Categories Economic history Energy and the Industrial Revolution Post author By Kevin O’Rourke Post date July 24, 2011 52 Comments on Energy and the Industrial Revolution Tony Wrigley has posted a short introduction to his work on the role of energy during the Industrial Revolution, here. Related ← EU Interest Rate Calculations → Not a new bailout? 52 replies on “Energy and the Industrial Revolution” ironic that we will soon run out of the “photosynthetic power” of oil as well. we really are short sighted idiots. @ Shaun Byrne Future growth will probably be less energy intensive. Take a look at what teenagers spend their money on. Music, computer games, apps for phones (as well as other things). The energy content is low, but information content high. So maybe we should think of land, labour, capital, enterpise AND the current stock of knowledge when thinking of future growth. Its becoming quite clear now the deindustrialisation of the west has been linked to the creation of the petrodollar system unit of account. This was possibly a nationalist American policey which insured it could continue to consume without investing. Because oil was much less capital intensive then coal or nuclear. This changed the worlds monetory system in dramatic ways most notably in 1914 when the coal / gold centric economies of the west fought for the new oil spoils. The slow death of Gold in the worlds monetory system from 1914 – 1971 reflected the new energy mix. This post 1971 world can be quite clearly seen in Americas energy choices of that time. Very capital intensive nuclear stations were no longer created immediately after 71 eventhough nuclear is a far more concentrated energy source. The French decision to persue Nuclear was pilloried by the Anglo establishment who had now directly plugged into this spice. Rapid deindustrialisation ensued as the financial centres used this low capital intensive energy to outsource production and make vast wealth using a home credit / foregin wage arbitrage model. Now that the west is well and truely hooked on this opium it no longer produces operatives capable of creating real wealth as the eduacation system was transformed during this time so as to farm cheap BTUs via “services”. Too few of us now have skills in the primary and secondary industries. We are as like children – incapable of complex wealth creation. The key aspect for economists of Tony Wrigley’s piece ought to be the relationship between the paradigm shift to exponential growth predicated on a (indeed ‘the’) determining resource, energy, and its monetary system, and private & public roles within it. Perhaps Kevin had that in mind? In particular, the question of how appropriate that monetary system might be when, in the case of a finite resource, little or no growth becomes possible, never mind ‘exponential’. Which ought to bring us to the all important context that should be framing consideration of ‘solutions’ to the debt bubble bust & financial crisis. The ‘authorities’ solution so far can be characterised as having three parts: (Held to ransom, supposedly, by the ‘no default’, ‘too big to fail, too big to jail’ dogma.) -adding to the ‘unproductive’ debt pile and increasing & extending the future claims of the financial sector on the real economy many more decades into the future, plus debt service (interest) on the borrowing as we go. -increasing the tax burden, particularly on the poorer half of society, whilst at the same clawing back the public health & other welfare services upon which they depend & cannot afford to buy privately -via ‘austerity’, increasing unemployment & reducing the output of goods & services produced by the real economy. ie making the ‘pie’ smaller, reducing its ability to service debt & at the same time as reducing labour’s relative share. Thus any ‘recovery’, if it could really be called that, will be a decade or more likely much longer in coming – and probably not at all for perhaps 30 or 40% of Ireland’s population. It should be obvious to economists by now (although with notable exceptions, it seems not) that, globally, society has reached a resource plateau. Not just in energy production, but in many other vital resources too. The date of the exact ‘peak’ may be debated, but what is certain is that +exponential+ growth fed by those resources cannot continue, likely not beyond 5 years, certainly not more than 10. These two GMO research ‘newsletters’ are worth reading regarding global resources: http://www.gmo.com/websitecontent/JGLetterALL_1Q11.pdf http://www.gmo.com/websitecontent/JGLetter_ResourceLimitations2_2Q11.pdf The financial crisis has unequivocally demonstrated that the monetary & banking system as it is not fit for purpose (except for the wealthiest few percent), even without resource constraints. For what’s coming in the next decades, it is pure lunacy to continue with it. The neo liberal era with its failed precepts should be declared dead & buried & fundamental reform introduced. If the eurozone cannot do this, Ireland should look to its own future. It’s worth