The Energy Crisisl;J. Kizer

Henry Grady Weaver points out (The Mainspring of Human Prog ress, 1947) : "Nothing is actually a 'natural resource' until after men have made it useful to hu man beings. Coal was not a na tural resource to J ulius Caesar, nor crude oil to Alexander the Great, nor aluminum to Ben Franklin, nor the atom to anyone until 1945. Men may discover use for any substance. Nobody can know today what may be a natural resource tomorrow. It is not na tural resources, but the uses men make of them that really count." This is the reason we can never Mr. Kizer is president of Scientific Appraisal, a firm specializing in economic, scientific, and psychological consulting. These remarks are from a recent speech be fore the Ohio Chapter of the American Institute of Real Estate Appraisers. JOHN B. KIZER run out of natural resources in cluding, of course, energy ( that is, at least until the death of the sun). Thus, the real reason the United States has led the world in the Age of Power is that individ uals have had the freedom to cre ate new sources of energy and devices for its more effective use.

These obvious points are chal lenged by those physical scientists who are trying to develop what they call a new science of futur ology. Such is the Club of Rome which publishes the magazine The Futurist. This group has also pub lished two books The Energy Crisis and The Limits to Growth which have been best sellers and frightened many people into be lieving that we must go back to the horse and buggy days because it is impossible for life to get progressively better. There are many errors in these books pointed out by many people but the fundamental assumptions are also in error, that is, that we have only a limited amount of en ergy resources. The advocates of this point-of-view could create a self-fulfilling prophecy as their 495 496 THE FREEMAN August advocacy of a return to the days of low energy consumption obvi ously cannot be accomplished with out governmentally restricting personal energy consumption. Peo ple will not give up their Cadillacs voluntarily. And it can easily be seen that the governmental con trol of all energy destroys the freedom and incentive of individ uals to develop new energy re sources; thus none are developed and we have a Limit to Growth, a self-fulfilling prophecy. But as long as men have the freedom to invent and to discover, it is un likely that there will be any per manent energy crisis or shortage of natural resources as new ones will always be created.

This is not to say that there cannot be short-term energy short ages; as a matter of fact one of the alternative futures I would like to discuss below is just this situation. Saving the Environment Most experts agree that one of the proximate causes of the en ergy crisis is the environmental movement. This movement led to the delay of the Alaska pipeline, to the installation of anti-pollution devices on automobiles that greatly reduce gas mileage and to the in stallation of industrial anti-water pollution equipment which re quired a great amount of energy to install and takes a great amount of energy to maintain. The problem with much of the anti-pollution legislation is that there is still a gre·at deal of debate about whether the dumping of pollutants is harmful enough and great enough to justify the mas sive social cost which it entails. Let us not forget the mercury pol lution example in which it was recommended that one eat fish not more than once a week because industrial dumping of mercury into the rivers and seas was caus ing the mercury absorption by fish to rise to danger_ous levels. It was later discovered that the mer cury level in fish is lower now than it has been in the last 80 years, even though the dumping of mer cury into the waters by industry has increased. Thus, we have noth ing to fear from so-called mercury pollution at all. At any rate the environmental movement has given the government justification for greater controls on energy and how itis used, thereby destroying the very· conditions favorable for solving the energy crisis.

There are some solutions to the pollution problem, however, that maintain conditions favorable to discovery and incentive and hence a way out of the energy crisis. One way is to refine our definition of property rights. Oscar Cooley developed this idea in the June, 19J,,7 THE ENERGY CRISIS: ALTERNATIVE FUTURES 497 1972, Freeman. Cooley's explana tion is hased on the fact that the problem of pollution is usually considered to be the primary ex ternality of the modern market economy. Most proposals attempt ing to solve the pollution problem have at least tacitly assumed that the externalities involved are in eradicable; thus these proposals have almost exclusjvely involved nonmarket solutions to the problem. Harold Demsetz as long ago as 1967 had suggested that a redefi nition of private property rights has often, historically, served the purpose of internalizing, that is, bringing within the market mech anism, externalities of all sorts; Cooley applied this insight to in ternalize the externalities caused by pollution.

