Thursday 31 May 2007

The Energy Economy and the Peak Oil Crash

The main factor in economics is not capital.

This may come as a shock to Marxists and Capitalists who both follow the same essential economic critique.

Both Marx and Smith, and their economic theories, were products of their time and neither contain any reference to the one essential factor in human society and economics. Marx wrote Das Kapital in 1867 after witnessing the tumult of early 19th Century Europe. It was in this period following the endless round of civil, national and religious wars in Europe that the traditional power structures in society, those of Royalty, Church and the Aristocracy had become morally and financially exhausted. The new rising class in society was that of the capitalist and the financer who was funding the industrial expansions of that time. Therefore Marx placed his primary focus on the primacy of capital, and the capitalist class, as the predominant factor in economics. Marx wrote that he viewed " the economic formation of society as a process of natural history " and that it was the study of economics that could be used to understand the evolution of society. Marx saw society, economics, workers, capitalists and capital as all parts of the same nexus and capital, and capitalists, as the dynamic that drove society onwards.

Adam Smith wrote The Wealth of Nations in 1776 and the book covers his ideas on the role of self interest in economics, the division of labour the function of markets and the implications of an international laissez faire economic system based on free enterprise. The idea that an ' invisible hand ' of self interest guides the most efficient use of resources in a nations economy is his most well known theory. Adam Smiths ideas are the basis of most modern economic systems, even the Chinese Communist Party have now embraced the principle that self interest is an important factor in national economics.

Yet both Marx and Smith missed the most fundamental factor in all human societies, in all economic and social actions - that of energy.

Commodities and goods are the product of a vast expenditure of energy. In order to access raw materials then mines must be built, workers trained and fed and the raw material extracted. These raw materials then must be refined and processed into a form that can be used in the production of goods. The refined materials must then be transported to factories where workers, who have to be fed, can then use various industrial techniques requiring vast amounts of energy to produce the finished goods. Capital in this process only relates to the ability of capitalists to purchase or transfer energy and raw materials from one location and one form to another using labour they employ. As long as the raw materials, labour and energy is available to produce the goods then the worth of capital represents the ability of capitalists to use that energy and labour to produce goods.

Economics is primarily an alchemical process, it transmutates capital into energy then uses that energy to produce goods that are then sold for more capital than that used to initiate the process in the beginning.

The value of a finished 'commodity' is represented by the amount of energy, labour costs and raw materials required to produce it. Profit is simply the price over and above manufacturing costs that people are prepared to pay for those goods, relating to the amount of expenditure of their energy in the form of labour that is then paid to them in the form of wages. The central dynamic in all these synchronous systems is energy. It is energy in the form of calories that is required to keep the workers alive that create the goods. It is energy that is required to mine, refine and create the goods. Its is energy in the form of labour rewarded with wages that allows consumers to buy those goods. The value of Capital is therefore represented by the amount of energy it may purchase.

If at any time the energy costs at any stage of the process equate to more than the price the goods could be sold for, or what the public would be willing to pay, then the Energy In / Profit Out Ratio that is the central dynamic of Consumerism would dictate that those goods would not be made. In other words the entire economic system is based on an energy transfer process and as soon as the energy costs involved in the creation of commodities outstrips profit then those commodities are not produced. The era where Humanity saw value in gold or silver etc is almost over. The global and national currency of the future will be energy. Without energy there can be no increase in social complexity.

Dependence on energy for other nations is the antithesis of an independent nation. No nation can be called independent when it depends on other nations to keep its lights on or to fill the diesel tanks of its tanks and jets that defend the nation itself. A free nation is only ever a nation with an energy surplus. Man will trade energy in the future as he trades in gold and silver today. The primitive economic systems of the past must give way to the creation of a new energy based economic system. The value of a currency is not based on its gold reserves or its GDP it is simply its energy status. The GDP of an advanced nation is not related to its wealth as defined by its cash or credit or gold reserves, the sole indicator of a developed nation is the Energy Production Index.

The EPI is related to the amount of energy a nation produces by itself and for its own needs. Any nation that creates for itself a surplus of energy is then a nation with a positive MEPI figure if it has a mixed energy economy whilst a nation which produces all its own energy needs via a renewable energy system would be classified with an REPI figure. For instance a nation that is not dependent on any imports of energy and that creates and uses all the energy it produces for its own industrial and social needs from a variety of sources would be represented as being at ( 0 ) MEPI with a mixed energy base.

