Capital without Energy is a Sculpture…
Chapter 11 of my forthcoming book "How economists will destroy capitalism"
I will start with the facts. The fundamental cause of the rise in living standards since the Industrial Revolution is the increase in the energy humans consume. Prior to the Industrial Revolution, the energy[1] a society could share was capped by the energy inputs we were able to exploit, from plants, wild and domesticated animals, slaves, serfs, and a small amount of wind and water power. At the Industrial Revolution, we developed the capacity to create machines which could take fossil fuel inputs—initially coal, then also oil—and burn these to release energy, which was used to spin cloth, move railway trains, and ultimately, to send astronauts into space.
The amount of energy that the leading machine of a given age can process has risen exponentially over time. Steam-engine powered locomotives based on James Watt’s initial design generated about 200 horsepower, and consumed about 30 tons of coal per day. The comparable machine of our day is the Falcon 9—in terms of a leading-edge device used for transportation—which consumes 2.5 tons of fuel per second. The comparison is crude, but indicative: the Falcon 9 consumes over 7,000 times as much as the first steam engines.
Human consumption levels have also risen dramatically, while the amount we can devote to production has remained a constant. The average unskilled worker sustains about 75 watts over an 8-hour working day. When that average unskilled worker was a slave, most of the energy they received as inputs went into work. The average unskilled worker in Europe or America puts in no more than a slave once did, but receives a huge amount of energy for consumption purposes: electric light, heating, cooling, petrol for commuting. That higher energy consumption is where our increase in living standards has come from.
These facts are evident from statistical data, which can be seen in a plot of global energy consumption against global GDP—known as GWP or “Gross World Product”. Both rise lock step, as the first chart in Figure 7 shows, and the change in GWP and the change in energy are both very tightly correlated, and of the same order: a 6% increase in energy correlates with roughly a 6% increase in GWP, and vice versa. There has been a gradual increase in GDP per unit of energy over the period from 1971 to 2023—the 4th chart in Figure 7—which probably reflects the growing share of “services” in GWP as the world has become more financialized. But this ratio has less than doubled over half a century: there is no way that GDP is “decoupling” from energy, because, in a fundamental sense, GWP is energy converted into useful work. You can’t “decouple” from what you are.
Figure 7: Energy and GWP[2]
All of this should be reflected in economic models of production. But in fact, none of it is.
Economists model the physical aspect of the economy—the physical system by which goods are produced—using what they call “production functions”. These are mathematical functions that link inputs, as hypothesised by economists, to outputs. Both the Neoclassical and Post-Keynesian schools of thought use production functions in which there is no explicit acknowledgement of the need for energy, or other inputs from the biosphere, in order to produce the physical goods and services which we describe as “Gross Domestic Product”.
