The Price of Everything

Astronomers using the Hubble Space Telescope have captured the most comprehensive picture ever assembled of the evolving Universe — and one of the most colourful. The study is called the Ultraviolet Coverage of the Hubble Ultra Deep Field (UVUDF) project.

I’m wondering whether anyone has attempted to compute the value of the whole Universe, in dollars.

This strikes me as a crazy idea—a kind of reductio ad absurdum of the economist’s worldview. But people have come pretty close, so I figure it’s just a matter of time. We might as well try it now.

Let me explain.

The price of the Earth

There’s a trend toward trying to estimate the value of ‘ecosystem services’, which means ‘the benefits of nature to households, communities, and economies’. There’s a practical reason to do this. Governments are starting to offer money to farmers and landowners in exchange for managing their land in a way that provides some sort of ecological service. So, they want to know how much these services are worth. You can read about this trend here:

• Wikipedia, Payment for ecosystem services.

It’s a booming field in economics. So, it’s perhaps inevitable that eventually someone would try to estimate the value of ecosystem services that the whole Earth provides to humanity each year:

• Robert Costanza et al, The value of the world’s ecosystem services and natural capital, Nature 387 (1997), 253–260.

They came up with an estimate of $33 trillion per year, which was almost twice the global GDP at the time. More precisely:

Abstract. The services of ecological systems and the natural capital stocks that produce them are critical to the functioning of the Earth’s life-support system. They contribute to human welfare, both directly and indirectly, and therefore represent part of the total economic value of the planet. We have estimated the current economic value of 17 ecosystem services for 16 biomes, based on published studies and a few original calculations. For the entire biosphere, the value (most of which is outside the market) is estimated to be in the range of US $16–54 trillion (1012) per year, with an average of US $33 trillion per year. Because of the nature of the uncertainties, this must be considered a minimum estimate. Global gross national product total is around US $18 trillion per year.

You can read the paper if you’re interested in the methodology.

In 2014, some of the authors of this paper redid the assessment—using a slightly modified methodology but with more detailed 2011 data—and increased their estimate to between $125–145 trillion a year:

• Robert Costanza, Changes in the global value of ecosystem services, Global Environmental Change 26 (2014), 152–158.

They also estimated a $4.3–20.2 trillion loss of ecosystem services due to land use change during the period from 1997 to 2011. While still difficult to define, this loss per year could be more meaningful than the total value of ecosystem services. Sometimes a change in some quantity can be measured even when the quantity itself cannot: a famous example is the electrostatic potential!

The price of humanity

Back in 1984, before he became the famous guru of string theory, the physicist Ed Witten did a rough calculation and got a surprising result:

• Edward Witten, Cosmic separation of phases, Phys. Rev. D 30 (1984), 272–285.

Protons and neutrons are made of up and down quarks held together by gluons. Strange quarks are more massive and thus only show up in more short-lived particles. However, at high pressures, when nuclear matter becomes a quark-gluon plasma, a mix of up, down and strange quarks could have less energy than just ups and downs!

The reason is the Pauli exclusion principle. You can only fit one up and one down in each energy level (or two, if you count their spin), so as you pack in more the energy has to increase. But adding strange quarks to the mix means you can pack 3 quarks into each energy level (or 6, counting spin). So, you can have more quarks at low energies. At high pressures, this effect will become more important than the fact that strange quarks have more mass.

For this reason, astronomers have become interested in the possibility of ‘strange stars’, more dense than ordinary neutron stars:

• Fridolin Weber, Strange quark matter and compact stars, Progress in Particle and Nuclear Physics 54 (2005), 193–288.

Unfortunately, nobody has seen evidence for them, as far as I can tell.

But the really weird part is that Witten’s calculations suggested that ‘strange matter’, containing a mix of up, down and strange quarks, could even be more stable than normal matter at ordinary temperatures and pressures! His calculation was very rough, so I wouldn’t take this too seriously. The fact that we don’t actually see strange matter is a very good sign that it’s not more stable than ordinary matter. In principle ordinary matter could be just ‘metastable’, waiting to turn into strange matter under the right conditions—sort of like how water turned into ice-9 in Kurt Vonnegut’s novel Cat’s Cradle. But it seems implausible.

