Chapter 4: Why Energy Over Alternatives
"It costs roughly one million dollars to raise a child to productive adulthood in the developed world. A humanoid robot costs $30,000. The marginal cost of another AI instance is zero. What happens to labor-backed value when capital can manufacture unlimited workers?"
Overview
If the current fiat system is problematic and we seek a backed currency, why energy? This chapter evaluates alternative backings—gold, labor, carbon, commodity baskets—and argues that energy is uniquely suited for the role.
The analysis centers on a critical contemporary challenge: the impending collapse of labor scarcity. For millennia, human labor was the scarce factor of production. When capital accumulated too much power, labor scarcity eventually rebalanced the system—through plague, war, emigration, or bargaining power. That mechanism is breaking down. Understanding why this matters reveals why labor-backed currency fails and why energy-backed currency makes sense.
Chapter Structure:
- Criteria for Good Backing — What properties should a currency backing have?
- Gold — The historical default and its failures
- Labor — The looming crisis of artificial scarcity collapse
- Carbon — Pricing negatives, not positives
- Commodity Baskets — Complexity and manipulation
- Energy — The irreducible substrate
- Synthesis — Why energy wins
4.1 Criteria for Good Backing
Before comparing alternatives, we need criteria. What makes a backing good?
Desirable Properties
- Intrinsic value: The backing should have genuine utility, not just scarcity
- Scalable supply: The backing should be able to grow with economic needs
- Stable value: Backing value should not fluctuate wildly
- Verifiable: The backing should be measurable and auditable
- Production-linked: Ideally, the backing correlates with productive capacity
- Resistant to manipulation: Hard for any single actor to corner the market
- Future-proof: Will the backing remain relevant as technology evolves?
The Future-Proof Problem
This last criterion—future-proofing—is crucial and often ignored. A backing that works in 2025 may not work in 2050. We must consider:
- Technological change (AI, robotics, automation)
- Energy transitions (fossil to renewable to fusion?)
- Geopolitical shifts
- Fundamental changes in production functions
With these criteria, let us evaluate the alternatives.
4.2 Gold: The Historical Default
Why Gold Was Chosen
Gold has been humanity's monetary metal for millennia. Its properties:
- Scarce: Gold cannot be manufactured (without nuclear processes)
- Durable: Does not corrode or decay
- Divisible: Can be split into small units
- Portable (relatively): High value per unit weight
- Recognizable: Distinctive color, density, properties
Why Gold Failed
Despite these properties, gold-backed systems repeatedly failed:
Deflationary Pressure: Gold supply grows ~1.5% per year. Economies grow faster. Under gold backing, either: - Prices must fall (deflation) - Economic growth must slow to match gold supply - The peg must be abandoned
All three have occurred historically. The gold standard's collapse (1930s) demonstrated this fatal flaw.
Arbitrary Value: Gold's value is aesthetic and historical, not functional. You cannot do anything with gold that requires it specifically. It's a coordination equilibrium—valuable because others value it.
Geographically Concentrated: Gold deposits are unevenly distributed. Gold-backed systems advantage nations with mines while penalizing others.
Assessment
| Criterion | Gold | Score |
|---|---|---|
| Intrinsic value | Aesthetic only | Poor |
| Scalable supply | ~1.5%/year | Poor |
| Stable value | Relatively stable | Good |
| Verifiable | Yes | Good |
| Production-linked | No | Poor |
| Manipulation-resistant | Moderate | Moderate |
| Future-proof | Yes (but irrelevant) | Neutral |
Overall: Gold provides scarcity but not functionality. It fails the key criteria of scalability and production linkage.
4.3 Labor: The Looming Crisis
The Traditional Labor Theory of Value
Labor-backed currency has intellectual pedigree. Marx argued that labor is the source of all value. Even mainstream economics recognizes labor as a fundamental production factor.
A labor-backed currency might work like this: - Currency units represent hours of labor - Money creation tied to verified work performed - Value derives from labor's productive contribution
Why Labor-Backing Faces a Crisis
The premise of labor value is scarcity. Human labor was valuable because: 1. Humans were the only source of cognitive and manual work 2. Training humans takes 20+ years 3. Population growth is biologically constrained 4. When labor was scarce, workers had bargaining power
This premise is breaking down.
The Economics of Human Production
Consider the "production cost" of a productive human adult:
| Cost Component | Estimate (US context) |
|---|---|
| Childhood (food, shelter, care) | $300,000 |
| Education (K-12 + university) | $400,000 |
| Healthcare | $150,000 |
| Opportunity cost (parental time) | $200,000 |
| Total | ~$1,000,000 |
This figure varies by country but the order of magnitude holds for developed economies. Raising a human to productive adulthood is extraordinarily expensive.
