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Energy and the Wealth of Nations: Understanding the Biophysical Economy
For the past 150 years, economics has been treated as a social science in which economies are modeled as a circular flow of income between producers and consumers. In this “perpetual motion” of interactions between firms that produce and households that consume, little or no accounting is given of the flow of energy and materials from the environment and back again. In the standard economic model, energy and matter are completely recycled in these transactions, and economic activity is seemingly exempt from the Second Law of Thermodynamics. As we enter the second half of the age of oil, and as energy supplies and the environmental impacts of energy production and consumption become major issues on the world stage, this exemption appears illusory at best. In Energy and the Wealth of Nations , concepts such as energy return on investment (EROI) provide powerful insights into the real balance sheets that drive our “petroleum economy.” Hall and Klitgaard explore the relation between energy and the wealth explosion of the 20th century, the failure of markets to recognize or efficiently allocate diminishing resources, the economic consequences of peak oil, the EROI for finding and exploiting new oil fields, and whether alternative energy technologies such as wind and solar power meet the minimum EROI requirements needed to run our society as we know it. This book is an essential read for all scientists and economists who have recognized the urgent need for a more scientific, unified approach to economics in an energy-constrained world, and serves as an ideal teaching text for the growing number of courses, such as the authors’ own, on the role of energy in society.
407 pages, Hardcover
First published October 26, 2011
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September 13, 2014
Who should read this book, and what does it contain? Hall and Klitgaard want to develop a new field, “biophysical economics.” This field, as announced in Hall’s biography on page xiv, will either replace or supplement conventional neoclassical economics. This book describes “biophysical economics.”
Who should read this book, indeed? Answering this question is a bit harder to figure out than it might first appear. Here’s my answer, which isn’t quite accurate but is probably close enough to the truth: if, upon reading it, you know enough to be just a bit annoyed by the authors’ presentation, then yes, you should read it. In other words, a good book, but not a book for neophytes. That's basically my review. Want to know more? In the paragraphs below, I have followed with plenty of details.
If you know ABSOLUTELY nothing about any of this — if, for example, you are puzzling over questions like “what’s all this fuss about ‘peak oil’?” — then likely you shouldn’t read this book. Instead, look at some basic books on peak oil and limits to growth, like The Party's Over: Oil, War and the Fate of Industrial Societies, articles on “TheOilDrum.com”, and The Limits to Growth. Maybe, check out Gail Tverberg’s blog “OurFiniteWorld.com”. Then, look at An Introduction to Ecological Economics, or for extra credit Ecological Economics: Principles And Applications, or anything else, basically, by Herman Daly, including stuff he’s written for TheOilDrum.com, like this article. Then, and only then, check out Energy and the Wealth of Nations: Understanding the Biophysical Economy.
Hall has written a lot on the concept of energy return on energy invested (EROEI), which studies how much energy we have to expend in order to get energy. Obviously, it takes much less energy to extract the oil (even after figuring in energy used in discovery, drilling, shipping, etc.) than we get back in the energy of the oil itself. If it didn’t, no one would likely be in the oil business. This energy surplus, according to the authors, drives civilization. But this energy surplus is today declining, and looks like it will continue to decline. Oops! What does this mean? Hint: this is a very big deal. Read the book to find out why.
The concept of EROEI is actually pretty central to ecological economics, which is what makes Hall’s work quite interesting, and this book is a good place to get started on that concept. But if you don’t already know something about ecological economics and limits to growth, you won’t get what all the fuss is about.
But suppose that you have read Herman Daly, or know about ecological economics or the “limits to growth” school of thought. You will probably be asking yourself, “so how is this different from ecological economics?” And the answer is that basically, it isn’t any different. It’s just a different “take” on ecological economics with special emphasis on EROEI. However, the authors don’t realize this, which makes the book slightly annoying. But once YOU are annoyed by this, you should probably read the book anyway. It will do you good.
In short, this a huge, sprawling work — over 400 pages. It is somewhat repetitive, but the ideas which they repeat are basically the ideas which should be repeated, so this isn’t necessarily a bad thing. The writing is academic and somewhat dry; it’s not exactly light summer reading, but is at least clear, and there is no shortage of helpful charts, graphs, and photographs. The authors are right. The conventional economists are all idiots, and they should be listening to what Hall and Klitgaard are saying (and paying attention).
The authors first give a quick economic history of the world, exploring the idea of the progressive development of increasing energy surplus. Then they explore the development of economic theory, and finally modern “neoclassical economic theory” (the conventional economics which now dominates most economic thought). Neoclassical economics basically disregards the whole concept of energy surplus, and indeed disregards the environment generally.
