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Foreign. Principles of Economics. My complete guide to Understanding Economics is now available in hardcover, audiobook and ebook from seifeddin.com, amazon, and many more booksellers worldwide. And now I am also teaching a course based on this book on my website seyfeddin.com Principles of Economics will run the whole academic year from September to June and will have a new lecture every two weeks, as well as weekly live online discussion seminars open to learners from all over the world and from all walks of life. Whether you're a student, a professional, or a retiree, you are making economic decisions every day and this course will arm you with the wisdom of centuries of economists to improve your economic decision making. You'll also get a free book of Principles of Economics. If you sign up for the course, go to seifedin.com and sign up now. Hello, welcome to Lecture 8 of the Principles of Economics online course. Today's lecture's topic is energy and power. So in the previous lectures 4, 5, 6, and 7, we discussed different ways in which human beings economize, and we're focusing so far on individual forms of economization. It's ways in which people can economize individually if they're left on their own. So we said initially they can work, they engage in labor. That was chapter four. Chapter five was property. They acquired property. And that's an important way of economizing. And it is the foundation of the building of an economic system that is built around capitalism, property and trade, and the division of labor. It all rests on property. And then there's a specific form of property that is extremely important, which is capital, which is property that is used for the production of other things. And then in the previous chapter, Chapter seven, we discussed technology, which is the form of capital that is immaterial. It is capital that does not exist physically. It is ideas, and it is the form of capital that allows us to combine physical objects into producing things that we value. In today's lecture, we're going to look at the topic of the use of energy and the use of power to meet our needs. This is not usually something that is included explicitly in economics textbooks, but I believe it is something that is enormously important in today's world. I believe it is inseparable from understanding economics, capitalism, and industrialization. If you want to understand the economics of the world today, you need to understand the basics of the economics of energy. And I'm sort of biased for this because I studied mechanical engineering as an undergraduate, and so I've always thought of things through this lens. But I believe it is extremely valuable to think of energy in terms of economics and to think of economics through a lens of energy. In fact, I believe that the framework that we laid in chapters one, two and three, in which we discussed how marginal analysis is the foundation of all economic analysis, is extremely important toward understanding energy and understanding power and understanding the importance of power, understanding the realities of global energy markets. As we're going to see in today's lecture, using energy is an economic act that increases productivity, like capital or trade or technology. And that's why it is something that I decided to give a whole chapter in this book. We can't understand the modern economy without understanding energy and the economics of energy and to think about what energy is. You know, let's begin with the scientific explanation of the topic and the scientific understanding of it. Curiously enough, there's no clear scientific definition of what energy is. The world's most popular thermodynamics textbook has this definition of what energy is. Although everybody has a feeling of what energy is, it is difficult to give a precise definition for it. Energy can be viewed as the ability to cause changes. There's a slightly better definition on Wikipedia, of all places. And it says, in physics, energy is the quantitative property that must be transferred to an object in order to perform work on, or to heat the object. I think this is a useful starting point to understanding what energy is. It's something that allows objects to perform work or allows you to perform work on an object or transfer heat to it. So it's either heat or work. Now, what do we mean by work? We can think of work in two terms. It can be expressed in terms of force or in terms of heat. So what is force? Force can be expressed and measured using the standard international units, which we discussed in chapter one. So this is very scientific stuff. Remember, in chapter one, we explained the distinction between economics and economic reasoning and economic mathematics and physics and sciences. And we said the reason that we cannot quantify value in economics and the reason that we cannot perform economic analysis mathematically is because in economics we have no constants. There are no constants with which we can measure valuation. And since we don't have constants, we are unable to perform economic measurement in a scientific way, but in the natural. And to illustrate this point, I looked at how we perform measurements in the natural sciences. And I explained, in slight detail, maybe too much detail for some readers, the reality of how the international system, system of units, the standard international units, are operating. And we saw that all of these units come down to something that is inter objectively ascertainable. People from all over the world can agree what a meter is. We can agree what a second is. We can agree what a degree of heat is. All of these things can be expressed in terms that are unambiguous for everybody across the world. And so using these me, using these units, we are able to come up with precise definitions of what energy is. So let's do that. Force, we think of forces. If you want to understand what force is, we measure it as a force acting on 1 kg of mass to produce an acceleration of 1 meters per second squared is 1 Newton. So we define force in terms of Newtons after Isaac Newton. And one Newton is equal to a force acting on one kilogram of mass to produce an acceleration of one meters per second squared. So a force of one Newton acting over a distance of one meter produces one joule of work. And so a joule is a force of one Newton applied over one meter and again meter, meter per second kilogram. All of these things are very clear units that are easy to define and understand all over the world. Heat, on the other hand, is defined through calories. And a calorie is the amount of heat needed to raise the temperature of one centimeter cubed of water by one degree Celsius. So if you have one cubic centimeter of water and you raise its temperature by one degree Celsius, that amount of heat is, is one calorie. And since this is all precisely defined, we can define a calorie in terms of joules or a joule in terms of calories. And one calorie is equal to 4184 Joules. So that's how we can understand heat and how we can understand force. Both of those two things are distinct but similar ways of measuring the same thing, which is energy. So you can think of energy in terms of heat or in terms of work. You can measure it in terms of calories, you can measure it in terms of joules. Calories and joules are equivalent. The change between them is just you multiply them by the unit of 4184. So that's what energy is. So energy is this, as we said, this quantitative property that can move things or can perform work on things, or can heat things. Now, another very important concept is power. And power refers to energy over time, in other words, joules per second. And that is counted, that is measured using what is called a watt. So a joule per second is watt is a Watt, after James Watt, who invented the steam engine. And according some