I was, until a couple of weeks ago, publishing a draft chapter each week from the new book I’m writing at the Budapest Centre for Long-Term Sustainability. That stopped when I started on possibly the most challenging chapter in the book, “The Role of Energy in Production”. As well as having to struggle to explain something that has been omitted from economic theory for far too long, I’ve also done a deep dive into some parts of Neoclassical economics that I’ve only paid cursory attention to in the past.
Regular readers will not be surprised to find that I located a can of worms there.
I hope to finish that chapter this week, or if not then by the middle of next week, but in the meantime I’ve become obsessed with exploring this issue fully.
When I have finished, I’ll publish two blogs in rapid succession—one finishing off the chapter on money, and the other finishing off (I wish!) Richard Tol, my bête noire amongst “climate change economists”. Then the week after I’ll publish this energy chapter, and try to get back into the swing of one draft chapter per week.
This work on energy in economics has been perplexing but also enlightening. It’s amazing how, whenever a potential fork in the road appeared, economics took the wrong one—and this applies not only to Neoclassical economists, but to their Classical forebears as well. The comforting thing for me is that the School of Thought with which I’m most associated, Post-Keynesian Economics, has taken the right fork every time—though sometimes it hasn’t realised why.
This is because the distinguishing feature of Post-Keynesian economics is the desire to produce theories that are realistic. That’s what has led to Minsky’s Financial Instability Hypothesis as its explanation of the role of finance in capitalism, for example. In the realm of production theory, it’s what led to using the Leontief Production Function, which models output as capital divided by an empirically derived capital to output ratio. My work on energy shows that this ratio is actually the inverse of the efficiency with which machinery turns energy into useful work.
Now back to the book!