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What are the known (and alleged) problems of using Joules (i.e. a measure of energy/work) as a currency? I tried to find such idea in Google (searched terms like "technocracy", since someone told me that technocracy had such idea), but I'm not clear about where to search in.

(Edit : asked in contrast to fiduciary/trust/faith-based currencies)

(Edit 2 : found this link, but i'm not quite an expert in eco to judge the possible problems, not exposed in the article)

(Edit 3 : This one is my fault since I asked a not-so-clear question, becuase my lack of knowledge. I have to clarify that this proposal is not mine, and I want to just study the concept. In this way, many principles I should enumerate are:

  1. Energy taken into account is the "seizable" energy, like solar or fossil.
  2. Fossil energy can be stored. Fossil industry would be credited for that.
  3. Solar energy can be captured, transformed, and injected into the power network to be credited for that [as currently is, in many countries, right now], and have such energy redeemed later; the only difference with the current situation is that [the modern proposals support that] the economy could be based in such energy, instead the vice-versa case.
  4. The exchange act would not involve energy directly, since a wallet of that type could be quite dangerous to carry in the ... ¿pocket?.

In this sense, I think useful answers have already been provided to cover the expressed points, althought I don't want to consider the answer as just-closed, but narrow the extent of the issues I want to understand about).

Luis Masuelli
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tl;dr: Energy is one of the worst ideas for a currency that anyone's had.

It's not fungible, it's not a store of value, and has absolutely no scarcity. Let's look at the details.

Commodity currencies are problematic

jmbjera has listed core problems with the gold standard, and with commodity currencies generally: its supply is managed not by a democratically-elected government, but by one industry, so you remove a hugely useful tool from the policy-makers' toolbox; and you expose yourself to very high short-term volatility.

But even amongst commodities, energy has unique issues that make it worse than useless as a currency.

Energy is ubiquitous and bountiful

There's absolutely enormous quantities of it lying around everywhere. One kilogramme of anything contains mind-boggling amounts of energy - $E=mc^2$, right? c, the speed of light, is huge. Squaring it makes it a lot bigger (when we're in SI units). $3\times10^8m/s$ squared becomes $9\times10^{16}$ - that's how many joules of energy in 1kg of matter. Any matter. Soil, platinum, flesh and blood, it doesn't matter, it's all the same amount of energy: 90 Petajoules; aka 25 Terawatt-hours. That's a few weeks worth of electricity supply in Britain. So an energy currency means one kilogramme of sand is equivalent value to sufficient electricity to power that G7 country for a few weeks.

Additional energy arrives on Earth every second of the day

So not only is there immense quantities of energy lying around for free, but vast amounts arrive every second from our friendly neighbourhood fusion reactor, the sun. Irradiation on the earth is about 130 Petawatts. That's about four orders of magnitude more than human energy consumption. Or, to put it another way, sunlight on one ten-thousandth of the Earth's surface brings energy in at about the same average rate as global energy demand.

Energy's value varies hugely in time and space

But it gets worse, as far as currencies are concerned. See, energy's value differs constantly in time, in space and in form. You must have noticed that wind and sunlight are free - no one's charging you for them - and they're energy. Whereas you have to pay for natural gas. You probably pay even more, joule for joule, for diesel or petrol (gasoline). And you will pay a lot more for electricity. On top of that, one unit of electricity has a very different price depending on where and when you buy it, and the quantity you're buying it in.

Energy's form drives its economic value. 1 Joule is rarely worth 1 Joule

Electricity is a really high quality vector of energy: it can do huge amounts of work. But you can only use it in the instant it's generated (ok, you can store it briefly in a capacitor, but that will cost you, too). Heat is a really low quality vector of energy: and the closer the temperature is to ambient temperature, the less work it can do. i.e. the less economic value it has. Now, we've got enough problems with variable marginal values of money as it is, without this scale of problem. The other thing is, if you're storing your currency of energy as heat, it's losing its value every second as it cools off. Yet, at the same time, cooling has economic value, in aircon and in refrigeration. So that's a lack of energy that has economic value.

