abolition

The abolition of capital – energy credits on the micro-economic level

by Economics

Introduction

Capital is power, and the nature of this power is access to resources. In today’s world, the main differentiation between a wealthy and a poor individual lies in time. Wealthier persons not only have a wider variety of choices at their table, but also the choice to wait with their choice until better opportunities offer themselves. “Beggars can’t be choosers” it is said, and poorer individuals often must make sub-optimal choices in order to reach their objectives – which often are concerned with their survival, dignity and safety. Wealthy individuals could wait for months, yes sometimes even years, before they have to make economic choices which would affect their lives in the same manner. Some individuals are so wealthy that they never in a thousand life-times would have to worry about becoming homeless .

what_is_money[1]

What is money and why is it problematic?

by EconomicsSocial

The history of Money

Usually, we tend to think that money arose with coinage during the late Iron Age. Before that, human beings generally bartered goods directly, we are taught. The facts are far more nuanced and poised towards a gradual evolutionary development of currencies that have followed similar patterns throughout the world.

It is true that when trade was infrequent, goods were primarily exchanged as barter or gifts. When agriculture was developed, the population grew and villages turned into towns, trade became more and more habitual. Thus, with soon to be dozens of different goods exchanging owners in buzzing markets, trade became more and more complicated. Soon, certain goods evolved beyond their usage utility to serve as “key goods” to obtain other goods.

In ancient Egypt for example, beer sometimes played this role, while in early­medieval Sweden, dried fish was functioning as a de-­facto currency. These goods were soon treated as the default means of payment. Metal currencies arose partially to structure up trade and create uniform rules, and also so emerging states should be able to pay their armies and bureaucracies. They also served a role as a disseminator of ­approved information, so everyone would know the identity of the people in charge. The reason for the choice of gold and silver was often that there was a state monopoly on the extraction of these minerals, that they were scarce and that they were thought to have magical­-spiritual properties.

There were a few weaknesses with currencies based on noble metals however. The foremost of them was that their durability meant that they could accumulate into the hands of those controlling the land and providing towns with much needed food. This accumulation withdrew money from circulation which led to deflation – meaning that the value of money increased. This created an incentive to hoard money, and led to stagnation in trade.

During the Renaissance, families in the wealthy city­states of North Italy established banks which originally were providing gold storage in the trade between Italy and the westernmost point of the Silk Route – the Queen City Constantinople. A merchant in Italy could leave his gold at a Medici bank and take out a receipt, which he later delivered to the Medici office in Constantinople where he would receive an equal amount of gold to conclude the import of silk and spices.

Soon, the banks started to offer another service – loans at interest. The clients were most often governments in need of resources to be able to defend themselves, or to expand at the expense of their neighbors. Gradually, the demand for loans in the war-­torn Europe of the 15th century meant that banks started to lend out more money (in the form of receipts) than gold and silver contained in their vaults, creating the foundation for fractional reserve banking, where the reserves of a bank are just a fraction of what the bank possesses in terms of its role as creditor.

Wind forward

This system made possible the establishment of European colonial ventures, of empires and of the Industrial Revolution. Capitalism as we know it would not have been possible without fractional reserve banking.

In 1971, the last aspect of the old metal­based system was scrapped when the US Dollar was disconnected from being backed by gold reserves. From then on until today, money has globally been a unit created by and backed by debt and credit and created through loans issued by banks.

Usually, people associate money with physical cash. The truth is however that less than five percent of all money exists in the form of cash, and physical money is gradually being phased out in most developed nations.

The benefits of fractional reserve banking and fiat currencies is that it is easy to make available credit for investments and growth, which means that interest rates generally are low and that companies and governments can develop infrastructure and technology continuously.

There are a few problems however.

The first problem, which plagued fractional reserve banking as a system for generations, was the (quite so legitimate) issue of trust. Bank panics often began when it became clear that banks were insolvent, leading to financial crashes and recessions every few years. The establishment of Central Banks helped to alleviate the worst excesses of the system, and maintain the mountain of debt constantly being pushed forward.

The Central Banks act as lenders-­of-­last-­resort, supplying the private banks and business banks with credit so their insolvency seldom risks threatening their existence (and the well- being of the general economy). There are of course ethical and societal concerns with this arrangement, as it serves to collectivize the risks undertaken by major private entities. That means that when the pile of debts are threatening banks with bankruptcy, the public is punished for the mismanagement of the economy by the banks by having to bear the brunt of the costs – through stimulus packages aimed for financial institutions, and later through austerity, tax increases and reductions in public expenditure aimed towards bettering the situation for those who are in most need of such remedies.