Nonetheless, when the Relativistic Heavy Ion Collider or RHIC was getting ready to start colliding nuclei at high speeds at the Brookhaven National Laboratory, some people got worried that the resulting quark-gluon plasma could turn into strange matter—and then catalyze a reaction in which the whole Earth was quickly transformed into strange matter!

This is interesting example of a disaster that would have huge consequences, that is very improbable, but for which it’s hard to estimate the precise probability—or the precise cost.

So, a debate started!

Needless to say, not all the participants behaved rationally. Frank Close, professor of physics at the University of Oxford, said:

the chance of this happening is like you winning the major prize on the lottery 3 weeks in succession; the problem is that people believe it is possible to win the lottery 3 weeks in succession.

Eventually John Marburger, the director of the Brookhaven National Laboratory, commissioned a risk assessment by a committee of physicists before authorizing RHIC to begin operating:

• R.L. Jaffe, W. Busza, J.Sandweiss and F. Wilczek, Review of speculative “disaster scenarios” at RHIC, 1999.

In 2000, a lawyer and former physics lab technician named Walter L. Wagner tried to stop experiments at RHIC by filing federal lawsuits in San Francisco and New York. Both suits were dismissed. The experiment went ahead, nuclei of gold were collided to form a quark-gluon plasma with a temperature of 4 trillion kelvin, and we lucked out: nothing bad happened.

This is very interesting, but what matters to me now is this book:

• Richard A. Posner, Catastrophe: Risk and Response, Oxford U. Press, Oxford, 2004.

in which a distinguished US judge attempted to do a cost-benefit analysis of the Relativistic Heavy Ion Collider.

He estimated a $600 million cost for constructing the device and a $1.1 billion cost for operating it for ten years (discounted at a rate of 3% per year). He guessed at a potential total benefit of $2.1 billion—which he said was probably a huge overestimate. This gave a net benefit of $400 million.

Then he took into account the risk that the experiment would destroy the Earth! He very conservatively estimated the price of a human life at $50,000. He multiplied this by the number of people now living, and doubled the result to include the value of all people who might live in the future, getting $600 trillion.

This may seem odd, but discounting the value of future goods can make even an endless stream of future human lives have a finite total value. More annoying to me is that he only took humans into account: as far as I can tell, he did not assign any value to any other organisms on the Earth!

But let’s not make fun of Posner: he freely admitted that this result was very rough and perhaps meaningless! He was clearly just trying to start a discussion. His book tries to examine both sides of every issue.

Anyway: his estimate of the cost of human extinction was $600 trillion. He then multiplied this by the probability that RHIC could wipe out the human race. He estimated that probability at 1 in 10 million per year, or 1 in a million for a ten-year-long experiment. So, he got $600 million as the extra cost of RHIC due to the possibility that it could make the human race go extinct.

Taking the net benefit of $400 million and subtracting this $600 million cost of our possible extinction, he got a negative number. So, he argued, we should not turn on RHIC.

Clearly there are lots of problems with this idea. I don’t believe the entire human race has a well-defined monetary value. I’m inclined to believe that monetary value only makes sense for things that you can buy and sell. But it’s not so easy to figure out the ‘correct’ way to make decisions that involve small probabilities of huge disasters.

The price of the Universe

Suppose, just for fun, that we accept Posner’s $600 trillion estimate for the value of the Earth. What then is the value of the Universe?

I think it’s a stupid question, but I feel sure someone is going to answer it someday, so it might as well be me. Maybe someone has already done it: if so, let me know. But let me give it a try.

I’ll be very relaxed about this, so it won’t take long.

We could try to calculate the value of the Universe by estimating the number of planets with intelligent life and multiplying that by $600 trillion. It’s very hard to guess the number of such planets per cubic megaparsec. But since the Universe seems to extend indefinitely, the result is infinite.

That’s my best estimate: infinity!

But that’s not very satisfying. What if we limit ourselves to the observable Universe?

No matter what I say, I’ll get in trouble, but let me estimate that there’s one intelligent civilization per galaxy.

A conservative estimate is that there are 100 billion galaxies in the observable universe. There might be twice as many, but perhaps a lot of them are small or less likely to support life for various other reasons.