pointing out by the way, that the GMO papers I linked above are unreasonably optimistic as regards energy. His ‘technical’ commentary on energy is particularly poor. (He’s not an engineer.) But the overview of many other resource constraints makes interesting reading. @ Dork of Cork In fact wealth creation in services is far more complex than it is in manufacturing. This is why China has been able to power ahead with relatively simple capital structures and rudimentary soft infrastructure. Migration from industry to services is a logical consequence of capital accumulation in the west adding more complex structures of capital to production stages. It is far too simplistic to say that if we were manufacturing more we would be wealthier and more productive. Check the productivity figures, legacy activities like agriculture and industry are less productive and we should not confuse this matter with the financial crisis we are facing. We have a energy crisis because we have a banking crisis – it is not that we have a banking crsis because we have a energy crsis. We have lived under the umbrella of a pure fiat petrocurrency since 71 – this means the monetory system is tied to oil. Its as if the Romans valued their currency by the amount of Slave BTUs they could utilise. Any fall off in the slave numbers or strength would impact the entire monetory system. No efforts would be expended to create new technology that could replace those slaves Any effort at energy / slave independence would be considered too capital intensive as it would entail the loss of slaves from the system and a reduction of consumption. We can see this now with the endless debates about Nuclear build – they say the capital expended could be used for consumption now – why subtract energy tokens to build energy ? Under a Gold system used for international trade only such as Bretton woods the worlds reserve currency failed to balance its books – it experienced a dramatic loss of Gold in the 60s. It subsequently defaulted in 71 creating the modern MMT dollar reserve petrocurrency. If it did not default in 71 it would have been forced to introduce excise duties on foregin oil for example. But we Got the Carter doctrine of projection in the Gulf and subsequent liberlisation of the trucking industry which built the Walmart monster. You see liberisation is essentially capital destruction designed to keep the oil BTUs flowing towards consumption. The built environment would have developed differently over time as less oil was consumed and more resourses were directed to other energy resourses and technologies The western world in general as been under a system of constant default for 40 years – it has created a vast turmoil in financial markets unheard of even by the standards of the South Sea Bubble and yet the default carries on into the future. But its a future of diminishing resourses , lack of technological advancement and characterised by a general drift towards feudalism. @Mike Hall: Au contraire. Grantham’s first degree was in chemical engineering. @DOM K The service industry is merely BTU farming although be it a diminishing acreage. Up until 2006 /07 the west gave itself credit rather then wages which was essentially Arab oil – this demand was serviced by wage arbitrage in the developing world. There is very little resourses given to core capital expenditure now – this is reflected in the commercial banks balance sheets which are just leverage vehicles propelled by depleting oil & gas. The dollar bubble cannot grow now – it has reached its limit – however if the monetory system remains unchanged only dollars will survive. You are analysing a artificial ecosystem. PS let me clarify – services can either increase the efficiency of a system or operate in a parasitical manner. They cannot increase productivity – they are in many cases vital but tertiary activities. @ Mike Hall ‘Resource plateau’ considerations always fail to take into account technology progress. 100 years ago oil was not a resource. 70 years ago Uranium was not a resource. How can we speak of ‘resource plateau’ then? DOM K. You get a resourse plateau when very little resourses are directed towards applied technology. More and more resourses must be directed towards applied technology such a nuclear stations as theoretical physics have not given us anything useful in the energy sphere since the 30s. This is a real physical increase in the capital ratio as extreme leverage depends on extreme technological advancement only seen after theoretical walls have been smashed. @ Dork of Cork Europe does not have dollar bubble and was not giving itself credit wages, most of it anyway, and yet the economy is service based just like in the US. It is clear someone somewhere has to manufacture and produce food but that does not mean manufacturing and agriculture are the pinnacles of wealth creation, @ Dork of Cork Ok, we failed to make fusion work so far but there have been numerous other technical advances that make us a lot more productive and investments are moving into viable