The Currency of All Economies
by Thomas J. Elpel
Adapted from Direct Pointing to Real Wealth: Thomas J. Elpel's Field Guide to Money
Most economists rely on computer printouts of numerical data for their financial planning. By comparing one series of digits with another they can find the immediate trends in the economy and take advantage of those trends. To most people that seems normal. To me it always was, and still is, artificial. I have always wanted to help both people and the environment, and I learned at an early age that knowledge of the economy could be one tool to reach that end. However, I wanted more than just the knowledge of how to generate a positive series of numbers. I was looking for something bigger. I was searching for universal truths. I wanted knowledge about the economy that was constant from year to year, from culture to culture. I wanted knowledge that would be useful to a poor person or a rich person, in our culture, or in any culture. The truths about economics that I found were not in the New York Stock Exchange, but in anthropology and nature.
Little has changed since the Stone Age. We still have the same basic needs today as in millennia past for such things as physical and mental well-being, shelter, fire, water, and food-it is only the way we meet those basic needs that has changed. For example, as hunter-gatherers we met our needs largely on our own; each of us produced every aspect of our culture, from shelter to clothing to entertainment. Today we have the same needs, but we more often meet those needs through the network of society, trade, and money. Nevertheless, if we look beyond the illusion of money we will discover that our economy today--like the economies of all past cultures--is based not on dollars or Duestche marks or yen, but on calories of energy.
The calorie is a unit of measuring energy. Specifically, it is the amount of heat required to raise the temperature of one gram of water one degree Celsius. The caloric value of food is measured by igniting the food to find out how much heat it releases. As human beings, you and I require approximately 2,500 calories of energy to fuel us through each day. The calories we consume come from the sun. Plants convert sunlight into food that we and other animals can eat. Petroleum and coal also contain calories of solar energy, but that energy was captured by plants millions of years ago. The calories from these and other sources are ultimately the basis of all economies.
The economies of our ancestors may have seemed different from ours, without all the institutions of finance that we have, but they were still surprisingly similar, even before there was money, and even before the very first trade or barter ever took place. Our ancestors of long ago may not have had money, but they still had to make decisions that were economical. For example, there were a great many edible plants and animals in their environment which they could harvest and consume for calories, but not all animals or plants were economical to hunt or gather. There were many food resources which were difficult to gather, so more energy would be expended than gained in the process. The result was a caloric deficit. For a food resource to be economical, the people had to be able to gain enough calories of energy from the food to replace those expended, plus enough extra to expend on other chores and activities such as making tools as shelter, sleeping, or singing and dancing. At first they harvested only food calories. Later they started harvesting additional calories, in the form of firewood, which I call fuel calories.
Money is simply a token we use today to represent calories of energy. Strictly speaking, we use it to represent human energy, or human productivity. Each of us produces goods or services to exchange to others for the goods and services we need. We put a great deal of energy into the goods and services we provide, as does everyone else. Money represents that energy and makes it easy for us to swap our energies. I can make a product and sell it, and I get paid for the energy I put into it. I can then take that money and buy a product from another person. I give them my money to compensate them for their energy. Ultimately I have exchanged my energy for theirs, and money is just something that makes the exchange process easier. For simplicity we can say that money is a token that represents calories of human energy or labor.
Money also represents fuel calories, but not directly. One person can spend a day (and a couple thousand food calories) harvesting tens of thousands, even millions of fuel calories. That fuel can be firewood, petroleum, uranium, or any other type of fuel. A relatively small amount of human labor can be expended to acquire a tremendous number of fuel calories. These fuel calories can then be put to work for us to increase our production. One person can only consume a couple thousand calories of food per day, and is therefore limited in the amount of work they can do per day. But a person can also burn hundreds of thousands of fuel calories to run machinery and increase out-put. Fuel calories are like cheap slave labor; on average, it gives each of us the calorie equivalent of having between 100 and 300 slaves working for us 24 hours a day. We expend a few food calories to harvest a lot of fuel calories, and we spend a combination of food and fuel calories to produce the products of our culture.
