How we currently calculate the value of an item is purely economical, in the pedestrian sense. Some version of: “I’ll pay a little more than the total price of components, production, transportation, and sale of the item”. Let us look at a small example to understand the process better. In creating clothing, the demand for various other components was also born; in order to make one thing, we need various tools, ingredients, or processes. The basis for clothes is thread, which can come from sources like cotton, wool, or newer artificial fibers. Any of these require land, water, and effort in order to cultivate, harvest, and produce. While animal or artificial fibers require somewhat different ingredients, they are similar enough for our discussion. Land must be cleared for farming and/or factories, requiring energy for labor and machinery to make a plot usable. The crop must be cultivated, and most often water is involved, requiring further energy output for reservoirs and distribution networks. Finally, once ready for harvest, energy must be used to gather it for processing: reaping crops, shearing sheep, or manufacturing plastics. Additionally, fibers can be stored for the future as well as transported to where the fibers will be transformed into usable thread and then clothing. If we are to create enough thread to clothe a population, there is tremendous infrastructure and construction necessitated. While shoppers see the price of a shirt, the production of that one article is repeated tens of thousands of times requiring a tremendous apparatus that extends beyond just the shirt company. To arrive at a final price, many contemporary examples would also include government subsidies, tax breaks, undercutting competitors, advertising, and on ad nauseam. Additionally, we are not accounting for the loss of habitable land given over to industry, the toll on workers (physical or otherwise), or the environmental impacts of various practices. There are many costs which only get calculated later if enough people raise enough of a fuss. Once established, technologies become more political and decisions have more to do with what industry will allow to be considered than the actual components. In short, what gets considered a “cost” is subjective and often poorly understood. This illustrates some of the underlying problems with the current system. It would be better to have a simpler, universally applicable, and objective way to arrive at the value or cost of any item. As you might expect, there may be such a thing, but we must first explore some basic science in order to make the connection.
First, notice that the word “energy” appears a number of times in our example above; whether electrical, physical, mechanical, or chemical, the work done can be expressed as units of energy. While we may be accustomed to using this term in various ways, for our discussion here we need to think of it as it is used in physics. This means two things: energy exists along an electromagnetic spectrum and only some of it is useful. Energy exists on a scale from radiation at the high end to heat at the low end. It moves "down" easily, i.e. standing in the sunshine warms you up. However, to convert heat back into electricity it takes more energy than we get from that change to heat. We can generate electricity using the falling water at a dam to turn an electromagnet, converting potential mechanical energy into electrical energy, but we would not be able to draw the same amount of water back up into the reservoir using the electricity we gained. This is because there is always some amount of loss in converting any form of energy into another. Once energy translates from light into heat, it is no longer available to perform tasks; once the water is boiled, that heat cannot be used as electricity again. Next, everyone recognizes that it is easier to destroy than create; it takes time and effort to make the sand castle, but it will quickly fall apart on its own. That is entropy: the tendency towards loss of order and need for energy to maintain order. Further, entropy is a universal process. While the news mentions "peak oil", "post-oil economics", etc., which are different ways of expressing our limited supply of petroleum, the same is true of all energy sources. You may remember learning in school that our Sun has a lifespan, and will burn up at some point in the future. More broadly still, there is a finite amount of usable energy in the entire universe and when that is expended further change will be impossible, expressed as the "heat death of the universe". Recognizing this might encourage some to “conserve energy”, but the purpose of this post is just to point out the limitations of our current financial reckoning and suggest improvements.
With this understanding, of both the limitations of current economic accounting and entropy as a basis for the true representation of costs, we can construct a system which would express all activities as consumption of our total energy “budget”. Thus entropy would become a basic unit of currency and evaluation at once. For true cost-benefit analysis, we could do no better.
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