Energy and the Rise and Fall of Political Economy (review)

In this book, Bernard Beaudreau argues that energy was a primary driver of industrialization and contends that economists should incorporate energy as a separate variable in modeling production because much of the growth seen from beginning of the era of industrialization onward was due to energy rents. He also holds that incorporating energy into the standard production function would explain a significant portion of the "Solow residual" that is the estimate of technological change.

Beaudreau divides his book into five chapters. In the first he describes his analytical framework, which changes the inputs in standard economic production models to energy inputs instead of labor, capital, and technology. Chapter 2 focuses on steam power and discusses the works of classical political economists: "I maintain that Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations was largely an attempt at identifying and analyzing the problems associated with moving to the higher growth path defined by fire power" (p. 59). Beaudreau is completely incorrect in this interpretation of Smith's work. Smith wrote the Wealth of Nations over several years before its publication in 1776, and by the time of his death in 1790 British industrialization was still isolated in a few locations. Beaudreau's inability to reconcile the timing of increased energy intensity and industrialization with Smith's working life makes this point unpersuasive.

Chapter 3 covers the development of electricity in the early twentieth century. Chapter 4 advances the chronology past the World War II era, with its increasingly intensive use of energy. This chapter is the best in the book, because Beaudreau focuses on estimating the role of increasing electrification and energy deepening in shaping U.S., German, and Japanese manufacturing and production processes.

Chapter 5 focuses on the post-energy-crisis period, which Beaudreau argues is characterized by "the continued widespread use of theoretically and empirically irrelevant models of production and exchange" (p. 157). He focuses on growth theory and makes some trenchant critiques of the assumptions underlying these models and their inability to explain long-run growth patterns. Beaudreau's analysis is premised on the distinction between energy and capital. Though true, this distinction is somewhat obvious. Capital changes over time, but those changes are a result of technological change. How can he separate energy from technological change and expect to have a sensible model? The two are so intimately intertwined that I am not surprised when Beaudreau claims that energy explains most of the Solow residual. These variables—labor, capital, technological change—are abstractions. Furthermore, they are abstractions that capture embodied time and energy.

Beaudreau's model is too beholden to Newtonian physics and his argumentation too divorced from abstraction to be persuasive. He also engages in poor economic history. The economically useful steam engine developed through an evolutionary process. Coal existed before the steam engine, but industrialization amounted to a gradual evolution of technologies that could harness the energy density and burn properties of coal for the purpose of production. A similar point holds for metallurgy, which also evolved symbiotically with coal—better metallurgy meant better blast furnaces that could better harness coal's heat, which produced better metal, and so on. Most importantly, steam engines and water power coexisted for almost sixty years, with the steam engine not becoming the dominant form of power until the 1840s. Early steam engines did not provide much improvement in efficiency over water power. Once Watt's patents expired and innovators could manufacture high-pressure engines, steam outpaced water power to become the dominant power source. Steam power did not actually burst onto the scene and create industrialization single-handedly in the eighteenth century.

Beaudreau asserts that we are no closer to understanding the wealth of nations than Smith was in 1776. Yet the wealth of nations is a moving target, and its causes change across time and...