It could be said that money only represents calories of human labor, since it takes human labor to harvest the fuel calories. Yet each of us uses a combination of food and fuel calories to do our work, so it is convenient to say that money is a token that represents both food and fuel calories. The fuel calories are obviously worth less than food calories, since they are so easy to come by. We easily expend millions of times more fuel energy than food energy in our country, yet the fuel calories still only account for three to four percent of the cost of producing all the goods and services of our country. This means we have only about three to four percent of our culture expending labor to harvest all that fuel. The rest of the cost goes towards the people putting all that fuel to work to create our products. The specific ratio of food to fuel calories does not really matter, as long as you understand that money is a token we use to represent both.
Today every product we pick up has been shaped by food and fuel calories. For example, a simple drinking glass is made from the resources of the earth mined and shaped with the food calories of human endeavor, combined with the fuel calories from one or another source. The people that produce those food and fuel calories provide the basis of our entire economy. Directly or indirectly, we produce goods and services for the people who produce the energy that fuels us through our tasks. In return they pay us in calories of food or fuel to cover the energy we expended, plus they give us extra calories which we can trade to other people for the services and goods we need. We might think we pay with money, but actually we pay with calories. We earn calories at our jobs, then we pass them on to others to support them, in exchange for their goods and services. The stuff we call money is just a token representative of calories. Without money we would have to carry around bags of food, and bottles of gas, or batteries with electricity. Money is simply a token which represents calories and makes life a lot more convenient.
The only problem with money is that people get caught up in the illusion that it is real wealth. They manipulate numbers in an effort to make money, but they fail to create any real wealth. You can hear people doing this every day in advertising, get-rich schemes, and political speeches. Their proposals may seem sound according to the math, but if you think in terms of calories you will find that their plans seldom bring about real wealth. This book will help you to think about calories, rather than money, because the flow of calories points directly to real wealth.
Ultimately, all aspects of our economy are tied to calories, including inflation, insurance, stocks and bonds, and interest. Consider, for example, insurance. Insurance in a primitive economy meant having neighbors who would share some of their calories with you if you had an accident, and you would do the same for them in their time of need. Insurance is similar today. We all pay calories into a common fund, and any person or family that is in need draws from the fund. For example, if a person's house is destroyed then that person withdraws enough calories from the fund to rebuild the house. Having built our own house, I can tell you that you expend a lot of calories building a house. So the person whose home is destroyed withdraws a large amount of calories form the common fund to fuel the carpenters as they rebuild the house, plus enough extra for the carpenters to exchange for the goods they need. There is only one main difference between insurance in our economy and insurance in past economies. In past economies every member produced calories and contributed them to the insurance pool. In our economy today the insurance agents do not produce for the pool. We sustain them with a share of the calories we produce, and they in return serve us by overseeing the pool of calories and by doling them out to those in need.
Similarly, banks are essentially places where people can store calories when they have a surplus, or where they can borrow them when they do not have enough. Primitive banking may have started when a farmer borrowed calories from a neighbor's surplus to fuel the family as they built their house. They may have borrowed a certain number of calories with the promise to repay them when they grew crops the following season. This year they would build their house. Next year they would raise crops and repay the loan, and they would give back additional calories, which we call interest, to pay for the service. Today bankers are able to sustain themselves without actually producing any calories of their own. They are able to sustain themselves by loaning us calories with the stipulation that we must eventually pay them back more than they lent us.
Besides borrowing calories from banks, most of us also store them in banks. Banks are usually a safe place to store our extra calories until we need them. Bankers have found that they can loan out our calories to other people as a means to earn calories for themselves, as long as they can give ours back when we come for them. If many people store their calories at the bank then it is unlikely everyone will come on the same day to withdraw their funds; therefore the bank can loan out most of the total they have in store.
Even inflation can be discussed in terms of calories. Inflation is simply a word we use to describe the changing relationship between calories and the tokens that represent calories. Inflation has occurred when a given amount of tokens (money) cannot be exchanged for as many calories as in the past. Inflation is usually caused by the source that makes tokens, typically a government, and can be additionally affected by banking institutions. This is the subject of a later chapter.
Stocks and bonds are also related to calories. When you invest in stocks you become a banker and a gambler. You loan a business the calories they need for sustenance while they build their business. You then get a share of the profits when their business is up and running, exchanging goods and services for the calories people bring in. If they do well then you get extra calories back as profit. If the investment fails to bring back a net gain, then the business fails and the calories you invested were expended as sweat and tears, but no gain.
All in all, very little has changed since the Stone Age. Throughout the ages the calorie has remained the universal measure of economic wealth. Each of us is simply working to harvest more calories than we expend.