Comrade-Z
18th October 2007, 19:20
http://valuesystem.livejournal.com/9846.html
Real Gas Price -- $1,400.00 per gallon, or two weeks hard labor
The price of gasoline, or rather, the value of gasoline is much higher than most people can image. Over the years, people have become accustomed to paying $1, $2, $3 or perhaps $4 per gallon. In reality, the value gasoline is three orders of magnitude higher, somewhere north of $1,400.00 per gallon.
How did I arrive at such a figure?
The value of gasoline is in the amount of energy that can be released by burning it. Depending on the time of year, a gallon of regular gasoline contains between 112,500 and 114,500 BTU's of energy. Let's pick a number in the middle, 113,500 BTU's per gallon of gas.
How much energy is that? Well, let's convert to something a bit more familiar, the chemical energy that keeps us alive, the Calories in our food.
To convert BTU's into Calories, the multiple is 0.251996. So 113,500 BTU's of energy is the same as 28,600 Calories.
If an average person eats and burns 2,000 Calories per day, then a gallon of gasoline has about 14 days worth of energy, or 28,000 Calories. (Of course, we can't eat gasoline, but you'll see the connection in a minute.)
Image time before civilization. Our human ancestors had to work all day long just to find enough food, water, shelter, and warmth to stay alive. Like most other animals, this was a constant, everyday task. As human populations grew, everyone had to work at these tasks all the time, to simply stay alive.
Now image someone would pay you to live like this. How much is your labor worth? Let's pay you the minimum wage, about $7 per hour. Our ancestors probably were at it from 12 to 16 hours per day. Let's go with 14 hours per day. So, to do the same thing, you could be paid about 14 x $7 = $98 per day, or about $100.
After paying you $100 for 14 days straight, you would have consumed and burned about 28,000 Calories. That's the same amount of energy as one gallon of gasoline.
In other words, the energy in one gallon of gasoline is the same amount as our ancestors consumed as they struggled for two weeks, struggling to survive.
Image what a gallon of gas does for us. By burning one gallon of gas in our car, we can move the vehicle between 15 and 50 miles... in less than an hour. How long would it take us to push, pulley, and lever a car that far by hand?
The two week estimate may be close.
If there was a job doing this for a living, pushing cars various places by hand, how much would you need to be paid? More than $7 per hour? How much higher than $1,400.00 is two weeks hard labor worth to you? How much is a gallon of gas worth... that will get the same job done... but in less than an hour?
In this world where the price of getting gas to the pump is heavily subsidized by our government, and the cost to "produce it" is only as much is the amount of minimal energy needed to get the gasoline out of the earth, separated from the rest of the oil, and to the pump... it is easy to forget that gasoline is incredibly valuable, much more so than most people realize.
A single gallon of gasoline is worth at least $1,400.00. Think about that the next time you see that $3 or $4 price at the pump.
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Hmmmm...if two weeks of hard labor and a gallon of gas have the same utility (they do the same things, so they have equivalent usefulness to a potential buyer), then they should be roughly equal in price. But instead two weeks of hard labor is 500 TIMES more expensive than a gallon of gasoline currently. This would seem to be circumstantial evidence in favor of the labor theory of value ---- how our economic system values things actually depends on how much labor-time was expended in its production ---- and it takes a lot more labor to keep a human being alive for 2 weeks than to pump some oil out of the ground. It is worth noting that oil and labor approximate rather well the free-market assumptions of neoclassical economics: both are in competition with each other, neither is affected very much by price fixing, and buyers and sellers don't have any huge information asymmetries on these items. And yet the neoclassical predictions fall flat on their face in this example....
Real Gas Price -- $1,400.00 per gallon, or two weeks hard labor
The price of gasoline, or rather, the value of gasoline is much higher than most people can image. Over the years, people have become accustomed to paying $1, $2, $3 or perhaps $4 per gallon. In reality, the value gasoline is three orders of magnitude higher, somewhere north of $1,400.00 per gallon.
How did I arrive at such a figure?
The value of gasoline is in the amount of energy that can be released by burning it. Depending on the time of year, a gallon of regular gasoline contains between 112,500 and 114,500 BTU's of energy. Let's pick a number in the middle, 113,500 BTU's per gallon of gas.
How much energy is that? Well, let's convert to something a bit more familiar, the chemical energy that keeps us alive, the Calories in our food.
To convert BTU's into Calories, the multiple is 0.251996. So 113,500 BTU's of energy is the same as 28,600 Calories.
If an average person eats and burns 2,000 Calories per day, then a gallon of gasoline has about 14 days worth of energy, or 28,000 Calories. (Of course, we can't eat gasoline, but you'll see the connection in a minute.)
Image time before civilization. Our human ancestors had to work all day long just to find enough food, water, shelter, and warmth to stay alive. Like most other animals, this was a constant, everyday task. As human populations grew, everyone had to work at these tasks all the time, to simply stay alive.
Now image someone would pay you to live like this. How much is your labor worth? Let's pay you the minimum wage, about $7 per hour. Our ancestors probably were at it from 12 to 16 hours per day. Let's go with 14 hours per day. So, to do the same thing, you could be paid about 14 x $7 = $98 per day, or about $100.
After paying you $100 for 14 days straight, you would have consumed and burned about 28,000 Calories. That's the same amount of energy as one gallon of gasoline.
In other words, the energy in one gallon of gasoline is the same amount as our ancestors consumed as they struggled for two weeks, struggling to survive.
Image what a gallon of gas does for us. By burning one gallon of gas in our car, we can move the vehicle between 15 and 50 miles... in less than an hour. How long would it take us to push, pulley, and lever a car that far by hand?
The two week estimate may be close.
If there was a job doing this for a living, pushing cars various places by hand, how much would you need to be paid? More than $7 per hour? How much higher than $1,400.00 is two weeks hard labor worth to you? How much is a gallon of gas worth... that will get the same job done... but in less than an hour?
In this world where the price of getting gas to the pump is heavily subsidized by our government, and the cost to "produce it" is only as much is the amount of minimal energy needed to get the gasoline out of the earth, separated from the rest of the oil, and to the pump... it is easy to forget that gasoline is incredibly valuable, much more so than most people realize.
A single gallon of gasoline is worth at least $1,400.00. Think about that the next time you see that $3 or $4 price at the pump.
-----------------------------------
Hmmmm...if two weeks of hard labor and a gallon of gas have the same utility (they do the same things, so they have equivalent usefulness to a potential buyer), then they should be roughly equal in price. But instead two weeks of hard labor is 500 TIMES more expensive than a gallon of gasoline currently. This would seem to be circumstantial evidence in favor of the labor theory of value ---- how our economic system values things actually depends on how much labor-time was expended in its production ---- and it takes a lot more labor to keep a human being alive for 2 weeks than to pump some oil out of the ground. It is worth noting that oil and labor approximate rather well the free-market assumptions of neoclassical economics: both are in competition with each other, neither is affected very much by price fixing, and buyers and sellers don't have any huge information asymmetries on these items. And yet the neoclassical predictions fall flat on their face in this example....