https://surplusenergyeconomics.wordpress.com/
Posted on August 31, 2026
26
CAN WE DISINVEST IN MONEY?

Foreword

Leonardo da Vinci produced fewer than twenty-five major art works, one of which sold for $450m in 2017. If he’d turned out 25,000, even of uniformly superlative quality, their prices would be drastically lower.

Value is a function of scarcity, and few have yet recognised a dramatic tilt in the balance of scarcities in the economy.

The material, long assumed to be almost limitless in potential supply, is turning out to be severely constrained. Money, hitherto limited in quantity by at least some degree of policy restraint, has latterly become recklessly super-abundant, to the point of looming value destruction.

There is a direct correspondence between the ending and reversal of meaningful economic growth and this rebalancing of scarcities. One of the most enduring myths in economics is the fallacy that a flagging material economy can be reinvigorated using monetary tools. As material growth has decelerated towards contraction, so ever more credit liquidity has been poured into the system in service to this fallacy.

We’ve seen this process unfold over a protracted period and, in a credit-based monetary system, liabilities are the numbers to watch. Since 2005, and stated at constant values, global debt has grown by 150%, and broader financial assets (which are not disclosed in full) by not less than 175%.

Nothing in the material economy has come anywhere near these rates of monetary expansion. Over that twenty-year period, energy consumption has increased by 34%, all-important ex-cost surplus energy by 26% and material economic prosperity by 24%.

On the basis of inflecting comparative scarcities, investors should, ideally, be shorting anything monetary, and going long on the material.

It isn’t possible, of course, to ‘disinvest in money’, but we can do the next best thing, which is to avoid the complex and the over-financialised, and recognise that the process of economic evolution is inverting towards simplification and de-financialisation.

1

To do this, of course, we need first to recognise the critical conceptual distinction between the physical and the monetary. Properly understood, any reference to “the” economy is a misnomer. The “financial” economy of money, transactions and credit is a parallel and proxy for the underlying “real” economy of material products and services.

This two economies conception is implicit in the nature of money. Irrespective of format, money is token, not substance – for the economic traveller, it’s map, not territory. Money has no intrinsic worth, and commands value only as an exercisable claim on those material things for which it can be exchanged.

This principle of money as claim informs us that the general level of prices at any given time is the rate of exchange between the monetary and the material. If the monetary out-grows the material, the only possible outcome is that shift in the monetary-material rate of exchange which is experienced as inflation. This is comparative scarcity in action.

Cryptos have lost much of their allure – falling in total value to $2.7tn, from $4.2tn in October – as it’s turned out that the claimed ability to replicate digitally the physical scarcity of gold isn’t true. Such is the proliferation capability of blockchain that anyone – even an American president, in his spare time – can get in on the act.

Likewise, the smart money is already trying to time its exit from what is undoubtedly an enormous bubble in AI. What’s really at stake isn’t the capability of the technology itself, but the yawning gap between, on the one hand, the enormous capital (and financial ambition) being invested in artificial intelligence and, on the other, the unrealistic resource demands made by the AI business model favoured by American ‘Big Tech’.

2

It’s an accident of history that orthodox classical and neoclassical economics almost wholly disregards the material. It is, after all, surely self-evident that the economy is primarily an energy system, yet concepts such as the rate at which energy use converts into value, and the proportionate Energy Cost of Energy, are nowhere to be found in standard texts.

It’s all too often forgotten that the founding treatise of conventional economics, Adam Smith’s The Wealth of Nations, was written in pre-industrial times. Under agrarian conditions, almost all energy consumed in the economy was sourced from human and animal labour, itself enabled by nutritional energy.

Though the available quantities of labour and food might rise or fall between years (affected, for instance, by good or bad harvests, wars and plagues), the qualities of this energy seemed invariable. Nobody was about to produce a more efficient Mk2 labourer, a more productive Mod 1.1 draught animal, or a greatly improved form of grain, so the qualitative dimension of energy could be regarded as fixed, and thus excluded from the economic calculus.

There can be few greater ironies than the fact that, in the same year of 1776 in which The Wealth of Nations was published, another Scot, James Watt, was finalising the discovery that was to invalidate these precepts by changing economic conditions out of all recognition.

Energy ceased to be static in quality once the first truly efficient engine for converting heat into work gave us access to the vast and fundamentally variable reserves of energy contained in fossil fuels.

3

With energy variability, energy primacy and the proxy (“claim”) nature of money understood, we are – or we can be – spared the futility of comparing money only with itself. Our quest is, or should be, for an understanding of the interconnected behaviour of the physical and the financial.

The “real” economy operates by using energy to convert other natural resources – minerals, non-metallic mining products, chemicals, biomass and water – into goods, and into those artefacts and infrastructures without which no worthwhile service can be supplied. Since products are consumed, whilst artefacts and infrastructures wear out, this is a continuous process of creation, consumption, relinquishment and replacement.

