Contemplation on money
Posted on wo 07 september 2022 in contemplation
Let's start with some basic questions:
- What is money?
- What does it represent?
- Why is a bank note in my wallet different from a candy wrapper? They're both colored pieces of paper and yet we treat them differently.
What is money?
In today's culture, there is the understanding that if you have money, you can transform the world. When we believe that, we miss the forest for the trees and we become blind to what actually transforms the world: energy. Energy, in physical terms, is the ability to transform your environment. No energy, no tranformation. The saying "Money makes the world go round", is more accurately "Energy makes the world go round".
Money is an abstraction over a future flow of energy.
Why a future flow? When I go to the baker with my money, I expect the baker to give me an energy product, in the form of a bread, in exchange for this money. The baker in return expects this money to pay for his oven, the fuel for his oven, the flour to make bread with and the petrol that he uses to drive to the mill. It takes energy to maintain the bakery, the oven, the mill, the cargo vans etc. Tim Garrett shows that for every 1000$ of accumulated wealth (measured in 2005 USD), we need an energy flow of 7.1W (that is, 7.1 joules per second) to maintain it.
Users of money work on the assumption that these energy flows will be available if and when they need them. This assumption has held with hardly any exception for most of ~250 years, since the beginning of the industrial revolution. I believe this assumption has been broken from 2008 onwards.
Where does our energy come from?
Energy can only be found or caught and then transformed into a form we can more easily work with. We find energy in deposits of oil, gas and coal. We also find energy in the food we eat. We catch energy by spinning turbines using wind or water and by catching photons as they travel through exotic materials.
More than 80% of our (flow of) energy comes from fossil fuels: coal, oil and natural gas. The rest is hydro, solar, wind, nuclear and biomass. Of these, most also depend on fossil fuels for their construction, installation and subsequent maintenance. The fate of these alternative sources of energy is thus tightly linked to the fate of fossil fuels, in particular: oil. Without the diesel component of oil, none of our heavy machinery would run. No excavators, tractors, trucks, ships or planes. The world as we know it stops without oil.
So, of the energy flow we have available today, over 90% is due to fossil fuels. Looking at the energy outlook of the IEA from 2020 it seems obvious to me that the decline rate for the coming decades will be between 6% and 9% per year. Using the rule of 72, a decline of 6% per year halves the available energy flow every 12 years. A decline of 9% per year halves it approximately every 8 years. Let's work with a 6% decline per year.
Peak extraction of oil worldwide was in 2018. We will be at half that in 2030 (2018 + 12 years). And at a quarter of peak in 2042 (2030 + another 12 years). How much of our global economy will still be intact by then is anyone's guess. Based on these estimates, I think most parts of the world will have been forced to go back to fully renewable (wood) living by the time 2050 rolls around.