Peak Oil is You

Donate Bitcoins ;-) or Paypal :-)

Page added on November 17, 2011

Bookmark and Share

Money and Energy

ECONOMY: Money and Energy


Money and energy have always been linked. For example, a gold currency was essentially an energy currency because the amount of gold produced in a year was determined by the cost of the energy it took to extract it. If energy (perhaps in the form of slaves or horses rather than fossil fuel) was cheap and abundant, goldmining would prove profitable, and a lot of gold would go 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, slowing 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 little energy—by stealing it from the Aztecs and the Incas. That caused a massive inflation and damaged the Spanish economy for many years.

Gold rushes were all about the conversion of human energy into money, as the thousands of ordinary people mining in the Amazon basin show. Obviously if supplies of food, clothing and shelter were precarious, a society would never devote its energies to finding something that its members could neither eat nor live in, and which would not keep them warm. In other words, gold supplies swelled in the past whenever a culture had the energy to produce a surplus. Once there was more gold available, using the precious metal as money made moretrading possible—enabling the conversion of whatever surpluses arose in future years into buildings, clothes and other needs.

Lots of other ways of converting human energy into money have been used as well. For example, the inhabitants of Yap, a cluster of ten small islands in the Pacific Ocean, converted theirs into carved stones to use as money. They quarried the stones on Palau, some 260 miles away, and ferried them back on rafts pulled by canoes. But once on Yap the heavy stones were rarely moved, just as lots of gold never leaves Fort Knox.

The last fixed, formal link between money and gold was broken on August 15, 1971 when President Nixon ordered the US Treasury to abandon the gold exchange standard and stop delivering one ounce of gold for every $35 that other countries paid in return. Some people think that this link between the dollar and energy was replaced by an agreement that the US then made with OPEC that “backed” the dollar with oil. Supposedly, OPEC agreed to quote the global oil price in dollars and, in return, the US promised to protect the oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coups. If it exists, this arrangement is currently breaking down…

3 Comments on "Money and Energy"

  1. dsula on Thu, 17th Nov 2011 12:26 pm 

    I simply dont’ understand gold and money. Why did people put effort into mining gold? Wouldn’t it been better to use the effort for something productive, e.g farming or construction?

  2. BillT on Fri, 18th Nov 2011 3:48 am 

    Ask the many civilization through the last 5,000 years the same question. I assume it is because it is limited and cannot be printed or faked and therefore makes a good medium of exchange (money). Certainly, when the dollar system collapses, gold will still have value and is practically indestructible.

  3. The Practician on Fri, 18th Nov 2011 4:57 am 

    minor quibble: This article claims that the ammount of money in circulation equals the ammount of debt in circulation. It does not mention that every red cent of that money is lent at interest, and therefore even less pay-backable.

Leave a Reply

Your email address will not be published. Required fields are marked *