So, I get $600 trillion times 100 billion, or

$60,000,000,000,000,000,000,000,000

as my estimate of the value of the observable Universe. That’s $6 × 1025, or $60 septillion.

The price of everything

The title of the article is taken from a line in Oscar Wilde’s play Lady Windermere’s Fan:

Cecil Graham: What is a cynic?

Lord Darlington: A man who knows the price of everything, and the value of nothing.

17 Responses to The Price of Everything

  1. Darlington's Ghost says:

    (chuckle) I was about to berate you, of all people, for massively increasing the amount of cynicism in the observable universe by posting this.

    I then realized with some relief that it’s probably still zero (like most nonexistent anachronisms I’m fairly out of touch; but I do gather that the jury’s still out on the best & highest use of a vacuum).

    • John Baez says:

      For a short while my father tried to make a living as a door-to-door vacuum salesman. He said he felt bad charging money for nothing.

      • Todd Trimble says:

        Bless the (now more or less extinct) door-to-door salesmen/people. I have a distinct memory that we acquired a set or World Book Encyclopedias from a door-to-door salesman when I was about 7 or 8 years old, and it was from that point that I specifically date my lifelong quest for knowledge and learning.

      • John Baez says:

        Though my comment ended in a joke, my father really did try to make a living selling vacuum cleaners door-to-door. The attempted ended soon. I don’t think he sold any: he was a very shy, polite man, with almost the exact wrong personality for a salesman. He later spent time in the Army Corps of Engineers taking soil samples in the Blackfoot Indian reservation near Browning, Montana, living in a small house on reservation. That suited him much better.

  2. Rob Ryan says:

    It’s an interesting idea. But what does 1$ mean with 0 humans? It reminds me of the “if a tree falls…” question. “If the last humans disappear and no one is around to account for the loss, did the loss really happen?”

    And, supposing that there are currently 7 billion humans, the first two to go MUST have a lower value than the last reproducing pair, right? If I’m a multi-billionaire, I don’t care much about losing the first few dollars, but I’m sure sorry to see the last few go.

    • John Baez says:

      I agree that the meaning of money varies with the number of people present, complicating these calculations. But it’s tricky! You say you’d really miss the last few humans to die out, more than the first few… and that seems to make sense. But if you—the guy with the money—are gone, you won’t be able to pay anyone to save the last few! So what does it mean to say that the last few are more valuable?

      I’m reluctant to assign a financial value of $1,000,000 to some commodity if nobody is willing to pay that much for the commodity. If we separate the financial value of a commodity from what people are actually willing to pay for it, the concept becomes very murky—to me at least.

  3. domenico says:

    If some banks, or international organizations like United Nations, could quantify the value of forest ecosystems (like Brazilian or Indonesian forests) like a sovereign fund of natural source, then some nations could use the ecosystem like an immobilized value (probable source of drugs and new chemical products) to require international loans at favorable interests: it would be convenient to save ecosystems.

    • John Baez says:

      Yes. My suspicion of concepts like “the financial value of the whole planet” does not prevent me from liking the idea that putting a dollar value on ecosystem services might help people act in a way that recognizes their value.

  4. cclingen says:

    I’ll bet xkcd could make some interesting contributions to this effort.

  5. David Lyon says:

    From a computer science perspective, , the universe has performed roughly 10^{120} operations over 10^{18} seconds so it’s a 10^{102} FLOPS computer. Current computers cost about 1 dollar for 10 GFLOPS. To simulate the entire history of the visible universe would then cost 10^{92} dollars, within 70 orders of magnitude of your estimate.

    • John Baez says:

      I think I’ll wait for prices to come down before trying to simulate the Universe. But I like your alternative perspective! The view of Posner, where the value of the Earth is computed solely by adding up human lives at $50,000 each, is actually quite distasteful to me. When you’re simulating the whole universe you’re mainly spending money on simulating atoms in gas, dust and stars, so it may not really be worthwhile to do it in detail—but still, I would assign value to things other than intelligent life.

  6. If I could math, I would.

  7. What’s the value of the Universe in dollars? All of them.

    So, it happens that I’ve been doing some thinking along similar lines at G+. And you really cannot begin to answer this question without addressing several others:

    What is Price?
    What are cost and use value (value)?
    How do they relate to price?
    What is money?

