industrial production.

Industrial production is a misnomer of the first order. What is called production is actually consumption of resources, many of them non-renewable, and all of them being consumed at a faster rate than the rate of renewal.

Industrial society is built first-and-foremost on coal, and then oil. Industrial societies, built on a foundation of coal and oil, are capable of using these energy resources to increase consumption of other natural resources, such as land, water, timber, wildlife, etc.

In an industrial society, growth is defined by an increase in the consumption of natural resources, primarily non-renewable stock resources. Whenever the economy grows this is primarily attributable to an increase in the burn rate of non-renewable energy resources.

Money plays a critical role in economic growth, which is increasing consumption of natural resources. The creation of new currency demands increased consumption of natural resources in order for the supply of currency to maintain a stable relationship with the real world values that money is an abstraction of.

The practice of lending money at interest is a further spur to economic growth, because in order to pay back more money than originally borrowed, the money borrowed must be used to increase consumption of natural resources, which can then be traded back for an increased amount of money.

It is no accident that the paper money epoch has gone hand-in-hand with the rise of industrial production. A massive increase in the quantity of money reflects a massive increase in the consumption of natural resources, and neither could occur without the other.

The progressively increasing quantity of money must be matched by progressively increasing consumption of natural resources in order for a stable relationship to be maintained between money and the real world value that it is an abstraction for.

The natural resources consumed by industrial production are not infinite, and consumption cannot be increased infinitely. Even as the economy has begun to transition toward a near infinite supply of digital currency, the natural resources that form the basis of industrial production are becoming increasingly depleted, and a progressively greater disconnect between the abstraction of money and real world value is developing.

The economic system that demands perpetual growth is increasingly at odds with reality, which demands long term stability.

Growth of Industrial Production

The pattern in consumption of natural resources is always to consume the highest quality and most readily available first, and then progress to those which are of lower quality and are more difficult to obtain.

The greatest growth in industrial production was achieved when an increase in the consumption of energy resources allowed for the building of machines that allowed resources to be consumed at an even greater rate. The compounding effect of increasing consumption leading to an increase in the capacity to consume resulted in explosive exponential growth during the growth phase of industrial society.

That growth can never be replicated because when resources are running out there is no value in increasing the capacity to consume. Any growth at all becomes increasingly difficult as the energy costs of consuming more natural resources increases to the point where as much energy is used to obtain a resource as can be gained by consuming it.

In the case of energy resources, such as oil, natural gas, and coal, the energy required to extract these resources and convert them into usable energy must be less than the usable energy created in order for consumption to have any net benefit at all.

Even while the net energy gain from consumption remains positive, the decline over time in net energy gain per unit, due to the depletion of the choicest stocks of these fuels, results in progressively diminishing real world returns. Likewise, consumption of renewable resources, such as water, land, and wildlife at a rate greater than the rate of natural replenishment results in increasing energy costs for the production of food, which also yields diminishing returns as the energy consumed to produce food exceeds the energy yielded by consumption.

The earliest market economists, starting with Francois Quesnay, who inspired Adam Smith, based their free market theories on the idea of agricultural production being the fundamental source of value, because it yielded the net energy necessary for the continuation of life. It is upon this basis of real world value that they hypothesized scientific economic laws and a self-regulating free market.

Industrial production, which was based on burning stock fuel resources for energy, supplanted economics rooted in agricultural production because it broke the link between food energy and economic output. The consumption of coal, oil, and other industrial energy sources created a large surplus of energy beyond agricultural production. This invalidated market economic theories that were based on the exchange of commodities produced in a primarily agrarian society.

As economic theory evolved in response to this change in the real world use of energy resources, it largely failed to take into account the fact that the vast majority of these new energy resources were coming from consumption of non-renewable stock fuels. The purveyors of industrialism preferred to ignore the fact that they were simply burning things up and not actually producing anything, because to admit otherwise would raise serious questions about the long term viability of their industrial projects.

Warfare in Industrial Society

During the last century the growth of the industrial economy was marked by a massive increase in warfare. Because the basis of the industrial economy is in non-renewable stock resources, the name of the game in industrialism is territorial conquest and monopolization of the stock resources necessary to maintain industrial production.

Industrial societies are inherently expansionist. They are based on burning stock resources, which must be replaced through territorial expansion once depleted. These necessities made playing the industrial game compulsory for all government actors who had the means at their disposal.

Any society that did not industrialize during the last century was faced with the certainty of being the target of future conquest by an industrialized society. Fear of future subjugation led to the amassing great armies and war. This itself required massive consumption of industrial products, and became another powerful driving force in the reckless expansion of industrial production and consumption of natural resources.

The literally explosive growth of industrial production hit its peak during World War II, and after that, growth stabilized. On one hand, the World Wars created an international order, based on “mutually assured destruction,” which established the essential territorial boundaries that determined the distribution of stock energy resources amongst the nations of the world. On the other hand, the killing of a hundred odd million people temporarily alleviated immediate pressures for further expansion by industrial societies, which found themselves with ample resources at hand to sustain their populations without further expansionist warfare.

The U.S. government was clearly the greatest victor in these global wars for resource control, with the Russian government being close behind. The real world dominance of resources by the U.S. elevated the Dollar to the status of world currency. Since money is an abstraction for real world value, the control of resources with real world value increases the perceived value of a currency that can be used to trade for them.

Along with the Dollar, the people of the world also got themselves the U.S. banking and economic system, which is one based on interest and currency creation by means of the printing press.

Necessity of Perpetual Growth in Paper Money

As long as real world consumption of resources continued to grow, new currency could be created without upsetting the balance between the abstraction of money and real world value. The creation of new currency allows for interest to be repaid through new loans, which solves the mathematical dilemma of interest, which is that with a fixed currency stock it can never be repaid.

Paper money and an interest based economy can only function on the basis of a continual increase in the real world consumption of resources. The real world does not tolerate such a continuous increase, and consequently the paper money economic system must become increasingly detached from real world values as the rate of increase in consumption of resources declines.

Another important point is that the value of money as an abstraction is tied to the net value of resources consumed. I.e. the energy put to some productive purpose which yields a real world benefit, less all of the energy used in the extraction of that resource.

Measuring these energy flows scientifically is impossible because the extent of energy exchange involved is simply too large and complex to measure, model, or estimate with any precision. Only anecdotal examples can be observed, such as with the production of specific resources like oil, coal, and agriculture. What can be observed from these examples is that the net value of production from new resources has been in decline for some time.

In the case of oil it can be observed that the U.S. has transitioned from primarily domestic extraction to a system of world wide extraction, using progressively more costly (in terms of energy) extraction methods, which necessarily must result in a decline in the net value obtained from each unit extracted.

When and where this decline in net value per unit crosses over to a net decline in aggregate value for all units extracted is impossible to assess without a massive comprehensive study, and even then, the conclusions are subject to a great deal of uncertainty. However, this is a question of paramount importance to our society, and one that is all too rarely asked.

Perpetuation of Perpetual Growth Ideology in Academia

Modern economics, which has devolved into a technocratic study of money flows, becomes increasingly irrelevant and detached from reality as the abstraction of money itself becomes increasingly detached from reality.

During the “energy crisis” at the end of the last administration, it was possible to watch Senate hearings and see a Ph.D. chief economist from Oppenheimer testify with absolute sincerity that “oil will never run out.” According to modern economic theory, the cost of extraction will simply reach a point where it is no longer profitable to extract more oil, and so according to this theory, oil will never run out.

This theory is true, in a sense, but severely misses the point. Oil is extracted because it yields a net value measured in energy that can be put to some productive purpose. The purpose of extracting oil is not to make money per se, but to yield net energy.