Many energy transformations add economic value but consume energy

Refining crude oil costs you energy and other resources. And the end product is more valuable, which is why people do it, and make a profit at it. But that would be absurd if energy were the currency.

On sophistry

I've seen the argument for an energy currency before. Usually, when you dig deeper, they're not really talking about an energy currency. They're actually trying to sell something. Typically, but not always, fossil gas. So their proposed energy currency turns out to be something very like gas futures contracts (which have the usual commodity-currency problems: control of supply lies with one industry, not democratically-elected governments; and the whole economy is exposed to high short-term volatility). Now, as we know, we've got far more gas than we can possibly burn (see my colleagues' paper in Nature on this), and the gas industry is starting to get nervous. And so it should. This desparate bid for a "gas currency" is just one more bit of special pleading and rent-seeking from what must become a dying industry.

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  • Good article. I did not think about these factors you enumerate. However, paying for cooling something is not a lack of energy, but additional energy being invested (this is an essencial of termodynamics). But I did not think about fungibility. Have my upvote. – Luis Masuelli Mar 11 '15 at 15:22
  • However, the argument for energy I read is not new (althought the link is), but a rant from 1930 someone told me before. – Luis Masuelli Mar 11 '15 at 15:26
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    This answer doesn't seem to be grounded in reality. I believe that people with serious intentions about an energy currency propose to peg the value of the currency to the market price of some real commodity (for example, the price of oil). Realistically, it would be pegged to a basket of energy goods the is agreed upon before hand (including, say, the average price of solar power in X markets). (Think consumption baskets used to compute CPI.) Statements like "So not only is there immense quantities of energy lying around for free" seem like nonsense and ignore the real issues at stake. – jmbejara Mar 11 '15 at 15:38
  • I share that point as well. But It is my fault since I did not explain the point well (since I did not think about the implications and possible proposals): Saying there's a vast amount of energy out there is a nonsense since that doesn't mean such energy can be seized (even worse the relativist energy in the matter). But anyway it makes a point since the energy production grows in a hard-to-assess/measure way globally. In that way, I don't think we're prepared to measure that with precision. – Luis Masuelli Mar 11 '15 at 15:56
  • But there are existing official measures that could (realistically) used to peg a currency to (not literally "backed by"). The Bureau of Labor Statistics does have several measures of the consumer price index---some of which include the average price of energy (where energy is simply taken to be the average price of various energy producing commodities in various regions). See here: http://www.bls.gov/regions/midwest/data/averageenergyprices_selectedareas_table.htm – jmbejara Mar 11 '15 at 16:15
  • @jmbejara Dude you're awesome. This could make a good point explaining and fixing economies world-wide in many countries (SPECIALLY in inflationary countries like Argentina). Will bookmark the link and read in the lunch (I'm in my office right now xD). – Luis Masuelli Mar 11 '15 at 16:21
  • @Luis. Thanks! Interesting stuff. But, unfortunately, I don't think it's the solution. See my answer below. – jmbejara Mar 11 '15 at 16:28
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    Yes I read your answer. I must clarify my comment: I don't think the idea of energy (or energy certificates) is a solution but I needed to study the concept. The link you provided is not directly related to energy currency, but anyway it is a good hint in the current market to lead (or at least "index") an economy (like in Argentina). – Luis Masuelli Mar 11 '15 at 16:30
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The problems with using an energy-back currency are probably the same problems as using gold or anything else.

Some of those mentioned in the link (Wikipedia article) include

  • Mainstream economists believe that economic recessions can be largely mitigated by increasing the money supply during economic downturns. A gold standard means that the money supply would be determined by the gold supply and hence monetary policy could no longer be used to stabilize the economy. The gold standard is often blamed for prolonging the Great Depression, as under the gold standard, central banks could not expand credit at a fast enough rate to offset deflationary forces.

  • Although the gold standard brings long-run price stability, it is historically associated with high short-run price volatility. It has been argued by Schwartz, among others, that instability in short-term price levels can lead to financial instability as lenders and borrowers become uncertain about the value of debt.

