Alan Kohler is one of Australia’s most experienced commentators and journalists. Alan is the founder of Eureka Report, Australia’s most successful investment newsletter, and Business Spectator, a 24-hour free business news and commentary website. He also hosts Inside Business, a half-hour Sunday programme on the ABC, is the finance presenter on the ABC News - and producer of the nightly graph (or two).
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Comments on this article
Comments PolicyIt's interesting to see economists recognising the laws of thermodynamics (Wanted: A theory of wealth, November 19). Generally physics isn't much help in predicting complex phenomena such as human behaviour, since the basic physical laws are overwhelmed by complexity, which itself can create new kinds of order. Economic value may come from energy, but isn't directly proportional to it, since for example an LED light bulb can produce equivalent economic output (light) as an incandescent with less energy used, and a modern automobile may be constructed with less raw energy input than one of 30 years ago, but in both cases there is a correspondingly greater design complexity (or information entropy?) The progress is coming from better design and process as well as increased raw material usage required by a greater economically active population. Anything that can encourage the sharing of information (e.g., more lenient intellectual property laws) must lead to faster economic progress.
Steve your article is interesting... (Wanted: A theory of wealth, November 19)
I mean with unlimited energy, we can transform any object into any object, there is no opportunity cost, so essentially aggregate wealth/value has a value of infinity or zero, or N/A. (eg. the sun.)
The meaning of this word value affects the way we think about economics and will ultimately affect how evenly technology and the surplus is distrubuted.
If you develop unlimited energy, the value it creates should be 0. That ensures everyone is entitled to it, as the price is therefore 0.
Great read! Yes, a theory is a set of ideas formulated by reasoning (from known facts) to explain something. The facts used for economic theorising always seemed to be moving targets to me. As a scientist I love the idea of econophysicists, linking economics with something solid, and which already explains so much of how our universe operates. (Wanted: A theory of wealth, November 19)
Until Keen deals with Austrian economics, I will not read any more of his work. He seems content with bashing the market orthodoxy, but the Austrians have already beat him to this and the message has been loud and clear. Start debunking Mises and Shumpeter and you will get me interested against Prof Keen (Wanted: A theory of wealth, November 19)
I just love the chart Steve... but should not the labouring figure be holding a shovel or at least a hammer? (Wanted: A theory of wealth, November 19)
Nice work Steve, very enlighening. Next: since we live in a physical universe, how long can economic growth continue? (Wanted: A theory of wealth, November 19.)
Hallelujah and toll the bells! Steve Keen discovers energy as an input into all our daily lives, after the carbon taxers of course (Wanted: A theory of wealth, November 19).
On a note of direct relevance, I would urge both Steve and readers of this excellent article to google and study Nikola Tesla's "The Problem Of Increasing Human Energy: With Special References To Harnessing Of The Sun's Energy", written c. 1900. (Wanted: A theory of wealth, November 19)
Steve makes a fine attempt at atempting to unravel the mysteries of how value is created (Wanted: A theory of wealth, November 19). The missing factor in steves discourse appears to be the "human element that is prone to bouts of irrational behaviour". After all it is humans that put forward the notion of "value" rather than it being some kind of physical law explained by physics. Maslow's hirearchy of needs might provide some clues about what people really value at any given time and hence the devaluation of basic agricultural commodities over recent decades as people in the western world are able to create "wealth" from previously unknown creations some of which arrive via marketing departments! So scarcity or the lack thereof contributes to the relative value of goods at any given time. Just imagine how peoples notions around value will change once the world starts to run seriously low on fresh drinking wter or basic food items. Food for thought.
Brilliant Steve. I am sure over the next century that economics will reform itself based around physical laws.
In the meantime however, economic theory as it currently stands is likely to cause a lot of socioeconomic damage to our economies (Wanted: A theory of wealth, November 19).
Low entropy energy flows in from the sun and an equal amount of high entropy energy is radiated away. Life lives off the difference by creating little islands of low entropy: wealth (Wanted: A theory of wealth, November 19).
Steve facsinating as always, but my problem with economics in general, is that economists more often then not fail to link the theoretical to its practical implications for everyday people, hence creating a disconnect between the end users of economic theory and the economists! Practically, what does the work of Ayres's mean in today's society for the average worker or business owner? (Wanted: A theory of wealth, November 19.)
Wealth generated from labour surplus value according to Marx's production function Y=f(Yo,L); then from multifactor productivity aka technology as per Solow's Cobb-Douglas equation Y=f(Yo,K,L). Now Keen (Wanted: A theory of wealth, November 19) introduces the energy- dependent production function to explain wealth generation: Y=f(Yo,K,L,E), but the famous KLEM model has already introduced energy dependency as well as natural materials dependency of wealth generation as Y=f(Yo,K,L,E,M), and Lucas has extended the energy & materials-dependent KLEM model to incorporate the impact of human capital H in wealth generation as in Y=f(Yo,K,L,E,M,H).
So, Steve Keen's econophysic reasoning on energy in wealth generation has brought economic science backward. Am I right?
Article made me think about value, money, time, energy and transaction costs (Wanted: A theory of wealth, November 19). For example the lowered tranaction cost of internet, increases output per unit time, energy and therefore money and value. Didn't someone win a Nobel Prize for economics regarding a similar view regarding transaction costs? Worth further study...as looks promising for the further refinement of economic theory. Well done Steve.
Lindsay Atkinson (November 19, 12:50 PM) - i don't know who you are - but you must have read my mind!! - It seems quite obvious that given value is an arbitrary assignment by a not necessarily rational herd - there is no possibility of ever having a physics based model of economics. At the end of the day value is dependent upon a persons feelings - the feelings are based on knowledge, past experience etc etc - but no individual purchasing decision at a certain price is ever made by a person who thinks it is not worth it. They may say this, but if they pay the money - they have ultimately determined "it was worth it". Given that the evaluation of whether it was "worth it" is purely personal, based on a multitude of individual and personal past experiences, basic personality, rarity, peer pressure etc etc - there is no way to determine this - as the individual will pay an indeterminable price at any given time for any given thing depending on the circumstances. Aggregating historical figures may give a peek at how this appeared on a bell curve for the particular year/time and place but will never result in a properly predictable model of the economy. There is too much human increasing or decreasing the multipliers involved
Hi - this is a direct question to Steve (Wanted: A theory of wealth, November 19). The universe and physics have no feelings and do what they may. A dead child or a buried city mean nothing to the law of physics and therefore no value is placed by nature on what it does - the application of value is a the process of a living organisms - but value is not ascribed according to these sort of immutable laws - for a human it is essentially a function of human feeling. As a weir example - the community at aggregate level values the life of another human highly - we will happily spend a million dollars or more searching for a missing yachtsmen/adventurer or a sick dying child if the story appeals to our feelings - on the other hand a bogan with a bad debt in Melbourne may accept 20000 to kill someone
Exact opposite valuations - nothing to do with supply or demand. Aggregate statistical analysis may offset the life price between money spent on saving lives vs that taking lives - but that's not the point. Aggregate summation after the event will always be right at any given point in time but so what - the big unknown at any point in time is either the aggregate economic positive or negative multiplier of peoples feelings - and this is not able to be predicted in advance with any model as it depends on a number of unquantifiable variables also largely dependent on human feelings/performance - eg quality of leader, oration skills of leaders, regional specifics etc etc etc
What do you think?
I think for any living organism( particularly intelligent forms) value will be attached to anything that increases the chance of survival. It could be physical matter, usable energy forms, usable matter, traits, information, etc. (Wanted: A theory of wealth, November 21).