Then the authors show how neoclassical economics fails to explain recent problems with peak oil, and the growing problem of limits to growth. After that, they try to establish the basic science needed for biophysical economics — how energy is related to wealth, and what sort of math and science skills help you to understand it. Finally, they explore the concept of EROEI, the use of models in understanding economies, and the relationship of EROEI to contemporary economic issues. They conclude on a relatively optimistic note, that even though society is experiencing declining EROEI, that we can live happy, fulfilling lives even though we may not have quite the extravagant energy expenditures that we used to have.
Hall’s main area of expertise is EROEI, and this is the chief strength of the book. However, there is a problem; the authors are a bit quirky, and this may not be apparent to a novice. The first and most serious problem is that, even though this is basically a book in ecological economics, the authors don’t seem to understand that they are duplicating much of what has already been said on this subject. On p. 352, the authors confuse “ecological economics” with “environmental economics” and condemn both because these subjects try to put a “price tag” or a “dollar value” on natural resources.
This may seem like an awfully small point, and to a certain extent this is just a question of “defining terms,” but this isn’t correct, and to me this is a major problem. It means that Hall’s book is essentially useless for anyone trying to compare and contrast his approach with that of the ecological economists (Herman Daly et. al.).
“Environmental economics” is a very similar term used by the neoclassical economists (the bad guys), but it has exactly the opposite meaning. They want to do exactly the thing which Hall and Klitgaard condemn: put a price tag on nature. But “ecological economics” (the good guys) is a totally different animal, and if you’ve read anything by Herman Daly, you know that he rejects this approach. His very first proposal for practical action is to put a basic cap on scarce natural resources. Don’t put a price on them: just don’t use them, period. A number of the charts that the authors use are VERY similar to similar charts used in ecological economics textbooks.
And this brings me to my next pet peeve, which is the acronym “EROEI.” This central concept, and actually Hall’s specialty, is called “EROI” in the book. Not EROEI, but EROI. Notice the difference? I’m sorry, but this is totally misleading. EROI directly suggests “energy return on investment,” while EROEI suggests “energy return on ENERGY invested.” Using the term EROI, no matter how you define it in the text, will perpetually suggest to people that the investment that you are talking about is a monetary investment, not an energy investment. As in, “I invested $100 in oil stocks and I got back $120, so I made money.” But this is obviously not what Hall and Klitgaard have in mind, so why do they use this misleading acronym instead of the more accurate one, EROEI? (Is this a rhetorical question? Are you paying attention?) Most of the others who write on this subject, as far as I can tell, use EROEI, not EROI, as the acronym.
And here’s the third quirky thing about this text. He has two entire chapters on the basic science and math needed to understand biophysical economics. That’s fine and good. But the basic science is stuff like “what is nature?”, the scientific method, cause and effect, a little basic algebra, some mention of statistics (correlation is not causation), and some mention of climate change and natural selection. The basic math is stuff like algebra, logarithms, non-linear functions, exponential functions, and a discussion of what calculus is.
This is a little weird. That he might expect you to know about these things is fine and good, but if you don’t have a clue about algebra or the scientific method, reading this chapter isn’t going to explain them to you. Moreover, the explanation of the scientific method ignores paradigms, scientific revolutions, and Thomas Kuhn’s ideas, so I’m not sure I even agree with it. This discussion may help remind you of your college courses on these subjects which you have now forgotten, but you are not going to understand calculus by reading the few paragraphs on the subject which Hall and Klitgaard give us. So while I don’t have any particular objection to (most of) the content, I do find its inclusion a bit odd. Instead, I’d just list particular conclusions that are important to their theses (perhaps natural selection, or conservation of energy) and refer to the appropriate discipline as their authority.
Whether economics is a science at all (another question they discuss) is an interesting question, but to really show that it ISN’T a science, you would have to understand what exactly science is, and I’m not sure there’s sufficient understanding of this question to justify any answer to this question. For example, can we say with certainty that the philosophy of Hegel is NOT science? Why or why not? Put that in your pipe and smoke it.
The authors have a suspicion, which I share, that conventional economists don’t understand basic physics. However, they might want to make this more explicit, and just cite the appropriate statement by neoclassical economics which they wish to refute, and say, “by the way, this violates well-known physical principles, such as the law of entropy and the law of conservation of energy.”
So there you have it. I recommend this book because it has a lot of interesting discussion of EROEI in relationship to ecological economics. Basically, these people are geniuses but they are also quirky. We love them because they are so smart, but they are quirky in ways that sometimes drive the rest of us nuts. As long as you keep this in mind, it’s a great book.