  • The money supply would essentially be determined by the rate of gold production. When gold stocks increase more rapidly than the economy, there is inflation and the reverse is also true. The consensus view is that the gold standard contributed to the severity and length of the Great Depression.

jmbejara
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  • The answer looks good for me. I will research deeper based on your information. Althought I agree that energy-pattern sounds like gold-pattern, I will research further before accepting the answer (meanwhile, allowing future visitors to participate in the answer). Have my upvote meanwhile :). – Luis Masuelli Mar 10 '15 at 22:39
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    jmbejara, consider adding lack of fungibility to your answer. A joule in different forms is not equivalent in the way that two different ounces of gold are fungible. – BKay Mar 11 '15 at 12:27
  • Definitely, I consider this the accepted answer. It addresses the problems disregarding the form of energy (e.g. it doesn't matter this energy exchanged directly or by energy certificates). Althought fungibility does not enter WRT this (at least not in the "energy certificates or credits" case), it is a useful point as well to have considered. – Luis Masuelli Mar 11 '15 at 16:36
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The concept of using energy as currency doesn't make theoretical sense. Energy alone isn't inherently valuable, it's the energy along with how that energy is expended that makes the energy valuable. The energy is only valuable as long as a mechanism exists to use that energy. Let me provide a scenario to make this more clear.

If you could somehow harvest raw energy in joules into an energy container which could be easily expended, an energy container would be economically similar to a human. Humans are essentially containers of energy. They get this energy from metabolizing food. The energy in a human can be easily used because their bodies are designed to use energy towards moving their muscles, which makes the energy in a human valuable. Whereas the energy contained in a rock (E=MCsquared) is not valuable because it would be so difficult to use that energy. When we pay a human a wage to do a task, such as build a house, we're paying for them to expend their energy towards a specific purpose. In essence, a human is a walking container of energy, and we pay them to use this energy towards different tasks.

Have you ever volunteered? By volunteering for two hours, you are basically giving a charity an energy container which contains two hours of your energy (if you expend 50 kCal an hour, then the energy box would contain 100 kCals of energy at a power of 50kCals an hour).

Since we can see that human labor is inherently valuable, an energy container would be inherently valuable as well. Therefore, having an energy container would be similar to having a person work for you.

But now the issue becomes, what can that human do? What kind of skills does that human have? Humans can expend their energy in different ways. A body builder can use their energy towards contracting their muscles to lift heavy weights, whereas a mathematician uses their energy towards using their brain to process complex problems. So the concept of an energy container is not possible without defining how the energy from that container is expended.

So energy containers would differ in value based on:

  • the amount of energy in the container
  • the power output of the container
  • the means by which energy is expended from the container

So energy containers to be most similar to robots. A robot's battery has a certain amount of energy, the battery has a certain output, and the energy can be expended as defined by the robot (was the robot designed to lift heavy weights, or to process complex simulations?).

So a world where we use energy as currency, in a practical scenario, would be a world where people use robots as currency. And a robot would not make good currency because it is not fundamentally valuable, since a robot is made of many parts such as metals and other raw materials. So even from a science fiction, theoretical viewpoint, this concept does not make sense.