    It’s not just me. Economists have pondered similar questions since, well, before there was economics. Much of the history of theory from the time of Greeks until Adam Smith came along had to do with establishing what a fair price was. Much of his Wealth of Nations concerns the prices of various things: commodities, stocks, labour, rents. Ricardo, Jevons, a chap name William Foster Lloyd, Keynes, von Mises, and others before and since have speculated on value, price, cost, and money.

    Price

    Price is a ratio. It’s an expression of one thing in terms of another. Euros per kg. Donuts for a dollar. How many of my apples for your oranges.

    Market price is the coincident market-level ratio at which the marginal seller is willing to give, and the marginal buyer willing to accept, a good. In a competitive market, the assumption is that both buyers and sellers are price takers, that is, they cannot themselves influence price, and their counterparty has full freedom to walk away and transact with another. (Markets in which this isn’t the case aren’t fully competitive.)

    Which gets us to the first conundrum: the Universe doesn’t exist in a market. There’s nothing to give up for the Universe. It’s everything. The Universe then, transcends financial transactions. Price is undefined. The Universe is, if you will, an economic singularity.

    If the concern is dollars then there are several simpler reductions:

    There are no dollars in the Universe beyond low-Earth orbit. There is no basis for exchange. Economic transactions are limited to those with expressible demand (that is: cash or credit in hand).
    Dollars would be limited to the light cone spreading from Earth at the time of the creation of the first dollars, at a maximum. Or whenever credit starts to be beamed from Earth. The current maximum economic zone around Earth is then no greater than 240 light years (age of the United States, for which the dollar is currency), and most likely considerably smaller — effective means of communicating at any distance off-planet dates to roughly the dawn of radio astronomy and constructing large radio telescopes such as Arecibo in Puerto Rico. Call that 60 light years.
    Present value is another problem. Commerce would inherently require speed-of-light transmission delays. Even a 10 or 20 year future payment is discounted highly. Discounting for payments which won’t be received for 27 billion years (round-trip signalling time across the visible universe, not allowing for expansion) is likely to be high, and present-value of such payments, well, “here’s a nickle kid, tell the other side of the Universe I just outbid them” would net you vastly more value.

    You could continue in a similar vein. Interstellar, let alone pan-Universal economics is likely to remain exceptionally small. Economists have actually modeled this, with Paul Krugman notably having a paper on the topic of interstellar economics.

    The attentive reader will note that I raised several questions but have answered few. So on to those: What are cost, value, price, and money, and how are they related?

    Cost

    Economists define cost as “what you must give up to acquire something”. Krugman, in his textbook Economics, notes that all costs are opportuity costs. Which poses difficulties again in costing the Universe: what do you give up to gain the Universe? Absent money, what you give up to gain something is work, skill, capital, and resources. Among those resources might be considered the resources required to replenish those you’ve claimed, net of ambient flux. Or, more concretely illustrated, a crop of traditionally-harvested wheat entails seed corn (stock), a plow, other cultivating equipment, horse or oxen, feed, land, fertiliser, water (possibly as rain), topsoil, your time and labour, and sunlight. Some of those inputs you must specifically sequester, others are incidentally intercepted. There is a natural flux of rain which will fall on a field, after which it returns to the biosphere as runoff, evaporation and transpiration, filtering into groundwater, or as runoff. Similarly, whether you farm a field or not, the Sun shines and transmutes its millions of tons of hydrogen to helium every second. Your activities don’t influence the flux of these inputs, only the useful exploitation of them.

    However well-water, topsoil, additional fuels (wood, hay, coal, petroleum, natural gas), represent stocks of resources which you’re utilising and which have some replenishment rate. If you’re using these at rates greater than they’re replenished, you’re running down capital to generate present cashflow. This is among the fundamental criticisms of present economic and accounting principles, in that they don’t properly account for such draw-downs.