technologies. Key restraint has always been the capital and this is why capital accumulation matters. And you get that from productivity advances, not from looking back towards industrial age. DOM K What do you think is driving up the Euro sov yields then ? Its a wall of dollars created by Congress that is looking for a home. The entire world is the dollar system. The euro masters tried to take on the dollar reserve system by being the first CB with freefloating Gold but it seems they lack the courage of their convictions. The dollar system created post war Europe under the Marshall plan , the rise of mercantile Japan and now China. We are all creatures of the dollar – the spice is valued in dollars unit of account. Now that it cannot grow it must cannibalise – as I said if the monetory system will not change only the dollar will survive – everything else will turn to ashes. @Dom K You lost me there – productivity advances was /is the industrial age. Your concepts are wrapped by a life lived in a very unusual monetory system. Monetary system is changing. It is not the pricing that matters but the reserve currencies and that has been slowly shifting. I don’t think it is very unusual. GBP was to world what $ is today. Not at all a different transition. And as to productivity, surely it didn’t stall with the demise of classical industrialization in the west. @DOM K The western productivity metrics that you see are driven by machinery imports from the east – the productivity metrics are a illusion. But surely that is contradictory to the claim that we are not manufacturing any more. Why do we need machines and where is the evidence of this huge import of machines from Asia presumably? And the shift of manufacture to Asia, primarily China, is better explained with opening of China under Deng Xiaoping then the introduction of petrodollar system. I am much more inclined to think that reserve currencies matter much more than the system of pricing and the countries decide on which currency to hold on the basis of which country they trade most with. By holding reserves they hedge against currency movements that can hurt their trade. China do not hold vast $ amounts because oil is priced in $ but because they sell a lot of goods to USA. This trade is a permanent feature while the transaction of buying $ priced oil is temporary. Besides a lot of oil contracts are over the counter and I honestly doubt it is all executed in $. Very little oil is traded on the NYMEX and the NYMEX price in $ is only used as a benchmark for over-the-counter contracts. DOM K. I really don’t know what to say. Maybe if you have some financial resourses you should buy 20 acres , a ox and perhaps as a concession to technology a plough. It should be a educational experience. Thanks for the advice, but I think I am much more productive doing what I am doing. No need to be personal. @DOM K How do they transport these Goods to America ? Tea clippers perhaps ? New Yorks hinterland (America) and Londons industrial hinterland (UK) has been destroyed by asset price inflation as petrodollars get recycled through the financial centers. Now these cities hinterland is the world although to be fair London always had the empire. Manufacturing is uncompetitive because the financial centers farm oil BTUs and project this through asset bubbles making manufacturing and now even high tech industries uncompetitive in the host countries. Indeed quite fantastically deindustrialization has been a strategic goal of the banks and their poltical servents since the 60s. http://www.youtube.com/watch?v=JacGZ4LxK-0 Or to put it simply – capital is moving in search of higher yields. With high wages, costs and regulation, of course west will lose manufacturing to Asia. It is not a conspiracy, it is common sense. Interesting post There is a surplus of photo energy many parts of the world e.g Sahara etc. It should not be beyond our capabilities to use that energy to desalinate some water and irrigate some land in that drought ridden part of the world. It would be really nice to know the economics of covering some arid areas with solar panels – how much would it cost, how much would it yield? How much would be lost in transport? Would there be benefits in using it locally – e.g. through the desalination leading to irrigation leading to fuel crops idea. At the moment it’s all going to waste. Just a thought @Dom K If you don’t have wages you don’t have demand – credit was used as a substitute for demand so that the banks and corporations could earn income from both ends. Now that the west is no longer a industrial society it cannot compete – and yes it was a conspiracy. Back to feudalism me thinks. The fact that the demand was overinflated by credit does not mean that the demand will not be there after the correction. This is not the end game. The convergence of wages is a natural consequence of capital outflows from west into Asia. If you have a pension surely it is partly invested into emerging markets and into western corporations benefiting from those markets. Are you