people, although probably that's not a fair characterization, a lot of people were involved in inventing it, but he certainly took credit for it. So humans, human bodies need to consume energy to survive and to act. So if we have human action, the reason you can act as a human being is because you have energy, and humans also yield energy to economize. You perform economic actions by wielding energy. So to think about how we perform, how we wield energy in our world in order to meet our needs, we can think of transportation as an example and how we use power in transportation. I think this is a good starting point to begin to understand what we mean by the economics of energy. So if you're trying to transport 500kg for a certain distance, let's say you're a farmer, you've got 500 kilograms of crops. You want to send from your farm to your town. You can do it with your own hands, carry the things on your back, and you'll need, say, 20 hours, two hours a trip. Each trip you carry 50 kilograms and you walk for two hours. And then you need 10 trips. So that's 20 hours of work in order to carry this certain amount of product to the market. Now, if you had a horse, a horse is able to do it in around two hours. That's around 10 times the power of a human being, because a horse can carry more than a human being and it can run faster than a human being. So if you did it with a horse, you could say that that's around 10 times the power of a human being. Maybe these numbers aren't entirely accurate, but I think they give us a good sense of an order of magnitude. Yeah, if you imagine, if you, if you had a horse, you could put 500. A horse in a carriage, you could put 500 kg on a carriage and have the horse pull you, and it'll be able to perform that work in two hours. So you just go on one trip. Because you have a horse and a carriage, you don't have to go do 10 trips by foot. On the other hand, if you had a car, you'll be able to perform the same trip and the same amount of work transporting that amount of product in a few minutes. And so that's around 100 to 500 times the amount of power of a horse. So you can think of the power as the amount of work that is done over time. A human being has a certain amount of power. You need 20 hours to carry those 500 kg, a horse is around 10 times that power. And so you're able to do it in 10 times the, or in 10 times less time than a human being needs to do it. So you can carry that in around two hours. A car needs a few minutes. It's a lot more powerful than a horse. It's a hundred times powerful than a horse. And if, you know, if you notice, they sometimes refer to cars in terms of horsepowers. This car has 200 horsepower, 300 horsepower, and that's a measure of how much horses, how much horsepower effectively is in a car. So as you can see, more power means more ability to get more work done in shorter amount of time. That's the good way to think about it intuitively. And that's a useful framework for thinking about energy and power in terms of economics. So here's how we can get a perspective of how our use of energy has changed over time. For nomadic hunter gatherer societies, the raw energy, what the kind of energy that they used was the raw energy of nature. You would have sunshine would keep you warm, and you would go to a running river and you could swim and you could use the water in the river to clean you or wash you. As a nomadic person, you didn't have much technology to be able to utilize forms of energy more sophisticated than sunshine, helping your body stay warm and giving you energy or helping your food grow, which you then eat. So that was a very basic way of how we consume energy as human beings. In a nomadic system, the sun falls on the earth, it causes crops to grow and it causes animals to grow. And then we eat those animals, we eat those plants, and it we have rivers running around and we use the rivers to wash our body and wash our food maybe. And that's pretty much it. And of course also we can make fire, we can get firewood, and we could burn it. Then we move to sedentary society and what happens there. We can understand why we move to agricultural sedentary societies in terms of it allowing us more power, more access to more energy per unit of time. Why? Because now that we're sedentary, now that we're settled, now that we have settled existence, and I should say generally, most historians believe that sedentary societies and stable civilizations only emerged with agriculture. Although I've heard some people dispute this, I think modern archaeological findings, like Gobelkitepe in the south of Turkey, seem to dispute this. They seem to suggest that we did have stable sedentary civilization and cities before agriculture or independently of agriculture. I'm not so sure. But in either way, what happened, we could call this agricultural or not. What happens as you go from being nomadic to being sedentary, from being civilized to being civilized to having a city, is that now you can acquire capital and you can develop technologies for utilizing more energy and more power. And so we domesticated animals, we have animals to move things around. Now you're no longer nomadic. So you can keep an animal in a certain place and take care of it and manage, manage to feed it and maintain it. You can use water mills, you can use windmills, and you can log regular large quantities of wood fire, which you can then use to make fire. So you combine all those things together and you get modern civilization. Well, maybe not modern, pre modern civilization, you get sedentary civilization, wherein human beings have a much larger access to power than they did when they were nomadic. Then we get to modern society. Modern civilization, which relies on industrialization and industrialization was built around three main fuels which increase the amount of power that we have drastically. And these are coal, oil, and gas. People started using coal in around the 15th, 16th century, and that allowed us to have more power, because coal is more energy dense than wood fire. And it was once we built the infrastructure to produce it, we could generate larger quantities than we could get from wood fire, because wood fire requires chopping down trees. And then you get rid of the forests, and that can be a problem. But coal, you dig underground and you find coal, and then you just keep burning it and it's more energy dense. Then in the 19th century, people started using oil and gas, and these allowed us even higher amount of energy density. So what we can see is that our human progress has always moved toward having more energy density per unit of mass of the fuel that we consume. We went from wood fire, which had 16 megajoules of energy per kilogram. Remember the joule that we mentioned earlier? 