    Emergy as Cost Basis

    Computing a cost for such draw-downs is difficult, but I’m leaning toward a couple of views. One is looking at emergy, with an ‘M’, that is, the “energy memory” of a good or service (“embedded energy” was another term suggested, though that has a different prior meaning). Emergy is expressed as a specific type of input energy, e.g., solar emergy being the net input energy to provide a resource. My view is to consider a source emergy as that whose flux isn’t affected by human activity. That is, humans don’t change the rate at which the source wastes energy to the Universe at large as heat.

    All Earth-based resources derive from one of several emergy chains. The largest of these is solar flux, which drives virtually all biomass, hydro, wind, wave, and fossil fuel energy cycles. These are all fundamentally driven by the sun. Geothermal energy actually represents two emergy chains, one the latent kinetic energy heat of formation of Earth, from the Solar System’s primordial dust and debris cloud, the other radioactive decay of heavy elements initially fused in supernovae or possibly neutron star collisions. The balance is about 50-50. Nuclear fission traces to the same source event, though is limited to the small fraction of heavy fissibles present in Earth’s crust (most sank toward the core early in planetary evolution). Tidal energy is another flux related to the solar system’s formation, and extracts energy from the orbital energy of the Earth-Moon pair. Fusion of light elements — hydrogen, helium, and lithum — taps into a power chain first primed by the Big Bang itself.

    Conventional orthodox economics ignores this rather completely, with a very small number of exceptions. Full true emergy cost should likely consider these.

    Value

    Value is another concept that’s largely stumped economists. To be clear, I’m discussing use value when I use the term value. I refer to market value as price. See the classic discussion of the paradox of value between diamonds and water in Smith’s Wealth.

    W.F. Lloyd in lectures published in 1834, “A Lecture on the Notion of Value”, correctly identifies that value is a relationship, and therefor is relative to those with whom value is compared. That is, there is no intrinsic value, and no absolute value (though Lloyd expresses some concerns with this). Portions of his lecture are earily prescient of Einstein’s work some 60 years later.

    Ludwig von Mises states as an axiom that value cannot be determined. As with many other of his axioms, he’s wrong.

    Most of conventional economics follows from Jeremy Bentham who proposed economics’ phlogiston: “utility”, a concept which is unmeasurable, and unquantifiable (though usually assumed rankable), and comprises the oddly insubstantial foundation of half of microeconomics (demand side). Again, I find this vaguely interesting but ultimately misguided.

    The fields of ecology and sociology provide firmer ground. Both look at net throughput of energy as the measure of a population’s, ecosystem’s, or society’s magnitude. See especially Leslie White, Alfred Lotka, and Howard and Eugene Odum. This gets closer to the the truth, but I suspect misses a significant element: the retained capital value. Here I need to revisit the work of Ilya Prigogine (chemist and Nobel laureate) and much more recently Jeremy England (physics, M.I.T.) both of whose calculations include an element for the retained value.

    Eugene Odum’s Fundamentals of Ecology lists money as the currency of economics, for which he’s correct, and energy as the currency of ecology, for which he’s incorrect. The proper comparison is that various cybernetics systems between individuals, populations, species, and ecosystems are the ecological analogs of money, and that the economic analog of energy is … energy. This also points at where economic systems are fundamentally different from other systems of individuals and populations: economics has a mechanism for accounting for perceived costs, values, and prices among agents. Other systems, generally, don’t.

    Though ultimately, the sustained energy throughput of a system, or its entropic gradient is probably what matters. And all evolving dissipative systems, including economies, exploit entropic gradients.

    Which means that use-value, for any bounded system (individual, consumers in a market, region, national economy, planet) can be estimated by considering changes to net entropic flow resulting from increasing or reducing the availability of some element. In some cases, total removal is survivable (humans existed before cell phones), in others, not so much (oxygen). There’s another factor: an ecosystem’s adapability over time. Earth’s atmosphere didn’t always contain oxygen, and the story of how that came to be is probably the first known instance of biological life entirely exploiting one set of entropic potential (atmospheric methane and surface-strata oxygen uptake capacity in the Great Rusting), triggering an atmospheric calamity, global climate change, and long-lived consequences. The first billion to billion-and-a-half years of Earth’s most advanced life-form to that date, cyanobacteria, consumed all methane in the atmosphere, rusted all available iron (creating much of the iron ore now being mined), killed themselves off (oxygen was toxic to most cyanobacteria), triggered global cooling by removing a potent greenhouse gas (methane) at a time of lower solar flux (the Sun gets hotter as it grows older), and a global Snowball Earth lasting perhaps 300 million years. Among the consequences is us.

