To Understand Energy You Must Understand the Price System

What is the most promising energy technology for the future: coal, oil, gas, and nuclear, or solar panels, battery-powered cars, and fluorescent light bulbs? The reflexive approach to answering such questions taken by the federal government over the past four decades has been to form expert committees and let the best argument win — or at least the best argument consistent with the campaign goals of those responsible for the committee.The problem with this approach is not just the particular energy solutions advocated, but something more basic, first elucidated by the economists Ludwig von Mises and Friedrich Hayek decades beforehand. The problem is in the choice of who should be deciding which form of energy you use. Do these committees know that you are about to take a job in another county and will need more gas to get there? Do they know that an engineer graduating MIT this year with the kind of mind that could revolutionize fracking technology would consider moving to North Dakota if the offer were right? Do they know all or any of the millions of inidividual facts that determine what’s the best energy to use for each particular purpose and in each particular place, all over the country? No committee can know anything but a tiny fraction of these facts.Fortunately no such committee is necessary. What is necessary is for you to decide for yourself how much oil, or electicity, or solar power to consume at the prices offered to you. When you do this you are singalling the rest of the economic universe, by the grace of the price system in a free market, all the relevant facts about your energy demand. And when producers decide how much of which kind of energy they can produce at what price, they are signalling back to you and the rest of the economic universe what you need to know about energy supply. A collection of producers and consumers coordinating their activities through the price system is exactly how to incorporate all that otherwise dormant information into one, spontaneous, interlocking plan that no committee could begin to conceive. Mises and Hayek were the first to appreciate the grandeur of this spontaneous order as it arises in energy markets, and in all markets, so long as men are free to trade under a system of clearly defined property rights and objective law.Here are some valuable references on this subject: