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5. Ownership of energy sources as a physical error of economic theory

Modern economic theory is based on the notion of ownership. Economic laws prohibit forceful exemption of property from the owner. The owner has the right to ask any price for his property and sell his property for a finite sum of money. We will now show that the existing state of world economy, when the civilization pays forty times the cost price of energy on the verge of losing economic integrity, is conditioned by the incorrect definition of ownership in the economic theory, which recognizes the ownership right over sources of raw materials and energy like working hydropower stations, oil wells, ore and coal mines, as well as over natural production units as agricultural lands and forests.

All ordered processes in the biosphere and civilization are based on energy consumption. Biomass can be measured in the units of mass, as well as in the units of energy using mean energy content of organic matter, which for live biomass approximates 4.2 kJ/g. Similarly, any article produced by the civilization can be quantified in mass units, as well as in the units of labor, i.e. in terms of work on its production. Human work is proportional to human metabolic rate (~100 W) multiplied by working time (hours, weeks or years) and, hence, has the dimension of energy (J). Pricing goods and services available in the market in monetary units essentially represents pricing the corresponding human work. Money, thus, represents a unit of measuring energy and can be converted to conventional energy units — Joules.

Dollars and Joules are different units of one and the same dimension, energy.

As shown in the previous sections, the cost price of energy is dozens of times lower than its market price. In the approximation of zero cost price of energy one can convert the real annual production of the civilization, which in monetary units is equal to 35 1012 USD (global GDP minus energy expenditures minus activities of vacant population, see Section 4 and Fig. 2), into energy units using the known value of global energy consumption, 0.47 × 1012 GJ/year. Equating these two magnitudes we obtain a conversion factor from dollars to Joules, 1 USD ≡ 13 MJ, or 1 GJ ≡ 75 USD. (These figures are not related to, and do not coincide with, the market price of 1 GJ of energy!) Money is thus an energy unit used to describe the production process of the civilization. In other words, dollars and Joules are different units of one and the same dimension, energy.

Money is also a mass unit for the goods that are being produced. However, very different amounts of different goods can be produced in one and the same time unit of human work. Monetary mass units for different goods can therefore differ by orders of magnitude; they are inconvenient and are not used.

It is impossible to economically justify a finite sum of money for which the river power of the hydropower plant can be bought or sold. Privatization or selling the hydropower plant for any finite sum of money is the same economically unjustified as its forced expropriation. Such transactions, when they happen, are essentially of non-economic nature.

Fluxes of energy and raw materials, as well as fluxes of food, have a different physical dimension, not equivalent to mass or energy. This is the dimension of units of mass or energy per unit time. These fluxes cannot therefore be quantified in units of money. For example, a hydropower plant is characterized by the electric power it generates. The dimension of power is Watt, i.e. Joules per second. The dimension of power cannot be transformed to the dimension of energy (which, as we showed, is economically equivalent to the monetary dimension) in very much the same manner as the dimension of time cannot be transformed to the dimension of length or mass (i.e. one hour cannot be measured in kilograms). It is therefore impossible to economically justify a finite sum of money for which the river power of the hydropower plant can be bought or sold. Privatization or selling the hydropower plant for any finite sum of money is the same economically unjustified as its forced expropriation. Such transactions, when they happen, are essentially of non-economic nature.

All said about hydropower is also relevant for oil wells, coal mines and, generally, stores of any raw materials and energy resources used by the civilization. These stores are commonly referred to as non-renewable. However, the estimated time to exhaustion of these stores are usually much longer than the characteristic time scale of even long-term economic forecasts. Therefore, in all economic estimates such stores are effectively considered unlimited and represent sources of energy. Therefore, like hydropower, they do not have a monetary price, i.e. there is no economic basis for them to be owned.

In modern economics various subjects (from individuals to countries) can possess the ownership right (sovereignty, in case of countries) with regard to sources of energy and raw materials. The owners are therefore legally permitted to ask any price for energy and raw materials that the civilization is able to pay. This ownership right leads in modern economics to the violation of the fundamental laws of energy and matter conservation implied equating measurable variables of different dimensions (financial and energetic fluxes to financial and energetic stores). Indeed, the owner is able to sell the infinite production of the owned source of energy and raw materials at a market price. The money the owner thus receives does not correspond to any work performed, because the cost price of this production is negligibly small compared to the market price. In other words, there appears an infinite flux of money (which is equivalent to a flux of mass or energy) out of nothing.

If this fundamental physical error of the economic theory were corrected, and the juridical possibility of the ownership right over sources of energy and raw materials excluded, the energy producers would be selling not energy and raw materials to the civilization, but their labor, as employees. If these labor costs were overestimated by forty times, it would be possible to find different employees working at a fairer price. For this purpose one would need a centralized body controlling global energy sources and functioning as the employer. Notably, human history already saw precedents when the juridical norms impeding economic progress were abolished, for example, when the right for owning a human being (slavery) was legally prohibited. Slavery implied purchase and sale not of human work (which has the dimension of Joules and coincides with the dimension of money), but of human power (which has the dimension of power and cannot be expressed as a sum of money). Remarkably, this abolished economic practice violated the physical law of conserved dimensions of measurable variables in very much the same manner as currently do the purchase and sale of energy sources.

To cite this document:

Makarieva A.M., Gorshkov V.G., Li B.-L. (2010) Comprehending ecological and economic sustainability: Comparative analysis of stability principles in the biosphere and free market economy. Annals of the New York Academy of Sciences, 1195, E1-E18. Abstract. pdf doi:10.1111/j.1749-6632.2009.05400.x, first published as PNPI Preprint No. 2763.