    So, modulo adapative capacities, we’ve got a basis for assessing value.

    Over shorter terms, or even simultaneous observations (ecologists aren’t plauged as are physicists by simultenaity, generally), biological or ecological activity in different environments can be observed, as with plant mass accumulation of a species observed at different altitudes.

    Which leaves us with price.

    Price, related to cost and value

    Price, normally, is greater than cost, and less than value. Most early economists saw price as being established by costs, not value. I’m leaning toward the sense that in a competitive market, a seller has no interest in what the buyer’s value is — if a seller is a price-taker, this information has no value to them. And if the information has value, then ipso facto, the market isn’t perefectly competitive.

    With the marginal revolution in ecoomics of the 1870s and 1880s, a marginal theory of value emerged — Walras, Jevons, Marshall, and Menger.

    Many pre-industrial (and early-industrial) economists arrived at a labour theory of value. This is most commonly ascribed to Marx, but the concept features prominantly in Smith and Ricardo as well. And, in a pre-industrial age, labour is a good proxy for total costs. Not perfect — by the 18th century, humans had already fully exploited and degraded entropic potential in several habitats, including Mesopotamia, deforestation of the Levant and Mediterranian basin (much due to early iron smelting using wood or charcoal), and were well on the way to a perpetual crushing poverty, discussed at length by Smith, in China. But at least over shorter terms — a few centuries, perhaps a millennium — human and animal labour using predominantly renewable sources of energy and materials kept accounts in balance.

    With extensive use of fossil fuels and mining of fixed mineral resources, that’s no longer the case. A true cost of fossil fuels would at a minumum consider the replacement costs of an equivalent hydrocarbon fuel. Coal substitutes for wood, petroleum for plant-based oils. Present costs for biodiesel not representing food-waste surplus run about $1000/bbl. There are proposals for synthesizing gasoline, kerosene, and diesel analogues via electrolysed hydrogen and sequestered carbon (seawater appears among the more viable sources) with estimates ranging from $3-$9/gallon ($126 – 378 /bbl). Or one can look at the energy costs. Presently petroleum returns about 30-40 units of energy for each (present) unit invested. Synthesized fuels would require two units of input energy per one unit delivered, raising energy-based costs by 60x – 80x.

    Burning Buried Sunshine

    Another view would look at the energy inputs represented by fossil fuels. I strongly recommend Jeffrey S. Dukes, “Burning Buried Sunshine” (2003). Briefly:

    One US gallon of petrol required 90 tonnes of ancient biomass.
    The rate of fuel consumption equals 400 years of total ancient annual net primary productivity (plant growth).
    Substitution from present NPP would increase human appropriation by approximately 50%, to over 60% of all NPP.
    The actual period of accumulation for fossil fuels burned in 1997 was five million years.

    That is: annual fossil fuel consumption equals five million years of capital accumulation. And substitution from present plant growth is highly unlikely. Dukes’ paper single-handedly convinced me that biofuels, at present rates of consumption — or greater — are a non-starter. That concept has the term HANNP, human appropriation of net primary productivity, or the somewhat more catchy version coined by Jared Diamond, the photosynthetic ceiling.

    The Texas Railroad Commission

    I’m suggesting that economic prices should factor this into account, and yet they don’t. Some of the extents to which markets entirely fail to price resource stocks rationally are staggering. Daniel Yergin’s book The Prize describes one such episode in chapter 13. Immediately following the East Texas Oilfield boom of the early 1930s. At the time, continued viability of the petroleum was in doubt, with known reserves, largely in Pennsylvania and Ohio, declining. Then Dad Joiner’s Daisy Bradford #3 well blew in and all hell broke loose.

