Physical energy cost serves as the "invisible hand" governing economic valuation: Direct evidence from biogeochemical data and the U.S. metal market

Zhicen Liu, Joel Koerwer, Jiro Nemoto and Hidefumi Imura

Ecological Economics, 2008, vol. 67, issue 1, 104-108

Abstract: Energy supply is mandatory for the production of economic value. Nevertheless, tradition dictates that an enigmatic "invisible hand" governs economic valuation. Physical scientists have long proposed alternative but testable energy cost theories of economic valuation, and have shown the gross correlation between energy consumption and economic output at the national level through input-output energy analysis. However, due to the difficulty of precise energy analysis and highly complicated real markets, no decisive evidence directly linking energy costs to the selling prices of individual commodities has yet been found. Over the past century, the US metal market has accumulated a huge body of price data, which for the first time ever provides us the opportunity to quantitatively examine the direct energy-value correlation. Here, by analyzing the market price data of 65 purified chemical elements (mainly metals) relative to the total energy consumption for refining them from naturally occurring geochemical conditions, we found a clear correlation between the energy cost and their market prices. The underlying physics we proposed has compatibility with conventional economic concepts such as the ratio between supply and demand or scarcity's role in economic valuation. It demonstrates how energy cost serves as the "invisible hand" governing economic valuation. Thorough understanding of this energy connection between the human economic and the Earth's biogeochemical metabolism is essential for improving the overall energy efficiency and furthermore the sustainability of the human society.

Keywords: Chemical; elements; Embodied; energy; Energy; cost; Gibbs; free; energy; "Invisible; hand"; Value; theory; Biogeochemical; data (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (8)

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