A nation that imports energy to sustain its own internal industrial and social needs would be represented as a nation with a ( - ) MEPI.

If the nation imported in a third of its total energy then that figure would ( - 33 ) EPI.

A nation that produces the equivalent of a third more energy than it requires solely from internal renewable energy systems would be represented on the chart as ( + 33 ) REPI.

A nation with a large REPI would be a nation that has the maximum positive rating for national security and energy security issues and as such would become a major source of inward international investment due to the social and economic stability that such a nation offers.

The exploitation of the right of banks to issue credit and cash means money has no real value anymore. The petro-dollar recycling system is the only thing preventing the total collapse of the global economy. When the oil runs out them the petro-dollar recycling system will collapse. The importance of the petro-dollar recycling system is demonstrated by the invasion of Iraq which was commenced after Saddam Hussein moved his sale of oil out of dollars and into Euro's. (1) (3) The announcement that Iran is intending to do the same and create its own is as much a motivation for the Americans to remove the regime from power as their intent to build nuclear weapons. (2)

At the moment the availability of cheap oil is the basis of the global economy. But a rise in the price of oil would devastate the global economy.

Take for instance China. China at the moment produces the majority of goods the world wants. This is because cheap oil and cheap labour means those goods can be produced cheaply in China. As a result national manufacturing and industry have been decimated in the UK. But this manufacturing boom in China is based on cheap oil making the production of such goods profitable. If oil suddenly rose to $150 a barrel then Chinas manufacturing boom would end and nations would once again have to build from scratch their own industrial and manufacturing bases to satisfy national needs and demands. If those nations were totally dependent on imported oil or gas to supply their social needs then their would be total chaos. Within just a single 24 hour period after the fall of Saddam Hussein in Iraq the result of the collapse of the electricity system created social chaos that is still affecting the nation now.

Regardless of the amount of gold in the national reserve or the amount of printed banknotes in circulation then this would make no difference. Gold is not energy. There is not much use for gold other than it looking nice. When the value of gold, its link to energy, is severed then gold is worth nothing. You cant eat it and you cant keep the lights on with it.

In fact the only value of gold relates to the amount of man power required and effort in the form of energy and money spent to find it and extract it. Gold is not a rare element in nature, in fact it is present in sea water and only the amount of energy (in the form of capital invested in machinery and manpower and the amount of actual energy required to run the machines and pay wages) required to extract it prevents it from being a metal with almost no scarcity value.

Those nations with the last of the oil will keep it for themselves in order to keep their own people under control. They will use their oil to build their own national manufacturing bases and supply national demands. Autarchic systems will replace globalism and those oil dependent nations will be hostages of whatever those oil producing nations want. If they demand two hundred dollars a barrel for oil we will have to pay it. If we don't we will be forced to go back into the middle ages and chop down trees to cook our food and warm our houses.

The nations of the world that had then put in place the renewable energy infrastructure to achieve a positive EPI figure then would become the manufacturing powerhouses of the planet.

The BNP should begin to consider creating a national renewable energy network and become a net REPI energy exporting nation with an atomic energy back up system (which I have previously written about called the Alpha Net). This means we would be both a REPI nation with the addition of an MEPI back up energy system encompassing nuclear power, coal mining, deep sea mining and geo-thermal energy production systems. This would place us at the forefront of the developed nations of the world.

Within a ten year period we should aim to build a brand new technological and industrial base capable of creating an integrated energy and transport system based on renewable energies. The new renewable technologies we would then create during this period would then be licensed and sold to the rest of the world. This would be our equivalent of the space race.

Marxist and Capitalist economists do not see the world as closed system with a finite amount of oil and energy and resources available to be used for social complexity. They both think that the free market is not bound by the laws of physics. Both believe that just because demand exists then the market will always be able to guarantee supply. This is fantasy at its most dangerous.

Peak Oil is about to demolish this false consciousness.





Defender of Liberty said...
This comment has been removed by the author.
Defender of Liberty said...

Hi Biby,

say hello to the Martians for me my friend,

all the best,