Monday, October 5, 2009

Resource Valuation

Money is the measuring stick by which we assign value to the ingredients of our lives. Whether it is food, medicine, or shelter, we assign a monetary value to the particular object of our expenditure.

A most interesting post at shows just what an error often results from presuming a common value to energy resources. Value to these resources should be based on its source, its available quantity and what it can do in terms of efficiency or actual work.

John Michael Greer is the writer of the piece and he makes the following interesting observation:

In The Wealth of Nations, Adam Smith criticizes the notion – as common in his time as in ours – that money is the same thing as wealth. The wealth of a country, he points out, consists of the product of its natural resources and collective labor: in modern terms, it’s the sum total of the goods and services produced by a nation’s ecosystems and economy. In another place, though, he defines wealth as anything that can be valued in money. These definitions do not conflict with one another; rather, they make the crucial point that money is not wealth but the yardstick by which modern cultures measure wealth. This ought to be the first thing we teach children about money, though of course it isn’t.

Greer goes on to point out that economists erroneously apply the principles enunciated by Smith to reach the conclusion that the market will cure all ills.

This habit of thought pervades contemporary economics. For a relevant example, watch the way most economists these days brush aside the immense challenges of peak oil with the assurance that if oil ever does get scarce, the market will come up with alternatives. Implicit in this claim is the assumption that any energy source is as good as any other, and that the total amount in the system is effectively unlimited. This is true of money – one dollar bill is worth exactly the same amount as any other, and the total number of dollars in circulation is as close to limitless, these days, as the printing presses of the US Treasury can make it – but it is emphatically not true of energy resources, or of any other form of wealth.

All in all, Greer’s article is well written and worthy of a read by anyone who is concerned about the future. It further illustrates the need for a future society committed to cooperation in the utilization of finite resources.