The system has however been exceptionally resilient, and since 1929, we have only experienced few crises on a global level. This seeming stability is however dependent on another factor – exponential economic growth.

Why we are destroying the Earth

Exponential economic growth is actually about more than improving human livelihood on Earth. It is an imperative and a necessity for the continued existence of the current debt-fueled monetary system.Reduced growth forecasts are not only a threat to the well-­being of the employees and businesses, but also a long-­term threat to the very viability of the financial system.

Economic growth means that the economic activity must rise during this year compared to the last year in terms of the monetary value that is flowing through the system.Much of policy- making in the developed world is about maximizing economic growth. This inevitably leads to an economic system where there is an incentive to try to increase consumer demand, produce things as cheaply as possible and get them out on the market as fast as possible.

That culture is very problematic.

Because the most economically sensible cost­-cutting solutions prioritized by a system that emphasizes economic growth above everything else, are just the kind of policies that are ravaging our planet, homogenizing her environments to suit the needs for agro-­industrial activities, destroying fresh-­water reserves and are responsible for the transformation of her climate.

In short, a monetary system built on debt is dependent on exponential growth and will collapse without it, since the debt will accumulate over time and needs to be continuously repaid. The wealth needed to repay the debt and grow the economy is to a large degree taken from the Earth, to the point that we are now destroying the biosphere. Therefore, we need to move away from this current debt-­based currency system, and move towards a system based on how our planet’s systems are operating.

Thermoeconomics: The use of Exergy in Alternative Socioeconomics

by with No Comment Economics

Abstract

As our current socioeconomic system does not have a sustainable nature thus, it will collapse. This paper presents an alternative to today’s system that utilizes exergy as a common accountancy unit for a sustainable resource base socioeconomic system.  An item’s cost, in terms of exergy, reflects the physical cost of the item. The system utilizes management techniques such as optimisation, Life Cycle Analysis and Cost Based Analysis to produce items efficiently and minimize their exergy and environmental cost.

Read more: Thermoeconomics: The use of Exergy in Alternative Socioeconomics

Introduction

Our current socioeconomic system comes with a number of attributes that results in the system having an unsustainable nature.  The system uses a fiat money system; where banks create money, out of nothing, which they then lend out. The borrowers then pay back the money with interest. Thus our money supply takes the form of debt and we always have more debt in the system than money due to the need to pay interest and for companies to acquire profit. “Beneath” the world of economics lies the actual psychical system of resources, production and goods which we use the money system to regulate. However, the money does not represent a physical variable of the system. Instead it has a subject nature.  The fiat nature of our money system and its disassociation form the physical world necessitates and allows the system to drive constants exponential growth. However, no physical system can sustain exponential growth. Although banks can create money ad infinitum, the physical world cannot keep up and our system with either collapse, change over to an alternative sustainable system or we will “cut back” the system through wars, disease, famine or other natural disasters to allow more growth.

Other reasons for the unsustainability of our current system included the dependence on finite energy sources such as oil and nuclear power as well as the liner form of production we use (from resources to production to disposal) rather than a sustainable cyclic system (from resources to production to recycling / reuse to resources) [Ekins, GowWal].

This paper presents and alternative, sustainable, economic system  using exergy as a foundation.

Economic systems as a resource allocation system

Economic system represent a type of resources allocation system. In an economic system we have a set of resources, R, and set of production facilities, P, which produce a set of goods, G, used for consumption. Such a system requires energy to run. Actually, the system requires a set of energy producers that make available a supply of usable energies (exergy), Ex. People (H), though demands for goods, then drive the system.

The system then becomes:

Where D represents the demands and M the manufacturing capacity to meet those demands. We can regulate such a system using variables that represent the state of the system. Exergy forms one such variable. 

Exergy as a common accountancy unit

The term “exergy” refers to the usable energy for a physical system and follows from the second law of thermodynamics; we cannot full change heat to work. Energy comes in different forms such as potential, chemical, kinetic and electrical energy. Not all forms of energy have the same potential to produce work. We can convert electrical energy completely to work  but cannot convert heat energy fully to work [Wall].

As any socioeconomic system requires energy to work we can measure how much available energy (as exergy) we have  and that will give us a measure of the system’s ability to produce.

A socioeconomic system not only needs energy but also materials. We can also use exergy as a measure of materials. This follows from the materials having a chemical potential. Thus, the exergy, Ex, we have becomes:

In addition, information can also have an exergy value. This follow from the application of statistical mechanics and information theory where we can define a particle as have one bit of information.