16 megajoules of energy are in 1 kg of wood. Coal, on the other hand, is 50% more energy dense than wood, which was a huge improvement. When we went from wood fire to coal was a 50% boost in energy density, which meant that when you carried a bunch of coal, you carried a lot more energy on your back than you if you carried a bunch of wood. Or when you loaded your horse with coal, the horse was carrying a lot more energy per unit of kilogram than per kilogram of weight than if he was carrying wood fire. Then we moved to oil, and that almost doubled coal's energy content. Coal oil has 44 megajoules per kilogram. Then we moved to gas. And gas has 55 megajoules per kilogram. So that's more than three times the energy density of wood. And I think this is extremely important to understand that we're constantly economizing by finding more efficient and more economic ways of delivering energy, and so more energy per unit of weight. And then in the 20th century, we discovered nuclear fuels. And there it's a completely different ball game where 1kg of uranium has about 3.9 million megajoules per kilogram. So it's enormously larger. It's almost a million times. No, it's not a million times. It's almost 100,000 times more energy dense than oil. So it's massively more efficient as a mechanism. That's why you could run an entire house on the size of a pill of uranium for, I forget how long, but I think weeks or maybe a month or something like that. So you need very tiny amounts of uranium in order to produce very large amounts of energy. And that's a much more productive way of, much more efficient way of doing energy. Now, for comparison, batteries, on the other hand, they can produce only around 0.5 megajoules of energy per kilogram. And that's an important point we're going to get back to later in this chapter. So an important point to understand here is that energy is not scarce, energy is infinite. I believe this is a very important point, and it's something that is generally not discussed. But I think part of the reason that I included this chapter in this book is because I believe, using the mental framework of Austrian economists, which we discuss at the beginning of the book in chapters one and two, thinking through human action, thinking through marginal analysis, and thinking through subjective value can help us understand energy markets in a much more powerful way than what you would usually get from most explanations of energy. And so, if you look around, energy is practically infinite. Remember what we said in chapter one. Something becomes an economic good if it is scarce, because if it is not scarce, then we just take whatever we want from it. When it is scarce, then we need to value it, and we need to value it by comparing it to other things, because we need to give up other things in order to have it. And so if you look around, we see that energy is really infinite. It's not scarce, it's beyond our ability to even quantify. And I discuss in detail some measures of that. But the amount of sunshine that hits the earth is hundreds of times larger than the amount of energy that we Consume. So something like the energy that hits Earth in one day is more than the energy that we consume in an entire year. So every day, we have hundreds of times more energy hitting Earth than all the energy that all humans consume from all the world's power plants and oil and gas and nuclear and so on. And that's just the sunshine. The wind also. There's more wind energy blowing all over the world than the energy that we consume every day. Geothermal energy underground is also very, very large. And rivers are also an enormously powerful energy source. There's an enormous amount of energy in rivers all over the world. That's not even getting into hydrocarbons, which are infinite. As we discussed in chapter three, the quantity of hydrocarbons that exists on Earth is beyond our ability to even measure. The more we dig, the more we find. And we continue to dig more, we continue to consume more, we continue to find more. We never run out of these resources. The more we consume, the more we look, the more we find. And then, of course, there's uranium, which is enormously abundant in terms of its energy. And so even tiny quantities of uranium can run the planet for a very long time. So when you combine all of these things, when you understand that we have more solar, more wind, more hydroelectric energy, more hydrocarbons, and more uranium energy than everything that we consume. In fact, we have thousands of orders of magnitude that we know of of these energy sources more than what we consume. It's not fair to say that energy is an economic good. I don't think we can think of energy as an economic good because it is not scarce. It is massively abundant. So therefore, what is scarce, on the other hand, is power. It is the direction of energy to the meeting of our needs over short periods of time. So energy itself does not meet our needs. We cannot consume the wind or the sun or the coal or the gas or the uranium itself in the form of energy. Raw energy on its own doesn't do anything for us. In order for it to meet our needs, in order for it to satisfy our needs, it needs to be directed to these needs. And it has to be directed over time, because humans act over time, as we discussed in chapter three. And so in order for it to act over time, that requires us. Now for a quick word from our sponsors. With fiat money constantly debasing, preserving your wealth isn't an option or luxury. It's a financial and moral imperative. If you're familiar with my work, you know the only financial advice I ever give is to buy and hold Bitcoin for the long term. This has never failed anyone. 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If you're ready to move beyond the false promises of fiat, start your long term bitcoin strategy@swann.com safe S A I F But now finally Daylight have delivered a fantastic full function tablet with a paper like screen that's easy on your eyes and great for outdoor use. I've been using the Daylight computer to write my next book and it is absolutely fantastic and it has led me to invest in this company myself. Check out my interview with Anjan katta in episode 249. The Bitcoin standard Podcast is brought to you by Coinkite. Coinkite are my favorite makers of Bitcoin hardware. They produce the legendary opendime, the first bitcoin bearer asset, as well as the reliable cold card hardware wallet, the excellent stainless steel siege plates for storing your seed phrases, and the block clock to channel it toward meeting our ends. And that is what is an economic good. In other words, energy is only an economic good when we understand it in terms of power energy over unit of time. And so solar, wind, hydrocarbon, nuclear or hydroelectric energy that is not directed to satisfying human needs is not a good any more than the energy of a distant star is. There's a star very, very far away and it has a lot of energy in it. That's irrelevant to us. It's not an economic good because we can't really use it for anything. We can't use it to meet our needs. So humans cannot value energy resources in the aggregate. We can only value them at the margin. The total quantities of energy do not matter. Energy per second directed to meet your needs is what does matter. Humans value the next unit of energy directed to meeting their needs over time. In other words, humans value power. That's what we actually value. We value power, we don't value energy, we value energy per second. We value energy at the market. Only when dedicated to the satisfaction of our needs can energy sources be considered goods. And only when directed to the satisfaction of our needs does energy indeed become scarce. And thus an economic good. Energy then is not an economic good. Power is. I think this is a very important point to keep in mind. So energy is massively abundant, it's infinite, and we can't think of it as an economic good. Power, on the other hand, is scarce. Having energy directed toward meeting your need at the margin is what is difficult to get. Energy as the capacity to do work is irrelevant to our needs. Power as the capacity to do work over time is what meets our needs. And so power is how energy meets our needs. We don't consume energy raw, we consume energy in the form of power, energy over time, energy at the margin, energy directed toward our specific needs. So remember from chapter three, there was an analysis in which we trying to explain marginal analysis. I used an example from Mises in which Mises said, nobody has to choose between all the gold and all the iron in the world. People only choose between the next marginal unit of iron or the next marginal unit of gold. And that's why we can understand why iron is cheaper than gold, even though iron is arguably more essential for human civilization. We build so many essential things from iron. Gold is mostly used for jewelry. And yet people, mostly people, value gold a lot more. Why? Because nobody ever has to choose between