Making money is easy. All you need is a printing press or a computer. Money is not value in and of itself, but only an abstraction for real value. If extraction of oil is pursued for the purpose of making money, without consideration of the net energy yield, it is possible to actually consume more energy than you produce by going through the motions of energy extraction in the pursuit of money.

There is good evidence that some energy extraction projects, such as tar sands and ethanol actually consume more energy than is produced in the final product, which indicates that the line between value focused extraction and money focused extraction has already been crossed when it comes to “new” energy sources.

Scientific assessment of the net energy yield from extraction projects is conducted in some cases, and there is an increasing movement toward the use of this real world analysis in planning, as opposed to “economic” analysis based on the abstraction of money, which does not accurately predict whether or not a project will yield real world value.

The percolation of real world energy analysis into the upper strata of bureaucratic organizations, where decisions are made, is a slow process. The upper echelons of these organizations are staffed by individuals who were educated and have lived their whole lives according to an economic ideology firmly rooted in paper money, ignorance of real world value, and perpetual expansion.

Industrial society brought with it industrial education, modeled on the assembly line, and typified by specialization and division of labor. Consequently, it is not only possible but highly encouraged for individuals, even those attaining to the doctorate level, to pursue only a narrow technocratic and functionalist education. This education leaves many unable to think in terms of the big picture and recognize how long term real world trends may invalidate their reductionist ideologies.

The perpetuation of ideology in the university system, in which those attaining to the doctorate level teach what they know to those beneath them, is highly resistant to innovation and change. Once an ideology, no matter how inadequate, becomes firmly rooted in academia it will be perpetuated indefinitely, and can only be eradicated with considerable pressure, both external and internal.

The perpetuation of ideologies that are plainly wrong posses a threat to the academic system itself, because if the doctors have nothing to teach, they offer nothing of value. The academic system perpetuates false ideologies with even greater vigor than those that are merely inadequate in some trivial way, and subject to small revisions.

Discovering a small error in a theory and mending it is evidence of the academic system properly functioning, and increases confidence in academia. Acknowledging that a theory is entirely wrongheaded and must be jettisoned in its entirety is anathema, and will be resisted to the bitter end by academics.

The propensity of academics to perpetuate existing ideologies, with their dogmatism only increased in proportion to the wrongness of those ideologies, presents an obstacle to changes in social policy in a society that concentrates decision making authority in the hands of the upper echelon of academia. Acknowledgement of the failings of modern economic theory and its increasing detachment from real world value are virtually non-existent within this group.

Even if academics themselves were willing to acknowledge the reality of a permanent decline in industrial production, they would find only rejection from those who pay their bills. Both business and government are firmly established on the principal of continual growth. Any economist advising a CEO or Politician that they should be planning for an annual contraction in output on a yearly basis for the foreseeable future will be dismissed out of hand. Reality is at this point considered to be a socially unacceptable opinion if voiced.

In the absence of an honest discussion about real world conditions, optimistic fantasy reigns supreme. We live in the era of “hope,” as opposed to concrete policies for addressing real world problems.

Reality: Permanent Decline in Industrial Production

Economists are busy looking for ways to increase industrial production, and jobs serving the industrial economy, even while the burning of stock resources that makes the industrial economy run is becoming ever less valuable to society. Stock fuels are not only running out, but more importantly, yielding less net benefit from consumption right here and now than they were yesterday.

Permanent decline in the industrial economy is reality, has been reality, and will be reality from here forward. Games played with paper money cannot alter this reality, except to disguise it, and thus forestall practical action to deal with it.

The ascendency of digital currency, still a derivative of paper currency, which is itself a derivative of precious metals, allows for the creation of currency on an unprecedented scale. This increase in the creation of currency comes at a time when the real world value of industrial production is shrinking, and is thus resulting in an ever increasing disconnect between the value of money and real world values.

What is key here is that even though digital currency is in use, it is still denominated in Dollars, and fundamentally tied to the paper money economic system. At this stage, digital currency only serves to exacerbate the collapse of the paper money system.

