Physical Macroeconomics: Part VI - Global Energy Prices

Abstract

The paper continues a series of publications on the natural science foundations of the global economy. Physical macroeconomics treats the global economy as a living system, formed during biological and socio-economic evolution. In this Part VI of physical macroeconomics, qualitatively differential pricing for global secondary energy carriers, such as electricity, oil and grain, is discussed. It is demonstrated that pricing is primarily determined by the two-component nature of economic value. Currently, the one-component paradigm of economic value is unable to explain these differences. It is demonstrated, that, in developed economies with independent electric energy systems, the average electricity price is an empirical indicator of macroeconomic efficiency. Unlike electricity, the price of crude oil contains a non-zero information component, so the oil price ranges from the cost of production to a maximum magnitude, being greatly dependent on the information component of the price. Grain production is an indispensable and the most energy consuming process in the global economy. The fundamental properties of the world's grain basket – constant production per capita and flat price – means that the grain basket can be considered as an implicit global currency. The impact of energy prices on the competitiveness of local economies existing in different climates is also considered. Indices of climatic impacts are calculated for major world cities.