Vaclav Smil’s Growth – He Gets The Economics Wrong You Know

One of the joys of being a public intellectual (ahem) is that publishers send you freebie books. As the MIT Press has just done with Vaclav Smil’s “Growth” for which I thank them.

In which we find this:

“Although economists have a long history of ignoring energy, all economic activities are, in fundamental physical (thermodynamic) terms, simple or sequential energy conversions aimed at producing specific products or services.”

No, they’re not. And if you start off like this, as he does in his consideration of the economy, you’re not going to get to the right answer either.

An economic activity is the addition of value. That’s what we measure in GDP, the addition of value. That’s what we produce, that’s what we consume, value.

It’s entirely true that an awful lot of production involves either simple or sequential energy conversions but there’s no requirement for them to do so.

The importance of this is that if we face a binding constraint upon the economy in the form of the energy available to us – something we obviously do, at some point however far into the Ringworld or Dyson Sphere future that might be – it is still possible for us to have economic growth. Simply because energy isn’t the point at all, the addition of value is. So, if we discover some manner of adding more value while using the same amount of energy, or less perhaps – not uncommon at all – or even adding the same amount of value while using less energy then growth we’ve just had in the face of our binding constraint.

Boulding’s Caution is that the man who believes in infinite growth in a finite system is either a madman or an economist. But it’s not because the economist is mad but because he’s an economist. The constraining finity is the ability to add value, not what the value is being added to or with. The physical world contains any number of binding constraints – we’re not adding value to dodos any more – including the amount of energy available to us. But it’s the ability to add value which is the overall binding constraint upon economic growth, not any of those other physical constraints.

As and when we run out of the ability to add more value then economic growth stops. And not before.

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Tim WorstallGavin LongmuirSpike Recent comment authors
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Spike
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Spike

Quite; for example, the point of LED lighting was not to wreak a new conversion of energy but rather extinguish one, the generation of injurious heat by filaments in order to benefit from the by-product of light. Embrace a finite model of the economy (that it depends on energy inputs) and you are sure to reach Malthusian conclusions. By the way, your analysis of the economy also clarifies that a growing economy does not require ever-growing numbers of employees (open borders!) or consumers (subsidies for childbearing!), either. A stable population could live better and better, provided the economic system rewards… Read more »

Gavin Longmuir
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Gavin Longmuir

You seem to be vigorously attacking a straw man here, Tim. Nothing in Smil’s quote denies the importance of innovation. When human beings invent a modern combined cycle power plant with 62% efficiency, it obviously allows the creation of more tradable goods & services from a given level of inputs than James Watt’s 2% efficient engine (i.e. economic growth) — but both engines indeed are “energy conversions”.