As we can use exergy to measure usable energy, materials and information that a socioeconomic system utilises, exergy, therefore, forms a common accountancy unit for any socioeconomic system.

Exergy has an additional property of use for a socioeconomic system; exergy has a relationship to the environment. The greater the difference a system exhibits between itself and the surrounding environment the greater the exergy becomes. Thus ice in the tropics has a higher exergy value than ice in the Arctic. Heating has a higher exergy cost in the winter than in the summer [Wall].

As exergy forms a common accountancy unit and has a relationship to the environment we can use exergy as a control variable for a resource allocation system such as a socioeconomic system.

Overview of an Exergy Based Socioeconomic System

A socioeconomic system based on exergy becomes a resources allocation system where we would have a system that uses state variables to control the system. The system would use exergy to measure the production cost of an item so each item produced would have a cost that reflects the physical cost of that item rather than a subjective monetary value. A society would also have a certain amount of exergy available for the production of each item and the processes that go into maintaining and running society. The resource allocation problem then becomes one of allocating exergy to production based on the user initiated demand for goods and the maintenance requirements of the system. We could do this through calculating how much exergy we would have available for the system, within a given time period, as a whole allocate x amount for the system maintenance and large common projects then distribute the remainder equally among the user base as “Energy Credits” (EC). The ECs effectively represent production capacity and the users can then allocate  EC to production to acquire personal items.

Management of the Resource Allocation System

The resource allocation will need management to efficiently control the system and to minimise production and environmental damage, if we wish to have a sustainable system, as well as determine the cost of an item.
 
Figure 1. Macro-economic model of an exergy based socioeconomic system

G = goods M = materials E = energy / exergy Ec = Energy Credits

Determining an item’s cost

Physical variables determines the cost of an item in the presented system rather than the subjective valuation of a (free) market. We express the cost in terms of exergy so each item has an exergy value giving the amount of exergy consumed in the items production. We can use Life Cycle Analysis (LCA) as a method for determining an items cost.

The term LCA refers to a method of determining the processes and their impact for the production of an item from the beginning of production until the disposal of the item. From the acquisition of the raw material to the production of the parts to the production of the final item and then later the disposal of the item. LCA assess the contribution to environmental damage and resource depletion but it could also recode how much exergy the process of producing an item consumed at each stage. How much in acquiring the raw materials? In transporting the parts? In producing the whole? and in disposing of the item?

LCA analysis begins with defining goals and boundaries for the study. It then goes on to perform an inventory analysis. During the inventory analysis the assessors collect data on the system for the items production as well as model the whole process.

After data collection, the assessors evaluate the impact of the process in various categories. We can then evaluate these impacts and determine the  actual physical cost in terms of exergy for a given item.

Cost Benefit Analysis

Cost Benefit Analysis forms a technique for assessing the pros and cons of the production of a item. Normally, a CBA states the costs in monetary terms. For a socioeconomic system based on exergy the CBA would use exergy as the unit of cost. This gives a more objective assessment as exergy directly relates to the physical state of the system, whereas money does not [RahDev, Owen]. Also, the use of exergy enables the assessors to fully assess the costs of an item as all benefits and cost would utilise the same accountancy unit. So, for example, the environmental impact  would have an exergy cost which would lead to a more realistic assessment of costs compared to a monetary based assessment where assessors can ignore much of the environmental cost if it doesn’t have any direct money value (such as if the polluter doesn’t have to pay).

Optimisation

Management of the system aims to minimise impact on the environment and maintain a sustainable system. To do that, the management process would need to optimise the production of goods so that production  use the minimum amount of materials and energy for the maximum amount of life expectancy. [Fran]

The optimisation problem involves a set of functions to optimise and a set of boundary criteria. An exergy based socioeconomic system would have the optimisation functions:

maximise life expectancy (L)

minimise material and energy (exergy cost)

Where and represent the optimisation functions.

Subject to the follow constants:

within the limits of the available energy and material supply as well as environmental impact (I).

For example, an item car, requires a certain amount of material of a given type; steel, aluminium or plastic. Each possibility for construction has a certain cost for production in terms of exergy; exergy using in extraction of the raw material, referencing and production of the base material as well as transportation. Each material will also have an associated life expectance. So, the optimisation problems comes down to maximising the life expectance for the minimum exergy cost such as a plastic construction might have a lower exergy cost but shorter life expectance than steel and aluminium might last longer than steel but have a higher exergy cost. At some point we would have the optimal material for a given cost.