    Upshot: the governors of Oklahoma and Texas called out their respective national guards, and the Texas rangers, to seize wellhead control at force of arms. Oil prices had fallen as low as $0.13/bbl, with $1/bbl seen as a minimum vailble sustainable price. Efforts to constrain extraction via quotas went through numerous rounds of battles in state and federal courts, with prices falling as low as two cents per barrel. Ultimately, the US Department of Interior and the somewhat inaccurately named Texas Railroad Commission established an extraction controls and quota system which was in effect from ~1933 to 1972. It terminated not from political pressure, but because there was no longer an excess extraction capacity to restrain. Some of you might recall events concerning oil supplies in 1973-74 — that wasn’t the first time Arab states tried to embargo oil, but it was the first time the efforts had an effect.

    Which only illustrates that markets don’t price in full value. It’d be awfully convenient if economics offered an extant rationale for why not. And I believe it does.

    Shutdown Decision

    There’s a concept called the shutdown decision. It states that a business (or worker) will continue to produce (or work) even when fixed costs aren’t met, so long as variable costs of production are. That is, you’re still losing money (or more importantly, wealth), but you’re doing so more slowly. This is particularly the case when you’ve regular costs which must be met (corporate debt, mortgage payments). There’s a strong case that the present tight oil markets globally, and especially in the US, reflect this. High costs of drilling and preparing fracked wells carry debt obligations which persist even if the well isn’t extracting oil, so in a paradoxical and pathological twist, oil companies are incentivised to increase extraction as oil costs fall, to meet current obligations. Oil-exporting states with either domestic or foreign financial obligations supported by oil face similar logic.

    Absent some means of addressing the write-down in capital (resource stocks) or of debt obligations, this picture’s unlikely to change.

    Which leaves us with a rather troubling problem: prices are arbitrary, and are dependent on the mental states of those seeking to buy or sell a good. Desperation, or irrational exuberance, on the part of either buyer or seller skews apparent values. A Spanish proverb reflects this: buy from desperate people, sell to newlyweds. See again W. F. Lloyd.

    If price is notional, and a ratio, the rate of one thing that someone is willing to give up for another, then money is the universal good.

    Money is traditionally seen as having four roles:

    As a medium of exchange.
    As a unit of value.
    As a store of wealth.
    (Sometimes) as a unit of deferred payment.

    Adam Smith goes so far as to say that “the sole use of money is to circulate consumable goods”. That uncharacteristically concise phrase unpacks to several interesting elements:

    There are no other valid uses of money.
    The goods must be consumable. Not, say, asset classes.
    The goods must circulate.

    Money has been likened to many things, most of which I’ve come to believe are incorrect.

    Many economics texts portray money as the “lifeblood” of the economy, and the banking and financial system as its heart.

    Commentators with a bent to physics frequently try to describe money in terms of energy. This has some merits, but I feel is also ultimately flawed. In particular, I suspect that it falls prey to the notion that because currency is expressible in energy units, it’s equivalent to energy units. But currency is expressible as anything which can be exchanged for money. Money is the ultimate exchange medium. Energy is expressible in dollars, pounds, Euros, Yen, Marks, rubles, or yuan because anything is.

    Money is information.

    That’s actually deeply embedded in economic pricing theory; economists talk of price signals. Specifically, money is information concerning the propensity for economic actors to engage in transactions. While, as noted above, that propensity should (and in the long term does) reflect full actual costs, in the short term it needn’t.

    Going on somewhat shakier ground: money is a metric for the control costs of the economic system — a measure of how much effort is required to regulate or controls flows of goods: resources, labour, services, capital.

    If the economy is a control circuit, individual actors (people, companies, governments, organisations) are valves or gates. Money is the cost of opening (or closing) gates, through which goods flow.

    Some gates are opened easily, some not (price). Some goods flows are high in value, some not (use value). Some are high in cost, some not (emergy cost).

    Fossil fuels have a high emergy cost, low gate resistance, and high use value. But the gate locations are fairly few — resources are highly unevenly distributed — and cartelised control over those gates, as literally exhibited in Yergin’s narrative, can control the value of further downstream gates (wholesale and retail prices).

    Air and water are fairly constantly replenished — they have low emergy cost — but more importantly, they are fairly uniformly distributed. In non-desert environments, water is generally liberally available, and everywhere on Earth to several thousand meters above sea level, air and oxygen are abundant. Use value is high, but control cost is quite low.

