Energy in Growth Accounting and the Aggregation of Capital and Output
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REVIEW PAPER
Energy in Growth Accounting and the Aggregation of Capital and Output Reiner Kümmel1 · Dietmar Lindenberger2 Received: 12 June 2019 / Revised: 21 January 2020 / Accepted: 24 February 2020 / Published online: 18 March 2020 © The Author(s) 2020
Abstract We review the physical aggregation of value added and capital in terms of work performance and information processing and its relation to the deflated monetary time series of output and capital. In growth accounting it complements the time series of labor and energy, measured in hours worked per year and kilowatt-hours consumed per year, respectively. This aggregation is the conceptual basis on which those energy-dependent production functions have been constructed that reproduce economic growth of major industrial countries in the 20th century with small residuals and output elasticities that are for energy much larger and for labor much smaller than the cost shares of these factors. Accounting for growth in such a way, which deviates from that of mainstream economics, may serve as a first step towards integrating the First and the Second Law of Thermodynamics into economics. Keywords Aggregation · Cost-share theorem · Economic growth · Energy · Entropy · Output elasticities
Introduction Recently, Fix (2019) argued “that the growth of real GDP is not worth explaining”. This verdict is based on the following observations: (1) The output and the capital stock of a country’s economy are aggregated and measured monetarily by the national accounts of the country’s statistical offices. (2) The prices of the goods and services that make up the output—which is the GDP (or parts thereof, if one considers a sector of the economy)—are unstable over time because of inflation and subjective decisions. The latter concern corrections for inflation and quality changes of commodities. (3) The GDP ignores unpaid domestic work, environmental degradation, and social “bads”. Interestingly, in the paragraph preceding the verdict, the author states that the field of growth accounting has tended to ignore the role of energy and continues: “Ecological and biophysical economists have devoted significant efforts in fixing this situation. Many studies now exist that analyze the role that energy plays in driving the growth of real GDP (Ayres * Reiner Kümmel [email protected]‑wuerzburg.de 1
Institute for Theoretical Physics und Astrophysics, University of Würzburg, 97074 Würzburg, Germany
Institute of Energy Economics, University of Cologne, 50827 Cologne, Germany
2
and Warr 2005, 2010; Hall et al. 2001; Kummel 1982, 1989; Kummel et al. 1985, 2000)”. Those of the cited publications, whose (partly flawed) references are explicitly reproduced here, do precisely what B. Fix criticizes: Elucidate the role of energy in the generation of output via growth accounting based on energy-dependent production functions with monetary aggregation of capital and output. Obviously, there is need for a reappraisal of the biophysical reasoning and the methods that led to the macroscopic
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