a part of this conspiracy or do you simply want more bang for your buck? @ Eureka Photo-voltaic technology is getting better and cheaper to produce but it is still expensive for mass rollout. More investment will be needed into the technology research and further in future when market prices in the real peak-oil (which has been erroneously called already on a few occasions), mass rollout will be feasible. The problem is that the oil exploration is getting better as well so we are now extracting oil from locations where this was impossible in the past. When I was a little boy in the 70’s we were supposed to have oil for another 30-40 years. Today we still have oil for another 30-40 years. And we are more efficient at using it. DOM K. You are following financial indices again as if they were representative of the physical economy , oil depletion has not been fully factored into the accounting yet. Also the loss of real engineering expertise has been colossal – it may take 50 -100 years to repair the damage done by the post 1960s generations. People just do not seem to understand the potential lost after monetarism gained the upper hand – for instance the targeting of interest rates rather then the base by the FED in the 60s …………. I guess people will never know or indeed care once they can get their daily soap operas. http://www.youtube.com/watch?v=E3Lxx2VAYi8 @ Dom K Thanks for that. Is it possible to figure out how many megawatts you could get from an acre of desert, for example? And what percentage is lost per mile transport to the market? And is it possible to calculate how many square metres of solar panels would be needed to meet the energy requirements of Europe? (I think the key figure is the energy generated per unit area of solar panel – everything else could be worked out from that) If I’m following financial indices rather than physical economy, then why don’t you please sell me 200 acres of PV farm that will beat the energy price produced from conventional sources? @ Eureka, All of that is known. The problem is in the price of PV farms and costs of transport to centres of load. Solar energy with compressed storage is 20-30% more expensive than nuclear. This is without massive costs required for cross-continent transmission and setting up maintenance structures in the deserts of northern Africa. @Dom K I found this link – not sure how good it is http://www.furthermedicaleducation.net/isite/index.html#_Subopt would be interesting to compare the conversion rates for a solar panel vs a biofuel You can check here, there are studies from various sources incl. Mott McDonald, PB, etc. http://en.wikipedia.org/wiki/Cost_of_electricity_by_source Previous link was wrong – thanks for the new link etc. Eureka, your link suggests I suffer from some sort of psychosis. Is this a mistake or…? @ Kevin A timely spotlight on the crucial role of easily available fossil energy (in the form of coal) in the success of the Industrial Revolution in England and a reminder of the fundamental role fossil energy (in particular oil and gas) plays in providing the enormous energy needs of our modern economy. Not that it will do much good to reduce the overuse and waste of our finite fossil energy inheritance. The default setting for our modern economy/society is exponential economic growth. However sooner or later our modern energy hungry economy/society will run out of steam for want of readily available fossil energy. @ Dom K Definitely a mistake. Do some web design and was in the bookmarks. So much for my web-design DOM K Because the financial accounting is flawed Dom – you have not been listening – although I am not a fan of solar power except for large parabolic dishes that could concentrate solar energy for industrial uses in desert areas. We all have to live in this flawed financial ecosystem – which is why now millions of people game the markets so that they can extract a surplus from the declining capital stocks of the world. My guess is that financial engineers outnumber nuclear engineers by a wide margin now. Which is why America can only break ground on 1 nuclear power station – it simply no longer has the expertise. But if you want a good anology of the financial / physical interface this stability instability hypnosis is a good take on things in my opinion. http://www.youtube.com/watch?v=C4ZDq3FcMRE @Rory O’Farrell Unfortunately you are overlooking the 2nd law of thermodynamics. The tradeoff for increased complexity is always increased energy use. All those new gadgets and software tools that young people like to use – have an energy cost. While they may be more efficient than previous models you have to take into account the additional energy involved in the manufacturing processes all along the chain e.g. all the mining associated with the rare earth elements required for many of the new electronics. Then there’s the energy associated with popular tools on the internet – have you considered how much energy Google has to use to power its search servers? Also the energy costs for a company like Facebook