What is crucial to recognize, and what most prefer to ignore, is that currency usage was forced on populations through coercive violence in the first place, and its value has always been tied to the projection of coercive force.

In the industrial economy, paper money has value because real world resources have been monopolized through military force. If people want to survive they are obliged to trade what they have (usually labor) for paper money, which they can then trade back for necessary resources.

Taxation is another form of coercion that gives value to money. Taxation exists side-by-side with the monopolization of resources. Taxes are compelled by coercive force; the unit of payment is fixed as paper money; and people are obliged to obtain this paper money in order to pay their taxes and avoid violent punishments.

The decline in industrial production necessarily brings with it a decline in the military capabilities of industrial societies, which in turn devalues their paper money. The value of paper money is a function of military force, which is used to monopolize real world resources.

Digital currency, which allows for direct trade, offers the potential to cut out paper money and middle men entirely. Computerized trading systems make it possible for individuals to barter and keep track of debts between themselves without the use of banks and centralized currencies, which provide these functions in the paper money economy.

The use of new forms of digital currency, not derived from and given value by paper money, will grow as industrial production declines. The value of paper money will continue to decline along with the military capacities of industrial societies.

The transition from paper money, issued by central banks and given value by the projection of coercive military force, to digital currency, or more accurately, direct trade facilitated by digital technology, will take place over decades or centuries.

This transition will occur on a geographic basis. As industrial production decreases, industrial societies will lose their capability to project military force, and consequently their territorial spheres of influence will shrink.

Warfare and Industrial Decline

It is with this world in mind that military planners, foreseeing the impossibility of maintaining large standing armies, are engaged in a mad dash to develop technological weapons that allow for the projection of force by remotely controlled means. As I showed before, this effort is self-defeating, and will never amount to much except for making life for the people who control these weapons much shorter and far more dangerous.

The ascendency of digital trade faces one obstacle, which is daunting but not insurmountable. Being based on industrial production, digital trade is predicated on the maintenance of the industrial system at a level that maintains the prerequisites for digital technology: in particular electricity and the production of replacement parts for computer systems.

Steady decline in the availability of net utilizable energy from stock resources most certainly does pose a threat to the long term maintenance of industrial technology, even at greatly reduced levels.

The greatest foreseeable threat is that the remaining industrial societies, faced with declining energy resources will, in a blind attempt to maintain their way of life, engage in an orgy of warfare that consumes and destroys what few resources remain.

Warfare is both extremely energy intensive in and of itself and war between industrial societies is fought by destroying the productive capacity of the enemy. Consequently, war over declining energy stocks is a suicidal course for industrial societies. Apocalyptic war accompanied the rise of industrial societies, and so it is not without some reason that people fear it will accompany their fall. However, real world necessities are stacked against the outbreak of new world wars in the era of industrial decline.

The global wars for dominance of energy resources were driven by the expansionist force of readily available surplus energy. A decline in the availability of energy resources thus presents a countervailing force in favor of contraction, consolidation, and defensive rather than offensive military action.

It is simply not possible at this stage of the industrial economy to fight wars on a global scale, and any attempts to do so would collapse very shortly, although the consequences would be devastating none the less.

What is more likely is that as the hegemonic power of the great industrial societies collapses the stability that their projection of force created will disintegrate. This will result in an increase in low intensity warfare on a smaller geographic scale, fought primarily with small arms and the remnants of advanced weapons systems left over from the height of industrial military production.

As advanced weapons systems will no longer be able to be serviced and replaced, they will eventually be consumed, and the era of industrial warfare will die out with a whimper and not a bang.

This state of affairs is already under way at the fringes of industrial societies. As production in industrial societies declines, and their military sphere of influence shrinks, the chaos of small scale territorial wars will spread and increasingly encroach on the borders of the industrial nations themselves.

The collapse of the U.S.S.R., the retreat of the Russian military from a large part of their former empire, and the following increase in small scale conflict within those areas provides a likely glimpse into the future decline of the U.S. military’s ability to project power throughout its current sphere of influence.

