Summary:
Steve Keen argues that our productivity has come from machinery and the exponential amount of fossil energy being harnessed per machine over time, but this has also led to enormous waste. The concept of energy as a factor in the economy has been ignored since Adam Smith, who argued that labor was the source of value. However, previous economic thinkers such as the physiocrats believed that all wealth came from the sun or the free gift of nature. Marx argued that labor was the only source of value, while neoclassical economists said that both labor and capital contributed to output. Steve Keen believes that the physiocrats were right and that we only have an advanced economy because we exploit free energy. The Solow residual became the magic source that enabled growth to occur over time, and economists attribute this to human ingenuity, but without fossil fuels to harness, we wouldn't be producing this volume of output.
Transcript from https://www.youtube.com/watch?v=hYqEDH2u4B0 follows:
When you look at the amount of energy you and I consume it's enormous compared to what a Roman slave would consume, but the amount of our energy we actually put into manufacturing is trivial, whereas of course back in the Roman slaves day, virtually all the energy they got in was the output they'd have to provide to the slave owner. So that's about 100 watts per person, but machinery has gone up radically, and that of course is where our productivity has come from. The increased amount of energy being harnessed per machine over time. But, of course that means waste. So all these things, if we had that framework, we would never allow the level of energy consumption to reach the level it is because the level of waste production, we'd also be acknowledging that. They have a non-physical view of the economy, that it's all stuff you can write on a whiteboard with your terms, labor and capital, and energy is not one of the terms they even look at. It's a mindset that I trace right back to Adam Smith, in fact, because if you go before Smith, you'll find you had the physiocrats Quenay, Cantillon, there's quite a few others. They argue that all wealth comes from the soil, but what they fundamentally meant was all wealth comes from the sun. And if you imagine, you're like at the aquacultural society of France, which was the main location that developed the physiocratic theory, you plant one corn seed, you get a thousand pieces of corn back and you simply sit there and watch it as it'll happen over time, even if you barely do anything with the soil. So this became obvious to them that what what was causing the wealth in human societies, what they literally called the free gift of nature. Now, in that sense, the free gift of nature, that predates the understanding we have at the laws of the conservation of energy and they're aware of it, we're simply exploiting energy we find in the universe, turning it into useful work. Then along comes Smith and says: oh no he'd been living in Scotland, industrial, but you know hardly agricultural Scotland. He couldn't accept that land was a source of value. He said labor is the source of value, so you then had the classical school of thought coming along. Now Marx then took that and said labor is the only source of value. Therefore, labor should get the entire rate of profit and the neoclassicals come along and say no, both labor and capital contribute to output. So labor gets its marginal product and capital gets its marginal product, and that's all just. We've wasted 250 years arguing about the wrong stuff. The physical rights were right. We only have an advanced economy because we exploit free energy and all we're paying is the cost of extraction and therefore those enormous differentials you mentioned earlier come about, largely because, as I said, that it became part of the ideology of the contest between workers and capitalists over the distribution of income. When Marx turned the classical school, the labor theory of value, against capitalism, then in the 1870s that was when neoclassical economics, which came out, which said: no, it's the marginal productivity that determines the income, both factors of production, labor and capital, get what they deserve, so the whole thing we're seeing that productivity is coming out of three elements: labor capital and technology. Now, when they tried to then quantify that this is probably in the 1950s and 60s, with Robert Solow, they have what they called the Solow residual that when they looked at how change in GDP comes about. It had very little relationship to change in labor or change in capital or came of change in technology, and so this 'A' term which was undifferentiated, became the magic source that enabled growth to occur over time, and that was uh, if you asked economists about it, they say that's human ingenuity. Now they didn't say that yes, there's ingenuity there, but if it wasn't fossil fuels to harness, we wouldn't be producing this volume of output.