five_dollar_shake
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    I'm sorry but I don't think this point makes sense as the other answers made. 1. We are called "human resources" when we work, because we put energy or knowledge on it. Knowledge is an indirect grant of energy, since it reduces mathematical entropy and then you have to spend less energy trying future alternative inputs for a specific problem. The simplex method, given in the inter-war period to improve millitary, is a clear example for that. – Luis Masuelli Mar 11 '15 at 16:02
  • Given that knowledge improves production, and production consumes energy, at this point I still cannot understand your point: If an energy container being valuable like a human is not a sensible idea ¿why were, and currently are, many industries replacing humans with robots? From the point you address you're not considering the point of energy as currency (or energy certificate as currencies) as others did, and also the point you make is just false from the real world industry.
    • – Luis Masuelli Mar 11 '15 at 16:05
  • Respect to the point 1, and how you said "how the energy is expended" is not neccesary right: There were many industries, in the gold-pattern times, which didwere not involved in gold production or gold consumption like you propose regarding the energy consumption.
    • – Luis Masuelli Mar 11 '15 at 16:07
  • @Luis Masuelli Industries are replacing humans with robots because robots can have higher power output. Also, they can output energy at a constant rate, whereas humans can get distracted or bored, which makes robots more reliable. Also, robots can't get sick. You don't need to pay for healthcare for robots, and you can make them work 24/7 instead of just 8 hours a day. I was going to include that in my answer but didn't find it necessary. – five_dollar_shake Mar 11 '15 at 16:10
  • @LuisMasuelli Then can you please clarify what you mean on "energy as a currency"? I got a close as I could to the concept. So does this mean that people just carry around energy in a container? What kind of container is it? How would energy be used from the container? I tried to get as close as I could to addressing these questions, but it seems you have something else in mind. I'd appreciate if you would elaborate. – five_dollar_shake Mar 11 '15 at 16:12
  • @LuisMasuelli For instance, please give an example of how someone would use energy that they have in a container. – five_dollar_shake Mar 11 '15 at 16:14
  • Yes, you did not include the point of the robots. Instead you said that "So a world where we use energy as currency, in a practical scenario, would be a world where people use robots as currency", which is the same as saying that gold-made watches could be used as currency in gold-pattern economies. – Luis Masuelli Mar 11 '15 at 16:16
  • Well, "energy as currency" arguments I read just yesterday (because just yesterday I asked myself about that concept I heard some years ago) involves energy certificates (certificates are exchanged, and they're backed by energy production). In that sense, even when I did not state it (which was due to my ignorance about what the idea really meant), users like jmbejara understood the concept and the inherent problems. – Luis Masuelli Mar 11 '15 at 16:19
  • Regarding the energy certificates: they're backed by energy production, but what does that production look like? That rings alarms for me because energy can never be produced, it can only be transferred from one form to another. Assuming the energy is being transferred instead of "produced", what is the energy being transferred into? If energy can only be transferred into combustion for a car engine, it doesn't help much if you need your house painted. I come from a background of science, so reading the links you posted of energy applied to currency is failing to explain these inherent issues. – five_dollar_shake Mar 11 '15 at 16:22
  • @LuisMasuelli do you have any links that give a concrete example how someone would use energy as a currency to do work? I'm trying to understand how the energy would be inherently valuable and the form in which it is expended. – five_dollar_shake Mar 11 '15 at 16:25
  • In this sense, Energy Containers and certificates would operate pretty much like banks and currency-print offices. Many times the energy is provided in real-time (in many countries this already exists: you can provide solar energy to power networks and get credited for that - not refunded, but credited). Other forms of energy can be classified into fuels: you cannot produce directly petro-based fuels in many countries, but the petroindustries could provide it, and get certificated for it to flow in the market. In this sense, I think about the problems @jmbejara stated. – Luis Masuelli Mar 11 '15 at 16:27
  • Links? One example of such weird proposal is in the question itself. The original is from 1930. Please note that I don't think I can support such idea, but wanted to study it in concept. – Luis Masuelli Mar 11 '15 at 16:28
  • @LuisMasuelli I agree that certificates used as currency, which are backed by real energy stored in an energy storage facility, would be very similar to the gold standard. However it would be very unreliable. What if there's a power outage, or a storage facility experiences a technical failure and loses all of its energy? This happens all the time in energy storage and would cause the economy to be very sensitive to any technical problems with the storage facilities. If a storage facility fails you could have a run on the banks and collapse the economy. – five_dollar_shake Mar 11 '15 at 16:34
  • @LuisMasuelli it would be like the gold standard, but some of the gold in a vault could suddenly disappear at any time. That would be the same as if you used energy certificates and a storage plant fails. That sounds like a horrible scenario to me. – five_dollar_shake Mar 11 '15 at 16:38