Tuesday, March 9, 2010

Money = Work

Like most of you, I feel like I've been taken on a gut-wrenching roller coaster of financial boom & bust.
I'm sick to my stomach some days with the lack of stability in the markets over the last decade. It also drives me crazy that countries can print money and take other measures to inflate/deflate their monetary supply. It's crazy to think that hard earned work can be devalued at the whims of leaders (either elected or not-elected.)
I'm so angry that there doesn't seem to be a rational underpinning for our current economic models. This idea of markets and equilibrium is ridiculous. It should be immediately be thrown out and buried very deep underground.
So, one of my goals of this blog is to start over and see if it's possible to derive some sort of economic model that is grounded in physics. In fact, I'm hoping to start with the laws of non-equilibrium thermodynamics and see if it's possible to work out a sensible economic model. (I'll need help along the way, so please point me in the right direction and send me links to any papers already written on this subject. I've been doing some searching already and found a few interesting ones, especially a few by R. Ayers.)

So, here's the start:
I've been wondering recently whether it is possible to equate money with work. And I mean work in the physics definition of the word, which has units of kW*hr. This could be mechanical work (force*distance), electrical work (charge*voltage), gravitational (gravitational force*distance) or chemical work (negative of the change in Gibbs free energy).
What if we had a currency that was linked directly to how much work (kW*hrs) you could purchase? For example, when I go to the store and buy a box of oranges, the price of the box would say "2.50 kW*hrs."
I've thought about this for a while and it gets a little confusing, but I think that it straightens out in the end. The work is the amount of work needed to create the product, and this can vary because it includes the work (money) that the employees of the company get to make the product, which allows them to spend their work (money) on products.
Another source of confusion (and a very important one) is that the work you pay for is the work that goes into the product, not the work that comes out. The ratio of output work to input work is proportional to the return on investment.
For example, if I were to buy electricity, I would spend 10 kW*hr of money, but I may get 100 kW*hr of electricity (electrical work.) This means that the return on investment (work out vs. work in) for the power plant supplying me electricity is ten (10). I think that the work out to work in the past was closer to 50 for coal power plants. Wind power today is roughly 20, and I believe that solar PV is less than 10. When you buy electricity (work) in units of electricity (work), then it's really easy to see if you are getting a good return on investment.

Here are the reasons why I think that a work-based currency is particularly advantageous.

1) The government can't change the value of your money. You can always purchase 500 kW*hrs of work if you have a 500 kW*hr in the bank. (Remember that the 500 kW*hrs in the bank might be able to be invested so that it increases in value. For example, the bank may give you an interest rate of 4% per year because the bank takes your money and invests it on something that increases the amount of work (money) in the world.)
2) If the amount of work available in the world decreases (if for example OPEC lowers output of oil), it'll be obvious because there will be less money floating around. The connection between energy (work) and the economy will be obvious. You won't have people blaming recessions on the housing market when the real culprit is the diminished supply of oil (which lowers the work output to work input of so many processes, such as agriculture and transportation.)
3) Measuring the amount of work (money) per person is a sure-fire way of determining whether a country is growing economically. There's no fudge factors.
4) There would be no currency exchange between countries. You can't have a country messing around with their monetary supply to increase exports. A 5 kW*hr bill will buy 5kW*hr of work in Europe just as it will in the U.S. (Though, a 5 kW*hr bill will not buy the same amount of electricity in Europe as it will in the U.S. A 5 kW*hr bill in Europe may only buy you 50 kW*hr of electricity in Paris whereas it may buy you 150 kW*hrs in West Virgina because of the higher return on investment from coal power plants than solar/wind/nuclear/etc...)

So, those are the reasons why I'm in favor of a currency with the units of work (kW*hrs). Let me know if you can think of any disadvantages of using a work-based currency.

Thanks,
--Eddie

p.s. this blog should not be construed to be either for or against any particular source of energy. The actual energy return on energy investment (EROEI) for a given source of electricity changes daily. Also, it may not be fair to compare coal power plants with wind power plants on just EROEI unless we find a way to convert the externalities (pollution) from a power plant into units of work. For example, people talk about a CO2 market in which the externality (pollution) is given units of money (such as $20 / ton of CO2.) In the new currency, this might look like: XXX kW*hrs / ton of CO2. This amount of work / ton of CO2 would lower the net output of work from the power plant and would in turn lower the EROEI of the power plant.

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