Both of the critical equations determining the output of material economic prosperity have been turning against us in recent times.

The rate at which raw materials convert into products and artefacts has been degraded gradually by depletion. The critically-important Energy Cost of Energy – the proportion of accessed energy which, being consumed in the access process, is not available for any other economic purpose – has been rising relentlessly, climbing from 2.0% in 1980, and 4.3% in 2000, to more than 11% today.

It is tempting – but wholly fallacious – to imagine that this material deceleration can be reversed, or even stemmed, using monetary stimulus. Any such attempt merely reduces the unit value of money by creating a worsening disequilibrium between the rising supply of money and the declining availability of the material.

4

Quite some time has elapsed since the previous article was published here at the start of July. This hiatus has been intentional, and marks the ending of the first phase of the Surplus Energy Economics project, and the start of the next.

From the outset, the aim of the project has been to answer a single question – will economic growth, long assumed to be almost infinite in potential, draw to a close, and be replaced by contraction?

This question requires temporal qualification. It has always been obvious that growth must end eventually, since infinite economic expansion is a logical impossibility on an ultimately finite planet. This wouldn’t matter all that much if the moment of inflexion lay 100 years or more in the future. What really matters is whether the economy will stop growing and start to shrink within a relevant timescale.

This question has now been answered in the affirmative. We know, at very high levels of confidence, that meaningful economic growth is ending, and that contraction lies ahead. (It’s always a competitive advantage to know something that the generality refuses, not only to accept, but even to contemplate).

The previous article was intended to “wrap” the results of our investigations so far, and to enable our conclusions to be placed at a location readily accessible to new and returning readers alike.

These conclusions have been reached through an analytical path from first principles, but have abundant observational confirmation in events and trends that we can see around us.

5

With the primary question answered, two new ones naturally arise – what will a post-growth world actually look like, and how will we get ‘to there from here’?

Broadly speaking, there are two schools of thought about happens when growth ends and contraction begins. One predicts chaotic collapse, and the other a gradual and perhaps manageable decline. Either we reach a cliff edge and tumble over it, then, or, like the Grand Old Duke of York’s soldiers, we retreat in futile good order down a hill previously ascended.

But neither prediction is persuasive, because two things are missing from both.

First, which economy are we addressing? Will it be the “financial” economy that either collapses or contracts, or does one or other of these fates lie in store for the “real” economy of the material?

Second, neither set of prophecies takes account of the critical process of economic evolution. Growth has never been a matter of ‘a little more, year after year, of exactly the same thing’. The economy has always evolved in shape and character, and will not cease doing so as it moves from growth into contraction.

Barry Cooper, who understands economic evolution better than most, has said that “growth and shrinkage of the economy are not mirror images of each other”.

What we should anticipate is that the polarity of economic evolution will reverse.

Hitherto, evolution has taken the combined form of ever-greater complexity and ever-more financialisation.

From here on, the trend of evolution will be towards the simplified and the de-monetised.

6

“Financialisation” has tended to be defined as disproportionate growth in the comparative size of financial services in relation to other – as some see it, “productive” – sectors of the economy.

Once we understand the critical concept of the two economies, though, a more useful definition presents itself – financialisation involves an increase in the amount of monetary activity associated with any given quantity of material economic output.

It’s noteworthy that a high proportion of economic activity was informal at the start of the industrial age. It’s been reckoned that, in Early Modern times – roughly 1500 to 1750 – only 20-30% of economic activity was monetised at all.

High levels of economic informality continued well into the mid-1800s. It’s hard to tax informal economic activity, and equally difficult to make much of a profit out of it. Monetisation proceeded only gradually in the wake of industrialisation.

Reflecting this, a lack of resources restricted the scope of government, well into the mid-1800s, to national defence, and to rudimentary systems of law and administration.

With the specialist exception of monopolies of colonial trade – as in the British and Dutch East Indies – no large commercial enterprises would exist until the railway boom of the 1840s. Indeed, nobody even saw a need for the limited liability corporate structure until the 1850s.

Until then, the economy wasn’t monetised enough for this to be necessary, and small firms predominated, typified – in the British home of the industrial revolution – by the mills of Lancashire and Yorkshire and the workshops of the Midlands. Only later would the commercial world start to experience the rise of big business, the emergence of an executive class and “the divorce between ownership and control”.

In these terms, the development of the railway was a lot more significant than the harnessing of steam itself. Steam engines could power mills and factories, which remained small-scale enterprises – but railways needed standardised steel products in abundance, a big supply of literate and numerate labour, and access to large pools of capital. Harold Perkin’s remarkable The Age of the Railway (1970) remains the stand-out study of this subject.

7

Financialisation has proceeded hand-in-hand with complexification, with the latter often used as a reinforcement for the former.