all the world's iron or all the world's gold. Or to borrow Menger's example, nobody ever has to choose between all the world's water and all the world's diamond. We choose at the margin. And that applies to energy as well. So given the relative scarcity of gold to iron, under normal market conditions, people usually usually value the marginal unit of gold more than iron. In civilized society, people are using iron for all kinds of things. So there's a massive abundance of iron available everywhere. And iron is going towards meeting our least valuable needs of iron, which are usually valued at a very low level. And so therefore we're using small. That's why we have small valuation attached to iron. Gold, on the other hand, is relatively very scarce. So therefore it's going to meet our most valuable uses of gold. And that's why at the margin it is very valuable. The same is true for water and diamond, the same analysis we conducted in chapter three. So similarly, people don't buy energy in total, they buy quantities of energy over units of time, they buy power. So energy as an economic good cannot be divorced from the time in which it performs the work required for it to satisfy human needs. Channeling the energy to meet needs is what makes it a good. So energy in its raw form is not an economic good because it is highly abundant and because it has very little utility in its naturally occurring levels without being channeled into productive uses at the margin as power. In order to operate a car or airplane or computer or phone or loudspeaker, ventilator, or any of the many critical and ubiquitous technological devices of the modern world, a specific amount of energy needs to be directed at the device per second of operation. The economic value that accrues from operating these devices is dependent on this continuous stream of energy entering the machine at the required rate, that is the power supply. To the extent that energy provides utility to humans, it does, though at the margin, in the form of power. Understanding this, I believe, is very important towards understanding the reality of energy markets. And it has enormous significance to what people think about today in terms of the energy transition. And that's kind of the complex point that I'm building toward in this chapter. So just like humans value goods at the margin, humans value energy in the form of power. This helps us understand why humans value hydrocarbons so much and spend so much money to make them work. This is really the important conclusion that we get from this analysis of marginalization, marginal energy analysis, and the importance of power. Hydrocarbons can deliver large amounts of energy per unit of time. They can deliver high power. They are highly mobile, chemically stable, easy to transport, and can operate anywhere, anytime. That's what makes them so valuable. That's what's so important about them. So wind and sunshine are free, and we've had them forever, yet we continue to spend trillions on hydrocarbon infrastructure. Why? Because it's worth it. This is. This is a really pivotal point. So you hear a lot of people saying it's insane that we continue to consume oil and gas and spend so much money on digging up oil, gas, and coal out of the earth, and then we process it, and then we put it on giant boats or put it in giant pipelines, send it all over the world so that we could then consume it where as energy is free from the sun and from the wind. Well, that doesn't matter. Even though there's more energy hitting Earth every day in the form of sunshine than we consume in the form of hydrocarbons, that's not how things work. As Mises was Saying when we were discussing iron and gold or manger in his example of water and diamonds, nobody has to choose between all the world's sunshine and all the world oil. Nobody makes a choice between energy. In the abstract, people make economic choices about energy at the margin. In other words, they make economic choices about power. And the power is dependent on being able to deliver this energy over short bursts of time when it is required, when people want it. And that is what makes hydrocarbons so much more valuable. That's why people spend so much money on building infrastructure for hydrocarbons, because it allows us to produce these large bursts of energy when we want them, where we want them. And understanding this is key to understanding economic progress throughout history. So if you look at how humans have managed power over the past few centuries, it's the ability to tap into hydrocarbons has massively transformed how we function as a civilization. So if we think about a strong man who's turning a wheel, a man sitting in a place turning a wheel, is able to produce something like 200 watts of power. And that's 200 joules per second. That's the amount of power that you're able to do if you're turning a wheel, which is how a lot of industry worked back in the day. So you would turn a wheel and then the motion of the wheel would be used to, say, grind the grains or run sewing machine or something like that. But then if you were to. If we were to compare to an elite cyclist today, one of the most powerful people on earth, people who are cyclists, professionals, they sit on these bikes and they cycle. They make about 400 watts of power. So 400 joules per second at their peak performance. A horse, on the other hand, almost doubles that. So 750 watts of power are produced by a horse. That's what generally we call a horsepower. In fact, I think a horsepower is precisely 746 watts. So that's the amount of power that was available for us as human beings. If we're just relying on us as men, strong men, churning things and our horses, we had 750 watts. We had 200 watts. That's the amount of power that we could dedicate towards doing things. And that's not a lot of power. I mean, it's. It's a lot of power if you're the one turning the wheel, if you're the one cycling, or if you're the horse being whipped to move things around. But it's not a lot of power compared to the things that Are afforded to us by hydrocarbons. And that explains the value of hydrocarbons. So the Roman water wheel people who relied during Roman times, they invented the water wheel, which was turned by moving water. So you'd have a river and the river would. And you'd put a wheel inside the river, and then the water would turn the wheel, and then you would use the rotation of the axis of the wheel in order to perform work. Well, that could make power at around a rate of 1800 watts. So that's two and a half horses just from a stationary wheel. That's pretty powerful. Then around 1500, Germans had windmills that could make 6500 watts of power. Again, that's not bad. You know, we're getting stronger and we're getting more and more power, but again, nothing like what was going to happen when we were to discover the use of hydrocarbons. So then in 1750, a Dutch windmill, the Dutch had the most advanced form of windmills by 1750. And that could make 12,000 watts. So 12,000 joules per second. That's significant. That's, you know, significantly more than the amount of power that a human being can make. That's why the Dutch windmills were so important. That's why Holland was one of the leaders of industrialization in the 16th and 17th century because. And 18th century, because they had these powerful windmills, and they used them to be able to have a lot more power than people who didn't. And then we start seeing the introduction of hydrocarbons. And now that giant windmill in Holland in the 1750s had produced about as much power as a Ford model T in 1908. A Ford model table makes about 15,000 watts in 1908. And so you had a giant windmill that required a lot of time and money and effort to build. And now the same power could be produced by tiny little engine that could be put in a tiny little car that someone could have in their own garage. 