The Case for Private Property Cooley's argument can be para phrased as follows. Because of the impossibility of making interper sonal utility comparisons, the question of what constitutes a pollutant must necessarily be given a subjective answer. To use Cooley's example, if a pri vate property owner decides to dump sewage into his pond, .he is, in es sence, deciding that the highest and best use of the pond is as a cesspool. Although an external ob server might look upon this use as a polluting use, unless he is willing to purchase the property to convert it to another use, the use to which the property is being put must be assumed to be the one which maximizes social utility. The implication of Cooley's argu ment is that private property, by definition, cannot be polluted. Cooley then argues that since pri vate property cannot be polluted, the conversion of public property to private property is the tech nique by which the externalities of pollution might be internalized. Al though Cooley recognizes that cer tain aspects of the pollution prob lem might not be solvable without further technological innovation (for example, the invention of the parking meter was necessary be fore the owner could ration park ing spaces via market pricing thus eliminating the divergence be tween private and social costs), he believes that the problems of water pollution could be solved im mediately by selling the inland bodies of water to private owners.

Obviously, one of the assumptions of Cooley's argument is that only technical externalities, and no theoretical ones, exist; thus, any externality can be brought within the framework of the market mechanism with a suitable tech nical innovation. This particular idea would not solve the air pollu tion problem, but some equally clever idea might do the job.

498 THE FREEMAN August This redefinition of private property rights is one alternative future which would not only alle viate the energy crisis immedi ately but would also create the conditions for a discovery likely to solve it. Other Interventions Behind the Energy Crisis Some of the other obvious causes of the energy crisis include so called consumer protection laws, wage and price controls, and land use legislation. Our system of tax ation also has helped create the "energy crisis." The corporate in come tax has been especially im portant in this respect because of its negative effect on investment. Not only is possible expansion capital from earnings destroyed by taxation, but also young and growing corporations are taxed and hence penalized more than corporations with accumulated wealth, thereby giving larger cor porations a competitive edge. As new and vital corporations are an essential part of a free market economy, this type of tax tends to destroy free enterprise, thereby halting economic progress. Also, as any businessman will say, a corporate tax lessens efficiency be cause the government bears part of the loss in any inefficient in vestment, this being a common method used by corporations to lessen their tax burden in a profit able year by taking over a com pany which shows a loss.

The personal income tax also has the effect of distorting the choice of an individual between present and future consumption, favoring the former. As with the corporate income taxes, personal income taxes reduce an individ ual's incentive to invest, as he knows the government will absorb some of the gains. No matter how original and creative some of the economic ideas to ameliorate the energy crisis, obviously, any final solu tion must be a technological one. We must develop new energy sources. We have a limited quan tity of fossil fuels and even a rela tively limited quantity of uranium in comparison with what our en ergy wants are likely to be in the next few centuries. If we reduced our energy con sumption, our actual standard of living would not decline nearly so much as some believe. Some peo ple find it paradoxical that de creasing our energy use could ac tually increase our productivity per unit of other resources. The communications engineer well knows that the "noise" in a chan nel increases proportionately more than the negentropy flow with in creasing power. For example, a horse can convert about one horse1947 THE ENERGY CRISIS: ALTERNATIVE FUTURES 499 power steadily for 10 hours a day and the average horse is about 20 to 25. per cent efficient. However, since horses presently in the U.S.