Who should read this book, indeed? Answering this question is a bit harder to figure out than it might first appear. Here’s my answer, which isn’t quite accurate but is probably close enough to the truth: if, upon reading it, you know enough to be just a bit annoyed by the authors’ presentation, then yes, you should read it. In other words, a good book, but not a book for neophytes. That's basically my review. Want to know more? In the paragraphs below, I have followed with plenty of details.
If you know ABSOLUTELY nothing about any of this — if, for example, you are puzzling over questions like “what’s all this fuss about ‘peak oil’?” — then likely you shouldn’t read this book. Instead, look at some basic books on peak oil and limits to growth, like The Party's Over: Oil, War and the Fate of Industrial Societies, articles on “TheOilDrum.com”, and The Limits to Growth. Maybe, check out Gail Tverberg’s blog “OurFiniteWorld.com”. Then, look at An Introduction to Ecological Economics, or for extra credit Ecological Economics: Principles And Applications, or anything else, basically, by Herman Daly, including stuff he’s written for TheOilDrum.com, like this article. Then, and only then, check out Energy and the Wealth of Nations: Understanding the Biophysical Economy.
Hall has written a lot on the concept of energy return on energy invested (EROEI), which studies how much energy we have to expend in order to get energy. Obviously, it takes much less energy to extract the oil (even after figuring in energy used in discovery, drilling, shipping, etc.) than we get back in the energy of the oil itself. If it didn’t, no one would likely be in the oil business. This energy surplus, according to the authors, drives civilization. But this energy surplus is today declining, and looks like it will continue to decline. Oops! What does this mean? Hint: this is a very big deal. Read the book to find out why.
The concept of EROEI is actually pretty central to ecological economics, which is what makes Hall’s work quite interesting, and this book is a good place to get started on that concept. But if you don’t already know something about ecological economics and limits to growth, you won’t get what all the fuss is about.
But suppose that you have read Herman Daly, or know about ecological economics or the “limits to growth” school of thought. You will probably be asking yourself, “so how is this different from ecological economics?” And the answer is that basically, it isn’t any different. It’s just a different “take” on ecological economics with special emphasis on EROEI. However, the authors don’t realize this, which makes the book slightly annoying. But once YOU are annoyed by this, you should probably read the book anyway. It will do you good.
In short, this a huge, sprawling work — over 400 pages. It is somewhat repetitive, but the ideas which they repeat are basically the ideas which should be repeated, so this isn’t necessarily a bad thing. The writing is academic and somewhat dry; it’s not exactly light summer reading, but is at least clear, and there is no shortage of helpful charts, graphs, and photographs. The authors are right. The conventional economists are all idiots, and they should be listening to what Hall and Klitgaard are saying (and paying attention).
The authors first give a quick economic history of the world, exploring the idea of the progressive development of increasing energy surplus. Then they explore the development of economic theory, and finally modern “neoclassical economic theory” (the conventional economics which now dominates most economic thought). Neoclassical economics basically disregards the whole concept of energy surplus, and indeed disregards the environment generally.
Then the authors show how neoclassical economics fails to explain recent problems with peak oil, and the growing problem of limits to growth. After that, they try to establish the basic science needed for biophysical economics — how energy is related to wealth, and what sort of math and science skills help you to understand it. Finally, they explore the concept of EROEI, the use of models in understanding economies, and the relationship of EROEI to contemporary economic issues. They conclude on a relatively optimistic note, that even though society is experiencing declining EROEI, that we can live happy, fulfilling lives even though we may not have quite the extravagant energy expenditures that we used to have.
Hall’s main area of expertise is EROEI, and this is the chief strength of the book. However, there is a problem; the authors are a bit quirky, and this may not be apparent to a novice. The first and most serious problem is that, even though this is basically a book in ecological economics, the authors don’t seem to understand that they are duplicating much of what has already been said on this subject. On p. 352, the authors confuse “ecological economics” with “environmental economics” and condemn both because these subjects try to put a “price tag” or a “dollar value” on natural resources.
This may seem like an awfully small point, and to a certain extent this is just a question of “defining terms,” but this isn’t correct, and to me this is a major problem. It means that Hall’s book is essentially useless for anyone trying to compare and contrast his approach with that of the ecological economists (Herman Daly et. al.).