for hosting all those photos and streaming video? Bottom line there is no free lunch. @ Dork, Westinghouse of US is only the first company to have generation III+ reactor approved by NERC and four are under construction in China. US/Japanese alliances Westinghouse/Toshiba and GE/Hitachi are market leaders. US are not building nuclear plants on their ground for entirely different reasons. If you wish to continue this discussion, or any discussion with me, spare me patronizing and statements like ‘you have not been listening’. Keep it professional. @ The Dork What is/are BTU? By the way, I was in the fine Galtee Mountains this weekend. Always a pleasure to be in that part of the world. I feel my views are slowly shifting from when I was an Economics student, and embraced the classical economists mentioned, to now, when I’m more likely to consider externalities like pollution and finite resources. Interesting article, thank you. BTU is an energy unit. Sorry Dom – I am a Dork don’t you know. @Gavin I was trying to walk with a backpack the other day in my favorite Slieve Mish ( there like a coastal version of the Galtees but with more interesting north facing glens ) – for some reason I lacked the required thrust to weight ratio. Came back a bit humbled – its what happens when you become a fat bastard. mountainviews.ie/mv/index.php?mtnindex=26 In managing energy resources, it’s not easy to please the public. In Germany, Chancellor Merkel gave in to demands to shutdown the nuclear industry but now as the country plans a new grid for renewable energy NIMBY groups across the country. Der Spiegel says that even in Baden-Württemberg, which has the lowest percentage of wind power of any state — at just 0.9% of net electricity consumption — people seem to have protested against virtually every wind turbine installed there. The magazine says the German Energy Agency (DENA), said in 2005 that 850 kilometers of high-voltage transmission lines would have to be built by the year 2015. Only 100 kilometers of this extended grid has been built so far. In its latest study, DENA anticipates that an additional 3,600 kilometers will be required by 2020. On fossil fuels, some years ago, it would have been strange that Canada would become the biggest crude supplier to the US and at time when the US natural gas reserves have jumped to a level of 20 years current usage. @ PmcG The second law of thermodynamics is merely a statistical law. I guess I feel lucky 😀 (Anyway, the earth is not a closed system, so I’m not too worried about entropy getting us before the sun blows up.) Wrigley on whether industrial revolution was a success, much like Zhou on Frenc Revolution? “Too early to say.” @Rory O’Farrell I think you are confusing statistical thermodynamics with statistics. Also it is far from being “merely” a law – it is in fact the most fundamental law underpinning the evolution of the universe. For evidence see quotes here: http://en.wikiquote.org/wiki/Second_law_of_thermodynamics The main relevance to your argument is that it explains why you cannot have perpetual motion machines i.e. machines that do work without the input of energy. that is in fact what you are arguing in favour of when you are claiming that new (more complex) devices are using less (or no) energy. The way that “entropy will get you” – is that if our lifestyles are to become more complex and our population numbers stay the same (or even worse increase) then there is no way that we can avoid using more energy. Its true that if we could efficiently harness the energy from the sun we could keep expanding in population and in complexity of our technology for a much longer period – but I’m not as optimistic as you are about the prospects. @ PMcG With regard to feeling lucky about a statistical law I was joking. With regard to the earth not being a closed system I was not joking. The sun gives the input of energy. With the exception of nuclear all our electricity projects (from wind, to hydro, to fossil fuels) ultimately come from the sun, and we’ll have that direct input of energy for about 5bn years. Who know what we will have achieved by then. @PMcG “The way that “entropy will get you” – is that if our lifestyles are to become more complex and our population numbers stay the same (or even worse increase) then there is no way that we can avoid using more energy.” Referring to Fig 1 of Wrigley’s article, in 1859 there was approximately 96,000 MJ/capita of energy being used to support the ecomony. Lifestyles have become far more complex since then and ecomomic output increased vastly (% increase anyone?) but our energy use has only increased by 35% per capita (I make it approx. 130,000 MJ/capita for 2009 in Ireland). Much of this ‘entropy beating’ energy productivity gain was as result of increased energy efficiency but also in some part to change in economic structure. The big gains in energy efficiency have already happened and while there is room for further improvement, entropy will get you in the end if you can’t increase energy supply. Comments are closed.