All Commentary
Thursday, August 1, 1974

The Energy Crisis: Alternative Futures

Mr. Kizer is president of Scientific Appraisal, a firm specializing in economic, scientific, and psychological consulting. These remarks are from a recent speech before the Ohio Chapter of the American Institute of Real Estate Appraisers.

The First Law of Thermodynamics tells us that the energy content of the universe is constant and energy is always conserved. What one really means when he speaks of an energy shortage is that there is a shortage of useful energy, which is an altogether different notion; useful energy is a relative concept, not an absolute one like energy.

Henry Grady Weaver points out (The Mainspring of Human Progress, 1947):

“Nothing is actually a ‘natural resource’ until after men have made it useful to human beings. Coal was not a natural resource to Julius Caesar, nor crude oil to Alexander the Great, nor aluminum to Ben Franklin, nor the atom to anyone until 1945. Men may discover use for any substance. Nobody can know today what may be a natural resource tomorrow. It is not natural resources, but the uses men make of them that really count.”

This is the reason we can never run out of natural resources including, of course, energy (that is, at least until the death of the sun). Thus, the real reason the United States has led the world in the Age of Power is that individuals have had the freedom to create new sources of energy and devices for its more effective use. These obvious points are challenged by those physical scientists who are trying to develop what they call a new science of futurology. Such is the Club of Rome which publishes the magazine The Futurist. This group has also published two books The Energy Crisis and The Limits to Growth which have been best sellers and frightened many people into believing that we must go back to the horse and buggy days because it is impossible for life to get progressively better.

There are many errors in these books pointed out by many people but the fundamental assumptions are also in error, that is, that we have only a limited amount of energy resources. The advocates of this point-of-view could create a self-fulfilling prophecy as their advocacy of a return to the days of low energy consumption obviously cannot be accomplished without governmentally restricting personal energy consumption. People will not give up their Cadillacs voluntarily. And it can easily be seen that the governmental control of all energy destroys the freedom and incentive of individuals to develop new energy resources; thus none are developed and we have a Limit to Growth, a self-fulfilling prophecy. But as long as men have the freedom to invent and to discover, it is unlikely that there will be any permanent energy crisis or shortage of natural resources as new ones will always be created.

This is not to say that there cannot be short-term energy shortages; as a matter of fact one of the alternative futures I would like to discuss below is just this situation.

Saving the Environment

Most experts agree that one of the proximate causes of the energy crisis is the environmental movement. This movement led to the delay of the Alaska pipeline, to the installation of anti-pollution devices on automobiles that greatly reduce gas mileage and to the installation of industrial anti-water pollution equipment which required a great amount of energy to install and takes a great amount of energy to maintain.

The problem with much of the anti-pollution legislation is that there is still a great deal of debate about whether the dumping of pollutants is harmful enough and great enough to justify the massive social cost which it entails. Let us not forget the mercury pollution example in which it was recommended that one eat fish not more than once a week because industrial dumping of mercury into the rivers and seas was causing the mercury absorption by fish to rise to dangerous levels. It was later discovered that the mercury level in fish is lower now than it has been in the last 80 years, even though the dumping of mercury into the waters by industry has increased. Thus, we have nothing to fear from so-called mercury pollution at all. At any rate the environmental movement has given the government justification for greater controls on energy and how it is used, thereby destroying the very conditions favorable for solving the energy crisis.

There are some solutions to the pollution problem, however, that maintain conditions favorable to discovery and incentive and hence a way out of the energy crisis. One way is to refine our definition of property rights. Oscar Cooley developed this idea in the June, 1972, Freeman. Cooley’s explanation is based on the fact that the problem of pollution is usually considered to be the primary externality of the modern market economy. Most proposals attempting to solve the pollution problem have at least tacitly assumed that the externalities involved are ineradicable; thus these proposals have almost exclusively involved nonmarket solutions to the problem. Harold Demsetz as long ago as 1967 had suggested that a redefinition of private property rights has often, historically, served the purpose of internalizing, that is, bringing within the market mechanism, externalities of all sorts; Cooley applied this insight to internalize the externalities caused by pollution.

The Case for Private Property

Cooley’s argument can be paraphrased as follows. Because of the impossibility of making interpersonal utility comparisons, the question of what constitutes a pollutant must necessarily be given a subjective answer. To use Cooley’s example, if a private property owner decides to dump sewage into his pond, he is, in essence, deciding that the highest and best use of the pond is as a cesspool. Although an external observer might look upon this use as a polluting use, unless he is willing to purchase the property to convert it to another use, the use to which the property is being put must be assumed to be the one which maximizes social utility. The implication of Cooley’s argument is that private property, by definition, cannot be polluted. Cooley then argues that since private property cannot be polluted, the conversion of public property to private property is the technique by which the externalities of pollution might be internalized. Although Cooley recognizes that certain aspects of the pollution problem might not be solvable without further technological innovation (for example, the invention of the parking meter was necessary before the owner could ration parking spaces via market pricing thus eliminating the divergence between private and social costs), he believes that the problems of water pollution could be solved immediately by selling the inland bodies of water to private owners. Obviously, one of the assumptions of Cooley’s argument is that only technical externalities, and no theoretical ones, exist; thus, any externality can be brought within the framework of the market mechanism with a suitable technical innovation. This particular idea would not solve the air pollution problem, but some equally clever idea might do the job. This redefinition of private property rights is one alternative future which would not only alleviate the energy crisis immediately but would also create the conditions for a discovery likely to solve it.