The Economics of Artificial Labor
Now consider alternatives emerging today:
Physical Labor (Robotics): - Humanoid robot: $30,000 - $100,000 - Industrial robot arm: $20,000 - \(50,000 - Training time: Hours to days - Lifespan: 10+ years continuous operation - Energy cost: ~\)1,000/year electricity
Cognitive Labor (AI): - Large language model deployment: \(10,000/year (cloud costs) - Marginal cost of additional "instance": ~\)0 - Training time: Minutes (fine-tuning) - Scales infinitely with compute
The Crossover Point
We are approaching a crossover where:
Not just for specific tasks, but for general-purpose labor. When: - A $30,000 robot can do 80% of physical tasks - A $100/month AI subscription can do 80% of cognitive tasks - Both improve exponentially while human costs rise
What happens to the value of human labor?
Historical Precedent: How Labor Scarcity Rebalanced
Historically, when capital gained too much power over labor, scarcity eventually restored balance:
- Black Death (1347-1351): Killed 30-60% of European population → Labor became scarce → Wages rose → Serfdom declined
- Labor movements (19th-20th century): Collective bargaining created artificial scarcity → Wages rose → Middle class emerged
- Post-WWII boom: Labor scarcity in developed world → Wages rose → Golden age of capitalism
The pattern: When labor is scarce, labor has power.
The Unprecedented Shift
For the first time in history, capital can manufacture labor at scale:
- No biological constraint: Robots don't require 20 years to mature
- No population limit: Robot production scales with factory capacity
- No training cost: AI copies instantly; robots learn from each other
- Declining marginal cost: Moore's Law for compute; learning curves for manufacturing
In 10-20 years, labor scarcity may effectively end. Capital will be able to produce unlimited workers at marginal cost.
Implications for Labor-Backed Currency
A labor-backed currency in this world would:
- Deflate catastrophically: As labor value collapses, currency value collapses
- Become meaningless: If labor is abundant, it cannot serve as scarce backing
- Exacerbate inequality: Those who own capital (robots, AI) would have all the "labor"
Labor-backed currency is not future-proof. It is a backing whose value is actively being destroyed by technological progress.
4.4 Carbon: Pricing Negatives
The Carbon-Backed Proposal
Some propose currency backed by carbon—either: - Carbon credits: Currency represents right to emit - Carbon removal: Currency represents verified removal
Why Carbon Fails
Carbon is a negative, not a positive.
We want less carbon, not more. A carbon-backed currency would either: - Incentivize emissions (if backed by emission rights) - Create an inherently shrinking monetary base (if backed by removal)
Neither supports economic function.
Measurement challenges: - Emissions are estimated, not precisely measured - Removal verification is contested - Gaming is rampant in carbon markets
No intrinsic value: Carbon itself has no utility. It's not an input to production—it's an output (waste product) that we want to minimize.
Assessment
| Criterion | Carbon | Score |
|---|---|---|
| Intrinsic value | Negative (waste) | Poor |
| Scalable supply | Shrinking (hopefully) | Poor |
| Stable value | Volatile | Poor |
| Verifiable | Difficult | Poor |
| Production-linked | Inverse | Poor |
| Manipulation-resistant | Highly gameable | Poor |
| Future-proof | Should go to zero | Poor |
Overall: Carbon is fundamentally unsuited for currency backing.
4.5 Commodity Baskets
The Proposal
Instead of single-commodity backing (gold), back currency with a basket: - Oil + gold + wheat + copper + ... - Diversification reduces individual commodity risk - Basket represents "real stuff"
Why Baskets Fail
Complexity: - Which commodities? What weights? - Who decides? (Governance problem) - How often to rebalance?
Manipulation: - Any commodity market can be cornered with sufficient capital - Multiple markets = multiple attack surfaces - OPEC, commodity traders, weather events all manipulate prices
Arbitrage instability: - If basket composition is known, traders can front-run rebalancing - Creates destabilizing dynamics
No single unit of account: - Basket value in "basket units" is not intuitive - Translation to everyday prices is complex
Historical Example: The Bancor Proposal
Keynes's bancor was essentially a commodity-basket idea. It failed at Bretton Woods not only due to US power but also due to inherent complexity.
Assessment
| Criterion | Basket | Score |
|---|---|---|
| Intrinsic value | Mixed | Moderate |
| Scalable supply | Depends on components | Variable |
| Stable value | Diversified but not stable | Moderate |
| Verifiable | Each component verifiable | Moderate |
| Production-linked | Weakly | Moderate |
| Manipulation-resistant | Multiple attack surfaces | Poor |
| Future-proof | Depends on components | Variable |
Overall: Baskets reduce but don't eliminate single-commodity risk while adding complexity and governance burden.
