Embodied energy and economic value in the United States economy: 1963, 1967 and 1972

Abstract

An economy can be said to operate on an energy theory of value if economic value can be shown to be proportional to an appropriate energy indicator. We have investigated this hypothesis for an 87 sector breakdown of the U.S. economy for the years 1963, 1967 and 1972. Input-output (I-O) models of the economy, modified to include households and government as endogenous sectors, were used to calculate each sector's direct plus indirect (embodied) energy consumption based on various estimates of the distribution of direct energy inputs to the sectors. Dollar value of sector output is highly correlated with this energy indicator (though not with direct energy consumption or with embodied energy calculated excluding labor and government energy costs). We also test explicitly the criticism that this result is merely a mathematical artifact of incorporating household and government sectors, thus making the system more ‘closed’. Application of these tests to a 4-sector example implies that the mathematical artifact argument is not valid (except for a specific, limited case). Application of the tests to the full 87 sector model also indicates that the mathematical artifact argument is not valid. We conclude that embodied energy, calculated in the way we suggest, is a good predictor of economic value, at least for the relatively large aggregates of marketed goods and services that appear in I-O tables.