Other Interventions Behind the Energy Crisis

Some of the other obvious causes of the energy crisis include so-called consumer protection laws, wage and price controls, and land-use legislation. Our system of taxation also has helped create the “energy crisis.” The corporate income tax has been especially important in this respect because of its negative effect on investment. Not only is possible expansion capital from earnings destroyed by taxation, but also young and growing corporations are taxed and hence penalized more than corporations with accumulated wealth, thereby giving larger corporations a competitive edge. As new and vital corporations are an essential part of a free market economy, this type of tax tends to destroy free enterprise, thereby halting economic progress. Also, as any businessman will say, a corporate tax lessens efficiency because the government bears part of the loss in any inefficient investment, this being a common method used by corporations to lessen their tax burden in a profitable year by taking over a company which shows a loss.

The personal income tax also has the effect of distorting the choice of an individual between present and future consumption, favoring the former. As with the corporate income taxes, personal income taxes reduce an individual’s incentive to invest, as he knows the government will absorb some of the gains.

No matter how original and creative some of the economic ideas to ameliorate the energy crisis, obviously, any final solution must be a technological one. We must develop new energy sources. We have a limited quantity of fossil fuels and even a relatively limited quantity of uranium in comparison with what our energy wants are likely to be in the next few centuries.

If we reduced our energy consumption, our actual standard of living would not decline nearly so much as some believe. Some people find it paradoxical that decreasing our energy use could actually increase our productivity per unit of other resources. The communications engineer well knows that the “noise” in a channel increases proportionately more than the negentropy flow with increasing power. For example, horse can convert about one horsepower steadily for 10 hours a day and the average horse is about 20 to 25 per cent efficient. However, since horses presently in the U.S. work only 800 to 1000 hours a year, they are only 6 to 7 per cent efficient. A man working 50 hours a week for 50 weeks a year delivers only one-fourth as much energy as a horse, but the horse consumes 10 times as much energy. Thus, a man is two and one half times as efficient as a horse and the use of the horse constitutes a waste of potential energy. The horse is used, of course, because of the rate at which it can deliver energy; during a limited growing season this greatly increases the amount of land prepared for growing.

Another way of saying this is that the hoe culture is more efficient in terms of energy than the plow culture and it is preferable so long as energy is in short supply and labor is abundant. This is the case in a low energy society being transformed from a high technology society such as ours.

Many people are supposedly shut out of work because they have only low technology skills in a high-technology society. These people could be returned to productivity in a low-energy society; thus, total productivity could conceivably even be increased if our energy use were lowered. In this type of society inventions which allow for more intensive cultivation of limited resources would be valued and developed rather than inventions which are power-dependent. An example of this type of invention would be new fertilizers.

The point I am trying to make here is that even if we assume the worst — that we shall discover no new energy sources — under no circumstances will we return to the primitive low-technology life from which we have come, that is, as long as we have freedom. But I think we will develop those new energy sources.

Candidates for new energy sources include nuclear fusion, wind power, solar power, tidal power and hydroelectric (gravitation) and geothermal.

Nuclear fusion, which is the source of the energy of the sun and stars, as well as the hydrogen bomb, could be a nearly unlimited source of energy if we could control it. It depends simply on combining two heavy or deuterium nuclei into a helium nucleus. The helium nucleus has less mass than the two deuterium nuclei and the missing mass has been transformed into energy according to the law

Solar power also offers tremendous opportunities, as ten times as much energy from the sun reaches the surface of the earth each year as all the energy contained in all the coal reserves of the entire world. It seems likely that the next few years will bring great advances in the use of all this solar energy.

Geothermal power is now only a speculation. There is a tremendous storehouse of energy under the surface of the earth as evidenced by geysers and volcanoes; however, at present, we have no idea of how to harness this energy.

Some even more speculative ideas for new energy sources include using the principle of the Foucault pendulum to obtain energy from the rotation of the earth. How this might practically be done is not known at present but is, at least, a theoretical possibility.

Also a pendulum moving through a magnetic field (such as the earth’s) will generate an electrical current. Again, the principle is sound but no appropriate technology exists.

Another possibility — which I have further explored in a recently published work — indicates that even the motion of the earth around the sun or a satellite around the earth might be used as a means of generating electrical energy. This may be the energy-cultivating technique which first leads to practical results.

Blessing in Disguise

The energy crisis may be a blessing in disguise in that it has prompted many scientists and engineers to begin thinking anew about promising sources of energy.

One might say that our society based on fossil fuels is analogous to the primitive food-gathering society in which there was a limited amount of game to kill and a limited amount of fruit to pick. Similarly, our fossil fuels seem limited. But how more limited life must have seemed for the primitive food gatherer who did not realize that just around the corner was the invention of agriculture and a civilization based on cultivation. To me this seems to be analogous to the situation we are in. Today we are a society of energy gatherers feeling limited by the quantity of energy we can gather. I think the future holds for us a new age and civilization, a civilization based by analogy on energy cultivation in which we no longer are dependent like the food gatherer on the energy sources which occur naturally, but rather we shall actively create new useful energy by means of one or more of the previously-mentioned techniques. To live at a time which may be the turning point into a new civilization may be the good fortune of us all.