    And some costs are simply high. Lifting a ton of earth a certain distance requires energy, and there are few or no shortcuts around this (other than finding highly under-priced energy). The costs are otherwise high. Highly-manual labour — something requiring skill, discretion, dexterity, or other attributes still largely limited to humans — is another realm in which bypassing extant gates is difficult, and high costs apply. In a low-energy world, human labour is relatively cheap, in a high-energy world, it’s relatively expensive.

    Which gets to my larger point: economic prices are a mismeasure.

    They’re relevant within a given economic system, as those control costs are borne by, and largely result in profits of, the actors within the system. But they’re almost entirely meaningless outside the system.

    The basis of those prices is also almost entirely dependent on the context of that system. Economic value, without the economic infrastructure giving rise to that value, is near nil. This is where the fallacy of individual initiative starts showing itself. I’ve previously noted that in the event of a deadly disease outbreak, say, Ebola, what you don’t want is to buy individual isolation garments. You want a highly effective quarantine and public health system. An isolation garmant buys you protection up until the point at which you’ve got to remove it (to eat, to drink, to urinate or defecate, to allow sweat to evaporate). At which time you’ve lost containment. Surviving a massive epidemic typically requires at least reconstructing a small-scale society. Boccaccio’s Decameron illustrates one such: a group of young people who decamped from Florence to escape the plague for several weeks, having structure, food, water, and apparently sufficient services to see them through. Real-life versions include a castle which isolated itself during the plague and avoided infection. Iceland, isolated from mainland Europe, staved off onset of the Black Death for some years, but it eventually paid a visit.

    Another element is that cost, value, and price, are significantly independent of one another. So long as long-term fixed or resource costs can be ignored, prices can fall to effectively nil. High cost doesn’t entail high value, or vice versa, and hence, price can float quite frustratingly independent of actual real cost or value.

    Externalities factor in essentially as excessively distributed control gates — without single points of control, externalities (positive or negative, of production or consumption) will exist. That’s a whole further slew of economic paradoxes and failures there.

    But there are some takeaways of all of this:

    It’s not that we cannot ascribe prices to noneconomic entities. It’s that economic price is an inherently limited concept.
    The Universe is still, literally, priceless. It has no overall control circuit, it’s not an open system, it cannot be exchanged. The Universe is all value yet has no price. It transcends price.
    Within defined open systems, e.g., the Earth as a whole, we can define some overall ecological costs based on emergy, and accrued capital, looking to Prigogine and England. These dwarf any possible economic accounting, and existing estimates of economic value of ecosystem services under-value these to the extreme.
    Cost, value, and price are three distinct phenomena. They have similar units. They shouldn’t be confused.
    Value (use value) can be determined both marginally and as an absolute, through reducing or amending quantities. Marginal use values may vary quite considerably.
    Value is a relationship between object and valuer. It is not an intrinsic attribute. It is not absolute.
    Money is information valid within a specific context. It is a pointer to value, it isn’t value itself. Money is not energy, though it’s exchangable for energy, as it is for any other commercial commodity or good.
    If there isn’t a controllable exchange and transaction, there isn’t an economic value.
    There are values other than economic ones. Ecologically and cosmologically based values dwarf economic ones. Economic values are based within these systems.
    Open systems are lossy.

    Omitted bits.

    There are a few further concepts I’d like to work into this, among them:

    Gresham’s law. Costs, value, quality, and information, generally, aren’t immediately apparent, have their own access costs, and pose multiple failures. This is far more profound within economics than is generally realised.
    Howard Odum’s “energy circuit” ecological concept. Also mentioned earlier by Aldo Leopold.

  8. Brandon Coya says:

    This is begging to become a fun game theory problem!

  9. RanjithV says:

    Since the world is (supposed to be, according to some people, at the least at the scales of atomic physics) quantum mechanical, i reckon it should be measured in terms of quantum bit-currency. One can also estimate the size of quantum memory that can hold a snapshot of all the visible information available in the visible scale at a given instance of time…

  10. i can afford 60 quatrillion $ easily. i just bought the universe . but i believe in arbitrage (econophysics) so i plan to sell it tomorrow for a better one if i haven’t spent or gave it away or someone took it away from me already.

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