14,900 watts of energy and a water turbine. In 1832, at 38 kilowatts, a Kia Picanto, a small little car in 2020, in the year 2020 today has 45, 000 watts. So that's, that's about three Ford Model Ts. And this is a tiny little car, One of the least powerful cars on the market, One of the cheapest mass production cars still has more power than three Dutch windmills from 1750. In 1800, James Watts produces an engine, his largest engine, around 100,000 watts. So we see the giant jump from 1750 windmill, Dutch windmill, or 1830 water turbine to just having an engine that could produce 100 kilowatts in 1800. That's what happens with the Industrial Revolution. A diesel tractor in the year 2015 gives us 300 kilowatts. A steam locomotive engine in 1890 gives us 850,000 watts. A steam turbine in 1900 gives us a million watts, or a thousand kilowatts. The most powerful car in the world today is the Rimac nevera, and the 2022 model of that car runs on 1.4 million watts. Now for a quick word from our sponsors. The Bitcoin Standard Podcast is brought to you by the safehouse.com, my independent publisher and bookshop selling the best bitcoin books in high quality cloth hardcovers built to last for generations. Most books these days are pretty fiat. They're flimsy and they fall apart quickly and I did not want that for my books. So I set up the Safe House especially to provide you with beautiful, long lasting classic cloth hardcovers you can proudly pass down for generations. You can get copies of my three books, the Bitcoin Standard, the Fiat Standard and Principles of Economics. 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They don't touch your coins. They guide you through the process of acquiring your coins and securing them. If you'd like to make your setup safer and more reliable, book a consult with them and see what they have to suggest. If you want to give someone the gift of Bitcoin, get them this professional service that will ensure they start off knowing exactly how to manage their coins and not lose them. Go to the bitcoinway.com and start bitcoining more confidently. That's a lot of power for one small car. So you can see this car is the one of the fastest cars in the world. And the reason it is very fast is it can produce a lot of power. 1.4 kilowatts or sorry, 1.4 megawatts per second. In order to make run that engine, a 1950 German diesel locomotive. So train in 1950 runs on 2 million watts. That's a lot of power. By 1950 we could have 2 million watts on a train. In 1970, a gas turbine could produce 10 megawatts. That's an enormous amount of power too. A high speed train in 2015 in Japan runs on 17 million watts. 1960 merchant chip runs on 30 megawatts. 1969 Boeing 747, 60 megawatts. The HHM Algeciras, the biggest ship that I mentioned earlier in the chapter on Capital, that runs on 60 megawatts and the 1969 Concord jet ran on 108 megawatts. That's what allowed it to travel so quickly. It could generate this much power. And today the 2022 Siemens SGT 9000HL, that I think is the most powerful power generator in the world today. It produces 410 megawatts of power. That's an enormous amount of power. So you can see now all of these things run on, that run on hydrocarbon energy, produce so much energy. They produce so much energy per unit of time. They produce so much power. That's the value of hydrocarbons. That's what hydrocarbons have given us. We dig them up from Alaska or Mexico or Saudi Arabia or Russia, process them in an oil refinement plan and then ship it some anywhere in the world where you can have that giant Siemens power plant. And that power plant will produce enormous amounts of power that are enough to keep a city running, because you're able to dedicate the power when you want it, where you want it at the time that you need it. And that's what makes these hydrocarbons so variable. And so we see just how much our power has increased. So compare from this state of the art of a society in which the strongest person is able to turn a wheel, that society is only able to dedicate about 200 watts of power, is only able to use 200 watts of power to produce it. To today, where the most powerful society is able to have a power plant that can produce 400 million watts of power. So we've done a 2 million x increase in power. That's what's so valuable. So this is why the total amount of energy that is in the sunshine or the total amount of energy that is in the wind is not really relevant. Because we're not deciding about energy, we're not buying energy in the total. Again, we're thinking in terms of marginal analysis. And we make our decisions at the margin. And what's really valuable is being able to have these large quantities of energy over short bursts, short periods of time. And that's what hydrocarbons give us. So that's why we're able to go from having 200 watts as the most amount of power that we can dedicate toward meeting our needs, to 400 million watts or 400 million joules per second we could use to dedicate, we could use to meet our needs. That's what makes it so valuable for us, the ability to use these hydrocarbons. Because you can put this power plant anywhere, and you can generate this power anywhere, and you can use it to meet your needs anytime, anywhere. That's what makes it so valuable. So Vaclav Smil, who I based a lot of this data on his work. And in his work he discusses this in a quite mind expensive. He also looks at how much power we are able to dedicate toward field work. So a peasant hoeing a cabbage field produce about 50 watts. A farmer plowing with two small horses would have about 1,000 watts at his disposal. With a small tractor. In 1950, a farmer could harvest with 50 kilowatts of power at his disposal. And in 2015, with a large diesel tractor, a farmer could have 298,000 watts at his disposal. So simply working a field. Over three centuries of technological progress, thanks to the utilization of hydrocarbon power, the amount of power at the disposal of a farmer has increased 6,000 fold. Just understand how much of a difference this makes to our life. A farmer had 50 watts of power. Today he has 300,000 watts of power. It's a 6,000 fold increase in power. And that is caused by the ability to utilize these amazing miraculous fuels that are hydrocarbons. So before hydrocarbons, humanity was only able to access limited amounts of usable power and only near water wheels and windmills. With hydrocarbons, large amounts of power can be conjured anywhere at any time, allowing for growing population centers, growing trade links between these population centers, and higher productivity. By having hydrocarbons Deliver power on demand. Humanity massively increased its living standard. And so we look over the last two centuries, since 1900, over the last century, just the last century, we look at just how much our consumption of energy has gone up, our primary energy has gone up. And you look at the world today, you see that the vast majority of energy is oil, coal, and gas. Beyond that, there's a little bit of hydroelectricity, there's a little bit of nuclear power, but that's pretty much it. It's really mainly oil, coal, and gas. And then there's a whole bunch of other utterly inconsequential, tiny little sources of energy by, like biodiesel fuel, ethanol, solar tide, wave, fuel cell, wind, biomass, and waste, geothermal. Pete, all of these things are effectively rounding errors. Next to gas, coil and oil, they're barely perceptible on this chart because they don't really matter much. Our world runs on these fuels because they can deliver large amounts of power on demand when we want them. Of course, nuclear can also do the same, but not it won't. It can't replace oil and coal and gas. These things are essential. So the industrial revolution really is the hydrocarbon revolution. It's not just that we just became industrialized. I think the key thing to understand is that we started deploying