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ECONOMY: Money and Energy

ECONOMY: Money and Energy

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The debt-based money system just described cannot work if there is less and less energy available. We only borrow if we think we're going to have more money in future with which to repay, and a society as a whole cannot expect to have more money unless there is economic growth, or inflation, or a combination of the two. Moreover, we can't expect to have growth without more energy. Historically, the link between growth and energy use has been very close.
The debt-based money system just described cannot work if there is less and less energy available. We only borrow if we think we're going to have more money in future with which to repay, and a society as a whole cannot expect to have more money unless there is economic growth, or inflation, or a combination of the two. Moreover, we can't expect to have growth without more energy. Historically, the link between growth and energy use has been very close.

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Published by: Post Carbon Institute on Nov 15, 2011
Copyright:Attribution Non-commercial

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The Pst Carb Reader Series: Ecmy
Mey ad Eergy
By Richard Duthwaite
 
Abut the Authr
Richard Douthwaite is co-founder of Feasta, an Irisheconomic think tank focused on the economics of sus-tainability. He was instrumental in the development of the “contraction and convergence” approach to deal-ing with greenhouse gas emissions, which has sincebeen backed by many countries. He is author of twobooks, including 
The Growth Illusion
(1999) and
Short Circuit 
(1996). Douthwaite is a Fellow of Post CarbonInstitute.Post Carbon Institute© 2010613 4th Street, Suite 208Santa Rosa, California 95404 USAThis publication is an excerpted chapter from
The Post Carbon Reader: Managing the 21st Century’sSustainability Crises
, Richard Heinberg and DanielLerch, eds. (Healdsburg, CA: Watershed Media, 2010).For other book excerpts, permission to reprint, and purchasing visithttp://www.postcarbonreader.com.
 
MonE AnD EnER1 TE PoST CARBon READER SERES
Money and energy have always been linked. For exam- ple, a gold currency was essentially an energy currencybecause the amount of gold produced in a year wasdetermined by the cost of the energy it took to extractit. If energy (perhaps in the form of slaves or horsesrather than fossil fuel) was cheap and abundant, goldmining would prove profitable, and a lot of gold wouldgo into circulation enabling more trading to be done.If the increased level of activity then drove the price of slaves or coal up, the flow of gold would decline, slow-ing the rate at which the economy grew. It was a neat,natural balancing mechanism which worked rather well. In fact, the only time it broke down seriously was when the Spanish conquistadors got gold for very littleenergy—by stealing it from the Aztecs and the Incas.That caused a massive inflation and damaged theSpanish economy for many years.Gold rushes were all about the conversion of humanenergy into money, as the thousands of ordinary peoplemining in the Amazon basin show. Obviously if sup- plies of food, clothing and shelter were precarious, asociety would never devote its energies to finding some-thing that its members could neither eat nor live in, and which would not keep them warm. In other words, goldsupplies swelled in the past whenever a culture had theenergy to produce a surplus. Once there was more goldavailable, using the precious metal as money made moretrading possible—enabling the conversion of whateversurpluses arose in future years into buildings, clothesand other needs.Lots of other ways of converting human energy intomoney have been used as well. For example, the inhab-itants of Yap, a cluster of ten small islands in thePacific Ocean, converted theirs into carved stones touse as money. They quarried the stones on Palau, some260 miles away, and ferried them back on rafts pulledby canoes. But once on Yap the heavy stones were rarelymoved, just as lots of gold never leaves Fort Knox.
1
 The last fixed, formal link between money and gold was broken on August 15, 1971 when President Nixonordered the US Treasury to abandon the gold exchangestandard and stop delivering one ounce of gold for every$35 that other countries paid in return. Some peoplethink that this link between the dollar and energy wasreplaced by an agreement that the US then made withOPEC that “backed” the dollar with oil. Supposedly,OPEC agreed to quote the global oil price in dollarsand, in return, the US promised to protect the oil-richkingdoms in the Persian Gulf against threat of invasionor domestic coups. If it exists, this arrangement is cur-rently breaking down.A more important current link between energy and“official” money is the consumer price index. The cen-tral banks of every country in the world keep a close eyeon how much their currency is worth in terms of the
 
Almost all themoney weuse is createdas a debt.

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jwr47 added this note
My idea: The debt-based money system would also crash if ample energy would have been available. It would be crashing anyway...
Jed Diamond added this note
This states the problem clearly, so how to we continue have a workable economy in the post-growth era?
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