4.6 Energy: The Irreducible Substrate
Why Energy Is Different
Energy has properties that other backings lack:
1. Genuine Utility
Energy does work. It is not merely scarce or agreed-upon-as-valuable. Energy: - Powers machines - Heats and cools buildings - Transports goods and people - Computes information - Grows food
Every economic activity requires energy. This is not a social agreement—it is physics.
2. Scalable with Investment
Unlike gold (constrained by geology), energy supply can grow through investment: - Build more solar panels - Construct more nuclear plants - Develop fusion (eventually) - Improve efficiency
Energy production reflects genuine productive capacity development.
3. Future-Proof: The Automation Amplifier
Here is the critical point that distinguishes energy from labor:
As automation increases, energy demand increases.
- More robots → more electricity demand
- More AI → more data center energy
- More automation → more energy consumption
Energy is not replaced by automation. Energy powers automation. In a world where: - Labor is abundant (robots) - Capital is abundant (3D printing, AI design)
Energy remains the constraint.
The Post-Labor Economy Needs Energy-Backed Money
Consider the world in 2050: - Physical labor: Robots (powered by energy) - Cognitive labor: AI (powered by energy) - Capital goods: 3D-printed, automated (powered by energy)
What is scarce in this world? What requires genuine investment to produce? What cannot be conjured from nothing?
Energy.
Energy-backed currency is uniquely suited to a post-labor economy because it backs money with the one thing that cannot be automated away.
Addressing Concerns
"But energy forms are heterogeneous"
True. A joule of solar is not identical to a joule of coal. Chapter [X] addresses the energy basket design—how to weight different forms.
"But energy production can be measured inaccurately"
True. Chapter [X] addresses verification mechanisms—satellite imagery, smart meters, multi-party auditing.
"But energy is geographically concentrated"
Less so than gold. Every country has some energy potential—solar, wind, hydro, nuclear. And the energy transition is diversifying production.
Assessment
| Criterion | Energy | Score |
|---|---|---|
| Intrinsic value | Does real work | Excellent |
| Scalable supply | Grows with investment | Excellent |
| Stable value | Relatively stable | Good |
| Verifiable | Physical, measurable | Good |
| Production-linked | Direct correlation | Excellent |
| Manipulation-resistant | Distributed production | Good |
| Future-proof | Automation amplifier | Excellent |
Overall: Energy meets all criteria better than alternatives, especially the crucial future-proofing requirement.
4.7 Synthesis: The Backing Comparison
| Backing | Intrinsic Value | Scalability | Future-Proof | Overall |
|---|---|---|---|---|
| Gold | Aesthetic | Poor | Neutral | Poor |
| Labor | Productive but collapsing | Artificial | Failing | Poor |
| Carbon | Negative (waste) | Shrinking | Should → 0 | Very Poor |
| Basket | Mixed | Variable | Variable | Moderate |
| Energy | Real work | Investment-linked | Amplified by automation | Excellent |
The Labor-Energy Transition
This comparison illuminates a historical transition:
- 19th century: Labor was the scarce factor. Labor theory of value made sense.
- 20th century: Capital accumulated. Labor organized for artificial scarcity.
- 21st century: Capital can manufacture labor. Energy becomes the binding constraint.
A currency system designed for labor scarcity will not survive the robot age. A currency system based on energy will strengthen as automation expands.
The Investment Thesis
Energy-backed currency creates a powerful incentive structure:
- Want more money? Produce more energy.
- Want to produce more energy? Build infrastructure.
- Building infrastructure develops genuine productive capacity.
- More productive capacity = more economic output.
The backing aligns monetary incentives with real development, unlike fiat (political incentives) or gold (mining incentives).
4.8 Key Takeaways
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Good backing needs intrinsic value, scalability, and future-proofing.
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Gold fails scalability. Deflationary by design.
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Labor is losing its scarcity premium. Automation is manufacturing abundant labor. Labor-backed currency would collapse.
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Carbon is a negative externality, not a productive input. Unsuited for backing.
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Commodity baskets add complexity without solving fundamental problems.
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Energy is the irreducible substrate. It powers all production, including automated production. It is future-proof because automation amplifies energy demand.
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Energy-backed currency is suited for the post-labor economy in ways no other backing can match.
Further Reading
- Smil, V. (2017). Energy and Civilization: A History
- Brynjolfsson, E. & McAfee, A. (2014). The Second Machine Age
- Susskind, D. (2020). A World Without Work
- Ford, M. (2015). Rise of the Robots