coal and then oil and gas to meet our needs, and that's what made the difference. Around 80% of modern primary energy consumption comes from hydrocarbon. And the key thing to remember here is that the other 20% is practically not possible without hydrocarbon. So, yes, we have these amazing and very powerful hydroelectric power plants, but they are made possible with hydrocarbons because you can't make the steel of all of these water turbines without hydrocarbons. We can't make the windmills, you can't make water turbines, you can make solar panels without hydrocarbons. And most importantly, you can't make nuclear reactors without hydrocarbons. One very important thing I learned about nuclear reactors recently is that nuclear reactors cannot be, cannot produce as much heat as you can produce from coal or from burning hydrocarbons. So that's why you can't run a steel mill on nuclear energy, because even though it produces an enormous amount of energy, it can't produce very large amounts of heat. It can't be as concentrated as what you could get from burning large amounts of coal. That's why coal plants, that's why steel mills still run on coal. And so without steel, you're not able to make a nuclear reactor. So nuclear energy is great. And I think the world should be consuming infinitely more nuclear energy, But I don't think it can replace hydrocarbons. I don't see a conceivable way in which we could replace hydrocarbons just as an energy source. And of course, we cannot replace hydro. Nuclear cannot replace hydrocarbons, because hydrocarbons are very important for the materials that they produce, let alone the energy that they produce. So we have. We use it for energy. But also the barrel of oil that produces energy also produces an enormous amount of materials that are essential for us, for industry, without which nuclear reactors wouldn't function. But rubber in nuclear reactors or the. The plastics that we use in nuclear reactors, all these things require hydrocarbons. So modern transportation came from hydrocarbons. Modern capitalism and the division of labor are only possible thanks to hydrocarbons. Without hydrocarbons, most workers would be stuck in subsistence production with very little surplus available for trade. Our modern living standards are a product of hydrocarbon. I think this is something people need to come to terms with. And it's a very important fact to remember, because most people seem to be under the illusion that we could just decide to quit hydrocarbons. Just like, you know, you decide to quit vanilla ice cream and start eating chocolate ice cream. This is. This is how they imagine the choice between hydrocarbons and other forms of energy. But the point of writing this chapter for me, and why I think it had to be written within the context of an economics textbook, is that we first needed to lay out the analysis of marginalization. First we needed to lay out marginal analysis in the first chapters of the book. Then we needed to understand how valuation happens. Then we need to understand why hydrocarbons are so important and why they are the reason that our living standards have improved so enormously. So if you look at global life expectancy, it went up enormously as we started using hydrocarbons. And of course, this isn't just an empty correlation. A lot of people are very fond of saying silly things like correlation is not causation. Yes, of course, correlation is not always causation, but there are a infinitely larger number of correlations that are causation. When you eat, you stop being hungry. When you drink water, you stop being thirsty. That's a correlation, and it is causal. In fact, all of our ability to understand anything about the world, our ability to use our mind, comes from drawing causality from correlation. So the notion that some correlations are not causal is a useful thing to have. But I think people have fetishized this to the point where they can't look at a correlation and see any kind of causal link. In this case, it's very clear the causal link. We can see all kinds of ways in which using all these fuels has improved life expectancy, has allowed people to live healthier. So using these fuels, we can process waste and sewage and move it away from drinking water. That was really the big one, moving this fuel. We can make houses warm. Once houses started getting warm, people stopped dying. So much of cold in the winter. We can have hot running water, we can have, we can pump waste out of the house. We can have modern medicine, we can have modern hospitals that can provide care. All of these things that made our life possible came about because of our ability to muster large amounts of power. So this cannot just be a coincidence. And we don't have to just look historically, you look today, you see, you look at percentage of a population that is in extreme poverty and you compare it to per capita energy use, and you see there's a very clear relationship. There are no countries that have a lot of poor people which consume a lot of energy. You either consume a lot of energy or you have a lot of poor people. There is nothing in this giant part of the graph here wherein you have, where you'd have somebody who has a country that has a lot of poverty and a lot of, of energy use, that just doesn't happen. Poverty is just simply the absence of energy, the inability to use a lot of power. So this analysis of economics and the economics of energy helps us understand why energy and power are so important for improving living standards and for people being able to live better lives and eliminate poverty. We can also see that through the cost of power and how the cost of power has declined over time as humans have gone on to use more power. So if you remember a few charts ago, figure 10 shows us just how much power consumption has gone up over time. Well, now look at what has happened to the cost of power in terms of the things that we actually value, heating. So the cost of heating has gone down enormously and more than 90%. The cost of power has gone down by more than 90%. And this is data from the UK from the period from 1300 to 2000. So to keep your house warm in the UK today is a tiny, tiny fraction less than 10% of the cost that it would have took you to do that in the year 1300 or 1400 or something like that. And the reason that happened was industrialization and the use of hydrocarbons. You see, this decline begins as Hydrocarbons become more widely available as people start being able to use them everywhere, they decline. The cost of power and the cost of heating declines significantly. We see the same thing happening with lighting and transportation. The cost of lighting has gone down significantly. The cost of freight transport or passenger transport has also gone down very, very significantly. Tiny fractions of what they were. And the exact figures are in the book, if you want to see what they are. And you can check the source as well. So this is why we see that hydrocarbons have just allowed us to improve our quality of life so much, because they make all these very important goods enormously affordable for us. Now let's examine the power of alternatives to hydrocarbons and that this is, I think, a very important application of this analysis that I'm performing here. When we think about the economics of energy in terms of marginal analysis, we see why exactly it is extremely, extremely difficult to think of substitutes or alternatives to hydrocarbons as being actual alternatives for it, because they aren't really alternatives. And I don't think there is any realistic way of removing hydrocarbons without causing massive human suffering in return to enormous amounts of poverty and suffering and destitution as we had before hydrocarbons. And so the, you know, today, if you look around, if you read newspapers, if you read, if you listen to the tv, if you go to university, which, you