work only 800 to 1000 hours a year, they are only 6 to 7 per cent efficient. A man working 50 hours a week for 50 weeks a year de livers only one-fourth as much en ergy as a horse, but the horse consumes 10 times as much en ergy. Thus, a man is two and one half times as efficient as a horse and the use of the horse consti tutes a waste of potential energy. The horse is used, of course, be cause of the rate at which it can deliver energy; during a limited growing season this greatly in creases the amount of land pre pared for growing. Another way of saying this is that the hoe culture is more effi cient in terms of energy than the plow culture and it is preferable so long as energy is in short sup ply and labor is abundant. This is the case in a low-energy society being transformed from a high technology society such as ours. Many people are supposedly shut out of work because they have only low-technology skills in a high technology society. These people could be returned to productivity in a low-energy society; thus, total productivity could conceiv ably even be increased if our ener gy use were lowered. In this type of society inventions which allow for more intensive cultivation of limited resources· would be valued and developed rather than inven tions which are power-dependent.

An example of this type of inven tion would be new fertilizers. The point I am trying to make here is that even if we assume the worst - that we shall discover no new energy sources - under no cir cumstances will we return to the primitive low-technology life from which we have come, that is, as long as we have freedom. But I think we -will develop those new energy sources. Candidates for new energy sources include nuclear fusion, wind power, solar power, tidal power and hydroelectric (gravita tion) and geothermal. Nuclear fusion, which is the source of the energy of the sun and stars, as well as the hydrogen bomb, could be a nearly unlimited source of energy if we could con trol it. It depends simply on com bining two heavy or deuterium nuclei into a helium nucleus. The helium nucleus has less mass than the two deuterium nuclei and the missing mass has been trans formed into energy according to the law E=:mc 2 • Solar power also offers tremend ous opportunities, as ten tiInes as much energy from the sun reaches the surface of the earth each year 500 THE FREEMAN August as all the energy contained in all the coal reserves of the entire world. It seems likely that the next few years will bring great ad vances in the use of all this solar energy.

Geothermal power is now only a speculation. There is a tremend ous storehouse of energy under the surface of the earth as evi denced by geysers and volcanoes; however, at present, we have no idea of how to harness this en ergy. Some even more speculative ideas for new energy sources in clude using the principle of the Foucault pendulum to obtain en ergy from the rotation of the earth. How this might practically be done is not known at present but is, at least, a theoretical pos sibility. Also a pendulum moving through a magnetic field (such as the earth's) will generate an elec trical current. Again, the principle is sound but no appropriate tech nology exists. Another possibility - which I have further explored in a recently published work - indicates that even the motion of the earth around the sun or a satellite around the earth might be used as a means of generating electri cal energy. This may be the en ergy-cultivating technique which first leads to practical results.

Blessing in Disguise The energy crisis may be a blessing in disguise in that it has prompted many scientists and en gineers to begin thinking anew about promising sources of en ergy. One might say that our society based on fossil fuels is analogous to the primitive food-gathering society in which there was a lim ited amount of game to kill and a limited amount of fruit to pick. Similarly, our fossil fuels seem limited. But how more limited life must have seemed for the primi tive food gatherer who did not realize that just around the corner was the invention of agriculture and a civilization based on culti vation. To me this seems to be analogous to the situation we are in. Today we are a society of energy gatherers feeling limited by the quantity of energy we can gather. I think the future holds for us a new age and civili zation, a civilization based by an alogy on energy cultivation in which we no longer are dependent like the food gatherer on the en ergy sources which occur naturally, but rather we shall actively create new useful energy by means of one or more of the previously mentioned techniques. To live at a time which may be the turning point into a new civilization may be the good fortune of us all. t) A REVIEWERiS NOTEBOOK JOHN CHAMBERLAIN The 12-Year Sentence IT IS NOW some thirty years since I first read Isabel Paterson's dras tic attack on the compulsory public school as a model of the totalitar ian state. I thought at the time that Mrs. Paterson's fierce logic was a little out of place. After all, we had plenty of private schools around in theN ineteen Forties, and our private universities had not yet succumbed to the habit of running to Washington, their tin cups in hand. My feeling was that as long as competition between public and private systems existed, all would be well.