“Environmental economics” is a very similar term used by the neoclassical economists (the bad guys), but it has exactly the opposite meaning. They want to do exactly the thing which Hall and Klitgaard condemn: put a price tag on nature. But “ecological economics” (the good guys) is a totally different animal, and if you’ve read anything by Herman Daly, you know that he rejects this approach. His very first proposal for practical action is to put a basic cap on scarce natural resources. Don’t put a price on them: just don’t use them, period. A number of the charts that the authors use are VERY similar to similar charts used in ecological economics textbooks.
And this brings me to my next pet peeve, which is the acronym “EROEI.” This central concept, and actually Hall’s specialty, is called “EROI” in the book. Not EROEI, but EROI. Notice the difference? I’m sorry, but this is totally misleading. EROI directly suggests “energy return on investment,” while EROEI suggests “energy return on ENERGY invested.” Using the term EROI, no matter how you define it in the text, will perpetually suggest to people that the investment that you are talking about is a monetary investment, not an energy investment. As in, “I invested $100 in oil stocks and I got back $120, so I made money.” But this is obviously not what Hall and Klitgaard have in mind, so why do they use this misleading acronym instead of the more accurate one, EROEI? (Is this a rhetorical question? Are you paying attention?) Most of the others who write on this subject, as far as I can tell, use EROEI, not EROI, as the acronym.
And here’s the third quirky thing about this text. He has two entire chapters on the basic science and math needed to understand biophysical economics. That’s fine and good. But the basic science is stuff like “what is nature?”, the scientific method, cause and effect, a little basic algebra, some mention of statistics (correlation is not causation), and some mention of climate change and natural selection. The basic math is stuff like algebra, logarithms, non-linear functions, exponential functions, and a discussion of what calculus is.
This is a little weird. That he might expect you to know about these things is fine and good, but if you don’t have a clue about algebra or the scientific method, reading this chapter isn’t going to explain them to you. Moreover, the explanation of the scientific method ignores paradigms, scientific revolutions, and Thomas Kuhn’s ideas, so I’m not sure I even agree with it. This discussion may help remind you of your college courses on these subjects which you have now forgotten, but you are not going to understand calculus by reading the few paragraphs on the subject which Hall and Klitgaard give us. So while I don’t have any particular objection to (most of) the content, I do find its inclusion a bit odd. Instead, I’d just list particular conclusions that are important to their theses (perhaps natural selection, or conservation of energy) and refer to the appropriate discipline as their authority.
Whether economics is a science at all (another question they discuss) is an interesting question, but to really show that it ISN’T a science, you would have to understand what exactly science is, and I’m not sure there’s sufficient understanding of this question to justify any answer to this question. For example, can we say with certainty that the philosophy of Hegel is NOT science? Why or why not? Put that in your pipe and smoke it.
The authors have a suspicion, which I share, that conventional economists don’t understand basic physics. However, they might want to make this more explicit, and just cite the appropriate statement by neoclassical economics which they wish to refute, and say, “by the way, this violates well-known physical principles, such as the law of entropy and the law of conservation of energy.”
So there you have it. I recommend this book because it has a lot of interesting discussion of EROEI in relationship to ecological economics. Basically, these people are geniuses but they are also quirky. We love them because they are so smart, but they are quirky in ways that sometimes drive the rest of us nuts. As long as you keep this in mind, it’s a great book.
December 25, 2017
I wanted to like this book, and it has a broad set of information from nutrition to weather and stagflation. But it just doesn't go very far. It doesn't actually set up a model of biophysical economics, and the example of trying to create a model for Costa Rica is stated as a dead-end. I hoped for a deeper dive behind GDP other than to say that it seems to grow with energy use. I wanted a peek behind currency and consumerism. So, yeah, it's not bad (except that it could have used an editor), but it's just a collection of background information with no place to go.
February 21, 2023
I'm being generous giving this book 4 stars. It really merits 3, due to the terrible editing, and the riduculous price (damn you, academic publishers!), but as the topic is critically important and adequately well covered, four stars for you. This would have been magnificent as a series of well-edited, discrete essays.
April 7, 2013
Fascinating look at how energy, specifically cheap energy, may have been one of the main drivers of our economic progress over the past 150ish years. The authors then go on to point out that we are in peak oil and our economic toolbox will need to change in order to thrive in the post peak world.
Overall, the authors present a compelling case and do manage to tie together the social and the science a la E. O. Wilson. Sadly, Hall's writing tends to repeat and there are many tangents that while interesting, do not add to the central argument.
Overall, the authors present a compelling case and do manage to tie together the social and the science a la E. O. Wilson. Sadly, Hall's writing tends to repeat and there are many tangents that while interesting, do not add to the central argument.
Displaying 1 - 4 of 4 reviews