know, all three things that you should probably never do, if you, if you consume the kind of propaganda that is offered by these outlets, you'll see that everybody agrees in these places that we are looking for ways to phase out hydrocarbons. We need to get rid of oil, coal and gas, and we have to replace it with wind and solar and all kinds of magical technologies. But that is fiction. This insanity started in the 1970s. In the 1970s, the price of these fuels went up. And so everybody started believing that we were running out of them. Them. And of course, the reason the prices were going up was because of inflation. It wasn't because of anything in particular about these fuels. We weren't running out of them. It's just the money wasn't being destroyed because the money supply was being increased massively. Then inflation subsided and our consumption of these energy sources continued to go up. So we weren't running out of them. But inflation is still there, so it is still a problem. And people are still not very happy about the fact that these oils continue to get more and more expensive or are not as cheap as they could be. And particularly whenever there's a big Bout of money printing, the price of these things goes up. And so what happens then is we go to the opposite conclusion. So we used to believe that we are running out of those fuels. And because we're running out, we need to move away from them now. Okay, well, we're clearly not running out because we just keep finding more and more, but we have so much of it that it's going to burn the earth. And so we have all these insane hysterias about how consuming hydrocarbons is going to ruin the weather, burn the earth, boil the oceans, or whatever. And that's just nonsense in my opinion. This is all inflation cope. This is all people trying to cope with the fact that inflation is making them poorer. And in fact, it's mostly governments trying to tell people to cope with the fact that inflation is making them poorer. I discussed this in detail in the Fiat Standard, both the book and the course, of course. And so if you're signed up to this course on my website, you can also take the Fiat standard course. There's 18 lectures available and you can discuss that. You can see that discussion in the chapter on energy and fiat fuels, as I call it. So I believe that the scientific case for this is nonsensical. I believe it's an example of just how ridiculous more modern science has become and how politicized it all is and how it's basically all just out there to try and rationalize inflation and try and make people not worry too much about inflation. Now, sunshine and wind are free and biofuel waste is close to free. So why wouldn't they be cheaper than hydrocarbon fuels that require very expensive infrastructure to produce them? And the answer is in marginal analysis. It's the same analysis that we conducted earlier in this course on water and diamonds and on gold and iron. Energy is not purchased in the aggregate. It is purchased at the margin. Nobody has to choose between all the world's oil and sunshine. People purchase power, not energy. People purchase power at the time and place they need to meet their need. Sunshine and wind are nice, but they cannot be made available anytime, anywhere. Modern technology needs power on demand. High productivity machinery needs a low marginal cost of power at all times. So sunshine and wind are free when they're available, but their cost is infinite when they are not available. After significant infrastructure investment, hydrocarbons can be made available on demand at a very low marginal cost. If you want the essential technologies of the modern world, cars, electronics, incubators, refrigerators, etcetera, you need hydrocarbons. You cannot run these machines only when the sun shines or only when the wind blows. So this is why electric grids relying on wind and solar is purely a government subsidy phenomena. We would not have these things connected to grids because for a grid, modern grid needs to be connected to all these houses that have all these incredibly sophisticated machines that require energy at all times. You want a reliable source of energy that's available to turn up and down on tap whenever you want it. Now, with wind and solar, you don't have that. And so if they're not available 24 7, 365, they need reliable sources of power to provide power at the downtime. So that's making wind and solar infrastructure essentially superfluous. This if you have a grid, you need to have reliable generation capacity for the maximum load of the grid. So if your entire grid is going to running, be running at say 2 gigawatts, if you have a grid that has, that has a 2 gigawatt capacity, you cannot count for on solar and wind to provide you any of that 2 gigawatt capacity. Because there could come a time in which there's 2 gigawatts being demanded from that grid. And at that time the sun isn't shining and the wind isn't blowing. So what do you do? You need a reliable source of energy. You need nuclear, you need coal, you need oil, you need gas, you need power generation from one of these things that you can just switch on, that's available on demand at the margin when you want it. But if you're going to be investing all of that infrastructure to provide all of that energy and infrastructure at that time, well, why do you need to build infrastructure for wind and solar? And the answer, as Warren Buffett put it, is subsidies. He said, it's clearly once before we build windmills because we get subsidies for them. If you didn't give us subsidies for them, we would not build them. So the entire thing is an uneconomic thing. No matter how cheap sunshine is, no matter how cheap the wind is, it doesn't matter. It doesn't blow 24, 7. So at the margin when you need it, it's not available for you. And so therefore you need to build full infrastructure, full load infrastructure for reliable energy sources. And so this is why you don't see people build those things without subsidies. As humans economize, they seek higher energy density. Remember, this is the point that we've said at the beginning of this lecture. We're always looking for higher energy density. And so to make solar and wind reliable, we need to use batteries which have abysmal energy density of only 0.5 megajoule per kilogram, which is around 1% of the density of oil or gas. And that's why batteries are so uneconomical. And that's why the best way to think about hydrocarbons is that they are natural batteries that are 10 times better than the artificial batteries that we can make. So if we dig up these batteries from the ground, they contain a lot of energy inside them. And so we are constantly able to generate large amounts of energy from small weights of fuel. If we try to do that with artificial batteries, it would be a lot more inefficient and a lot more expensive. Finally, the topic of energy and freedom for me, I think, is a very important topic. And I've discussed this earlier in the previous chapter on technology and slightly also the previous chapter on capital. But I think it's essentially about energy and energy consumption. The more energy we consume, the more freedom we have, the less slavery we have and the more freedom for people, and I think also the more freedom for women in general. Female empowerment is an industrial phenomena, and I think those. And slave. The abolition of slavery is also an industrial phenomenon. It's no coincidence that the elimination of slavery and the empowerment of women came after industrialization. And I believe the reason for that is that before industrialization, you as a human being, you were consuming a quantity of power that was similar to the amount of power that you're able to produce. There was little scale for producing surplus and trading it with others. There was little division of labor. In other words, you had your own power. You