The automotive industry well illustrates these trends. Until comparatively recent times, cars were bought out of savings, before the business was financialised by the arrival of the auto loans which are now almost ubiquitous. Latterly, complexification – in the form of advanced electronics – has been harnessed to speed the progress of financialisation.

Vehicles have always needed electrics – lights, ignition, instruments and so on – but electronics have added comparatively little in the way of utility for the consumer. Rather, the aim has been to impose post-sale financial liens on the customer. This was exemplified when BMW announced, in 2022, that the heated seats on its cars would cease to work unless purchasers took out an $18/month subscription.

This was quietly dropped, perhaps because it was a too-blatant case of asking the customer to pay again for something that he or she had already bought. But the general direction of travel has remained that of value-extracting, over-the-air control of vehicles after sale, enacted through advanced electronics.

For the manufacturer, one great advantage of this imposed complexity is that owners and small workshops cannot maintain and repair advanced electronics, putting the motorist at the none-too-tender mercies of monopolistic official dealerships, which alone can diagnose and resolve electronic faults, and source replacement chips.

John Michael Greer has recently highlighted the success of Ursa Ag, a Canadian company which produces a range of electronics-free tractors. As well as being cheaper and more reliable than the standard offering, these can be serviced by owners or local independents, which helps explain why sales are rising as rapidly as production capacity can be ramped up.

Greer goes on to suggest that Ford could boost its popularity and sales by reintroducing the 1966 version of its pre-electronics Mustang. (I’ve never owned a Mustang – though my late father did buy one for a trip between the Canadian and Mexican borders – but the argument is equally valid if your preference is for a TR6 or the humble Cortina).

8

It might seem extraordinarily unlikely that the motor industry will choose to abandon its lucrative preference for advanced electronics, although competition-favouring de-regulation might, by giving buyers a choice of rival offerings, tend towards the same result.

But the point is that industry preference will have very little say in what happens from here. Just as prosperity is declining, so the real costs of energy-intensive necessities are rising relentlessly.

If the automobile industry is to survive into this future of contracting affordability, cars will have to become both longer-lived and cheaper to purchase and maintain. In essence, changing economic conditions will impose simplification on the industry.

Put another way, it will be a case of either simpler vehicles or none at all.

The challenges facing businesses more broadly in a contracting economy were addressed in our taxonomy of de-growth. One such challenge is diseconomies of scale, whereby falling sales push the unit-equivalents of fixed costs upwards. Another is the threat to critical mass which occurs where necessary inputs become either unacceptably costly or altogether unobtainable.

The only way of countering these problems is a combination of simplification of product and simplification of process.

9

This simplification, with its associated de-financialisation, forms a tendency that Barry Cooper calls localism, a process whereby failing centralised, top-down systems are replaced by localised, bottom-up alternatives.

Much of Cooper’s analysis is based on the elimination of costs associated with complexity. For instance, replacing Britain’s state-funded residential social care system with support for care at home – paring back the role of the state to grant-funding and the provision of respite and training – could eliminate 70-90% of the costs of the current, wholly unsustainable arrangements.

The savings would come from removing “the cost of property, profits, administration, and debt repayments incurred by commercial and other care home providers”.

Put another way, “only about 50–60% of fees go towards actual staff wages and day-to-day care. The rest includes building maintenance, loan repayments, insurance, utilities, profit margins, and administrative costs. In many private care homes, particularly those owned by private equity, debt repayment alone can account for 10–20% of total care fees”.

This, Cooper says, “is public money, not used to improve lives but to finance commercial borrowing”. It’s also something that can no longer be afforded.

Likewise, food has become excessively expensive because, during the long years of complexification, numerous interim stages have been interposed within extended supply-chains between the grower and the consumer of food.

Between farm and fork, Cooper says, “food is handled by processors, wholesalers, distributors and supermarkets. Each of these adds its costs, including packaging, transport, refrigeration, storage, marketing and profit”.

10

None of this – localism, informality of employment, at-home care for the elderly and the infirm, the replacement of top-down institutional systems and the elimination of intermediary stages – might sound like a winning political manifesto.

But this is beside the point, since – as with the automobile industry, cited earlier – alternatives will be eliminated by the ending and reversal of growth.

“Middle-men” will be removed from supply systems by the same processes that are already depressing the affordability of discretionary (non-essential) products and services. The employees made redundant by these trends will be absorbed into an economy in which human labour starts to replace declining supplies of exogenous energy.

For the planner, the point to grasp is that the ending and reversal of growth – a process that we cannot prevent – will introduce trends tending irresistibly towards simplification and de-financialisation.

Governments will need to seek solutions of quality, now that solutions of quantity, predicated on growth, have ceased to be possible. Businesses will be driven by practical conditions towards simplification of product and process.

Ultimately, there’s no reason why the “real” economy of the material shouldn’t contract in a reasonably manageable way. But the complex will fail – and there has never been anything that rivals, for sheer complexity, the contemporary financial system.