Engineers have a variety of optimisation methods available, which include the following:

1. Calculus (max and min)
2. Pinch method
3. Convex optimisation

Calculus (max and min)

Calculus forms the basic method for optimising functions through first and second derivatives to find the maximum or minimum point of the function.  Engineers could use calculus to find the point of maximum life expectancy and the points of minimum material and exergy usage as well as minimum environmental impact.

Pinch method

The pinch method forms an example of a widely used optimisation method, specially adapted for heat energy systems and engineers use the method of optimising large scale industrial processes [Pinch]. Two phases compose the pinch method; an analysis phase and a synthesis phase.

The analysis phase involves the collection of data form measurements of the actual system and simulations. The analysis phase also uses site expertise to validate the data. From the data, engineers develop models of proposed changes. They then assess the impact of the proposed changes. The analysis phase involves iteration around a loop.

The synthesis phase aims to effect actual improvements in the system.

Convex Optimisation

The term convex optimisation refers to a set of techniques which includes least square fit and liner optimisation. Once defined as a convex problem, engineers can often find the solutions for optimising a certain criteria within given limits using well known methods such as  solving simultaneous equations.

Summary

Our current socioeconomic system does not have the property of sustainability and, therefore, will collapse. If we wish to maintain a good standard of living then we will need to find an alternative to our current system. This paper presents one such alternative.

A socioeconomic system represents a form or resource allocation where we allocate raw materials to the production of goods. Such a system forms an example of a physical system. We can control such a system through measuring the physical variables of the system. Exergy forms a common accountancy unit for such control as exergy measures not only the usable energy of a system but we can also measure the materials in the system as well as information with exergy. The system would then need management to maintain the system in a state of dynamic equilibrium within the limits nature imposes to keep the system sustainable.

Items produced would have an associated exergy cost to produce that item. We can use LCA and CBE (in exergy terms) to evaluate an item and determine its exergy cost. Energy Credits (ECs) represent the production capacity in terms of exergy. Citizens could then allocate ECs  to production to acquire items they want.

Managers and engineers would use various optimisation methods to assess the optimal production method for required items. They would aim to minimise environmental impact through minimised material and exergy utilisation as well as maximising life expectancy.  For optimisation, we can use exergy as a common accountancy unit for  assessing both the benefits and costs of production in more realistic terms than a  money based approach.

References

[Ekins] Paul Ekins, (2006), THE FUTURE OF SUSTAINABLE DEVELOPMENT, in Dimensions of Sustainable Development, [Eds. Reinmar Seidler, and Kamaljit S. Bawa], in Encyclopedia of Life Support Systems (EOLSS), Developed under the Auspices of the UNESCO, Eolss Publishers, Oxford ,UK, [http://www.eolss.net] [Retrieved March 12, 2010]

[GowWal] John M. Gowdy, Marsha Walton ,(2008),SUSTAINABILITY CONCEPTS IN ECOLOGICAL ECONOMICS, in Economics Interactions With Other Disciplines, [Ed. John M.Gowdy], in Encyclopedia of Life Support Systems (EOLSS), Developed under the Auspices of the UNESCO, Eolss Publishers, Oxford ,UK, [http://www.eolss.net] [Retrieved March 12, 2010]

[Wall] Göran Wall. Exergetics.

[ RahDev]SM Osman Rahman, Stephen Devadoss, (2005), ECONOMIC ASPECTS OF MONITORING ENVIRONMENTAL FACTORS : A COST-BENEFIT APPROACH, in Environmetrics, [Eds. Abdel H. El-Shaarawi, and Jana Jureckova], in Encyclopedia of Life Support Systems (EOLSS), Developed under the Auspices of the UNESCO, Eolss Publishers, Oxford ,UK, [http://www.eolss.net] [Retrieved 5 February, 2010]

[Owen] Anthony D. Owen, (2004), ENERGY POLICY, in Energy Policy, [Ed. Anthony David Owen], in Encyclopedia of Life Support Systems (EOLSS), Developed under the Auspices of the UNESCO, Eolss Publishers, Oxford ,UK, [http://www.eolss.net] [Retrieved 5 February, 2010]

[Fran] C. A. Frangopoulos, (2004/Rev.2008), OPTIMIZATION METHODS FOR ENERGY SYSTEMS, in Exergy, Energy System Analysis, and Optimization,[Ed.Christos A. Frangopoulos],in Encyclopedia of Life Support Systems(EOLSS), Developed under the Auspices of the UNESCO, Eolss Publishers, Oxford ,UK, [http://www.eolss.net] [Retrieved 12 March, 2010]

[Pinch] Pinch Analysis: For the Efficient Use of Energy, Water and Hydrogen. ISBN: 0-662-34964-4