The standard neoclassical theory taught in the economic departments of major universities and accepted by most of the economists who advise governments (and business leaders) attributes economic output (GDP) and economic growth to cumulation of only two so-called `factors of production’ namely capital and labor. These two factors are assumed to be freely substitutable for each other but not complementary.
The reasons for this assumption are more historical than logical. Natural resources or `gifts of nature’ were originally attributed to `land’ which later in the 19th century was absorbed into the larger category `capital’. Of course sunlight — needed by plants – can be thought of as proportional to the area of the land on which it falls, hence as a kind of indirect attribute of the land itself. The same can be said of natural rainfall and benign climate.
In any case, standard economic theory, as it evolved in the two centuries up to the first “energy crisis” in 1972, did not treat energy per se as a ‘factor of production’. In standard economic growth theory useful energy was (and still is) treated, instead, as an intermediate product of labor and capital. Somehow, a combination of labor and capital are supposed to produce energy. This makes a certain sense if we think of a coal mine or an oil well as an energy producer. Of course, mines and wells are no such thing. The useable energy was there in the ground – a gift of nature, in fact – and what the capital and input did (does) is merely to extract it. A well is useless junk when the oil is gone, and an exhausted mine is likely to be a blot on the landscape if not actually hazardous.
Useful Energy (Exergy): An essential prerequisite of economic activity
– – – > For the full text, please click here –http://exernomics.wordpress.com/2014/10/11/the-exergy-efficiency-connection/
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