know, the 2,000 calories that you consume and produce every day. That's all the work that you could use to meet your needs. And you barely was a. You were barely able to meet your own needs. So there was little room for producing a surplus that you could trade with others. There was little room for the division of labor. Of course, the division of labor increases the productivity, so you benefit from it. But there's not much to produce and specialize when everybody is scraping by trying to make the very basic minimums of life. And so trade was not very useful in that kind of world because there's just not that much surplus to be trading. But slavery in that kind of world was extremely valuable because if you managed to get yourself a slave, you almost doubled the amount of energy that was available for you. So now, instead of having one person's work to meet your needs, now you had another person other than you, which was Your slave, and now you have two people. And so that almost doubles your living standards, because now you have double the amount of work, double the amount of energy, double the amount of power available for you. So that's extremely valuable. So slaves were extremely valuable in the world before industrialization. It massively increased your energy and the power at your disposal. But now, as energy consumption goes up, many of your needs can be met with machines instead of other humans. And so now, with a large amount of energy and power at your disposal, you have a surplus that you can trade with others. So now there's more room for specialization and more room for trading with others. And also, having the energy of another human being as a slave makes a very small difference to the energy at your disposal. If you have all these machines that are producing the work of 100 humans that are meeting your needs every day, you've got a car engine, you've got a generator that's giving you electricity to your house, and you're able to move things around very quickly without having to use any slaves for it. Well, adding the power of a slave to your life is going to make a very small difference. It's not a lot of work that the slave does compared to what the machines do. So the value of the slave relative to the value of the machines that you have declines enormously. And so the value of labor having the other person work for you becomes far more related to their cognitive ability rather than their physical ability. The value of physical labor becomes far and less important, because machines can do everything that physical labors can do. And machines are a lot less of a pain in the ass than having to deal with slaves. Slaves want to be free. Machines don't. Machines just do what you tell them. Machines can work a lot harder. And now, in order to operate the machine, you needed workers. But these workers needed to be intelligent, and they needed to work with their brain, and they needed to work willingly with the machines, because now you can't just enslave them because they have the ability to destroy your machines, and that would be very bad for you. So grunt work is suitable for slaves, but managing machines is suitable for free human beings. So with expensive machinery giving us capital, the consent of the worker using the machinery became more valuable. A disgruntled slave could ruin very expensive machinery. And so the value of slavery continues to decline, and the value of willing work continues to go up. So wages go up and slavery goes out of business. That's why the spread of industrialization coincided with the abolition of slavery. Whenever, wherever the Engine went, slaves were freed. And I think this is true until today. The places that continue to have some forms of slavery today are places that are not very heavily industrialized. They don't have a lot of engines. And as the engine spreads around the world, slavery gets obsoleted. The economics of machinery makes slavery far less workable economically. It makes the hard labor slavery provided available at a very low cost and increases the productivity and value of a worker's time to the point where his voluntary cooperation is more valuable than any slave labor he may perform. So high energy consumption, tech advance and capital accumulation also liberated women. Before productivity was largely a function of physical strength, making women highly dependent on men who are physically stronger. I think this is something that has become more obvious over the last few years when we started seeing comparisons of physical ability in sports. And you see when men compete against women in sports, you see enormous amounts of difference. That was actually mind blowing because you'd always understood that men are stronger than women. But I personally was very surprised at just the degree of the difference difference for it. So for instance, in football, soccer for Americans, the women's national team or the, the U.S. women's National Team is one of the best national teams in the world, not the best. I think they might be the world champions at this point, I'm not sure, I don't particularly follow, but they played a game against an American team, FC Dallas, and they played against the under 15. So they played against 15 year old boys. So the best woman in the world played against 15 year old boys and they lost. And it wasn't even close. And this is astonishing because There are maybe 10,000 teams in the world that are better than FC Dallas under 15. These are not professional, these are kids, school kids basically, and yet they are better than women. So if you think about this and think about it from an economic perspective, that's an enormous gap in physical ability. And I think there's no denying that men are just a lot stronger than women. Of course there are exceptions. There are women who are more powerful. There are some women who are more powerful than some men. But that doesn't change the reality that overall men are significantly more powerful than women. And that means that in a world with no machines, physical power is enormously valuable. And so physical power makes men a lot more able to command economic resources than women. And so women become extremely dependent on men. But that changes when physical power stops being very valuable because machines replace the physical power. Well now it doesn't matter the gap between men and women in terms of Physical strength only matters in sports, but it doesn't really matter much in economic activity, because in economic activity, the machines are doing the work anyway. Way so anyone can press a button. You don't need to be powerful to detonate dynamite, or to drive a car, or to drive a giant trawler. All of these very powerful machinery are operated with a click of a button or the steering of a wheel with very little power. So therefore, a man or a woman can do these job almost equivalently. And the distinction in terms of their power is disappearing. So when the machines do the physical work, productivity becomes a function of cognitive ability, where women are far more similar to men in the gap, if one exists, which is a debatable thing. If a gap exists, it's nothing like the gap that exists in terms of physical strength. So women are very similar to men in terms of cognitive ability, but they're very different in terms of physical ability. And that's why, in a world in which economic activity becomes cognitive, because the machines are doing all the work, it becomes very easy for women to become financially independent. It becomes very easy for women to be able to produce on their own and to generate the resources that they need. So independence becomes available to men and women. And that's why I think it's no coincidence that industrialization coincided with the liberation of women worldwide. That is it for this lecture. Join us in two weeks for the next lecture in this course. Thank you very much.