Investment and Planning in the Era of Industrial Decline

The process of industrial decline will likely take place over decades or centuries, which makes it difficult for planners to weight the relative costs, benefits, and attending risks of taking actions necessary for short term survival in current paper money dominated industrial economy, while keeping in mind the inevitable decline of industrial production, which itself poses significant long term challenges for survival.

The shift of economic planning from the basis of money to one of real world analysis, based on energy production and utilization, is under way. This shift in the basic paradigm of planning is overdue and cannot proceed at a fast enough rate if industrial societies are to survive the decline of their primary energy sources in anything that even remotely resembles a stable and orderly process.

Individuals, households, businesses, and governments at every level need to make the mental transition from constructing budgets and investing on the basis of dollars, to performing real world analysis of the energy costs and yields of their activities.

In all cases, more efficient use of energy, and contingency planning for the declining availability of energy resources, is the intelligent choice now, which will yield both short and long term profits.

In investment decisions, there will be a trade off in some cases between short term profits, and the long term risk of not being able to realize those investments due to decreasing energy resources, which will increase the cost of energy in Dollar terms. In other cases, efficiency will result in a win-win of both higher profits now, and a reduction in long term risk.

On a practical basis, the risk of declining energy availability can be offset by reducing reliance on industrial machinery that is dependent on cheap energy to operate profitably. This machinery will need to be replaced with production methods that are more labor intensive, and will likely be more expensive in the short term.

A key benefit of shifting production to more labor intensive methods is that labor intensive production requires less capital investment, and consequently can be engaged in with less borrowing and lower interest costs, resulting in higher profits.

What is most important in investment activity is that an analysis based on energy, or real world value, is performed. Regardless of the ultimate outcome of that analysis, the likelihood of a profitable realization of investment goals will increase if investment decisions are made in the light of a more comprehensive analysis of real world value.

=================================== Business/Economy Reporter Ersun Warncke is a native Oregonian. He has a degree in Economics from Portland State University and studied Law at University of Oregon. At a young age, his career spans a wide variety of fields, from fast food, to union labor, to computer programming. He has published works concerning economics, business, government, and media on blogs for several years. He currently works as an independent software designer specializing in web based applications, open source software, and peer-to-peer (P2P) applications.

Ersun describes his writing as being "in the language of the boardroom from the perspective of the shop floor." He adds that "he has no education in journalism other than reading Hunter S. Thompson." But along with life comes the real experience that indeed creates quality writers. Right now, every detail that can help the general public get ahead in life financially, is of paramount importance.

You can write to Ersun at:

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Jimmy August 18, 2010 2:51 am (Pacific time)

I don't think it will take decades to unwind. It effectively started to unwind for the U.S from 1970 onwards, only propped up by credit creation and military aquisition of resources. The only option i see that is practical and cheap to implement is Industrial hemp. You can feed, clother and heat with hemp, you can also make transport fuel with it, and it repairs the soil.

Tom Lawson McCall VIII July 27, 2010 6:33 pm (Pacific time)

Great article Ersun, glad you are here to deliver the goods!

Ersun Warncke July 26, 2010 7:33 pm (Pacific time)

Anon, you may want to elaborate a bit more on the meaning of Cain, Abel, Solomon, etc, which is a bit esoteric. Nothing new under the son? I accept that. Brother killing brother over jealousy and greed? Ditto. There is a quote in a movie called Eine Frau in Berlin, which is put into the mouth of a Russian Major, it is "Every newborn child cries for war. Nothing and nobody, no man, no nation, will stop this vicious circle. Only death." I believe there is some wisdom in that, although it should not be taken at face value.

Anonymous July 26, 2010 6:32 pm (Pacific time)

Amazing Ersun..great homework, and major applauds..but, what if, what if it is as simple as the cain and able story? What if that is true, would it not explain it all? Great writing and research, but what if, what if the wisdom of Solomon is true, that there is nothing new under the sun?

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