The Price Is Wrong: Why Capitalism Won’t Save the Planet – Book Review

The price is wrong: why capitalism won’t save the planet explains why the model used by market-oriented governments will not save us from climate catastrophe, says Orlando Hill

Price plays a crucial role in the basic orthodox (neoliberal, neoclassical) model of how a market economy works. Any high school economics student can explain that price, governed by the impersonal forces of supply and demand, should act as a transmission mechanism, passing on essential information to buyers and sellers and creating incentives to increase or decrease the supply and demand of a commodity depending on its direction of movement.

When the price falls, demand for the commodity increases, creating incentives for new investment. The price of electricity from renewable energy (mainly solar and wind) has been “falling” since 2013 (p. 125). Therefore, companies should switch from fossil fuels to solar and wind energy. But that is not happening. Cristophers explains why this is not the case in this very detailed book.

The main problem with both mainstream economists and Keynesians is that their models are based on prices. To be fair, price does not play as important a role in Keynes as it does in the orthodox model. Keynes introduces an element of subjectivism and understands that it takes time for prices to adjust.

A better understanding of how the economy actually works (although not as mathematically elegant) can be found in political economy, which was advocated by Adam Smith, David Ricardo, and Karl Marx. Capitalists are not interested in cost savings, but in the rate of profit. If there is no prospect of profitability, capitalists do not invest. Christophers describes political economy as a profit-based theory.

As Christophers points out, markets cannot be seen as a neutral playing field where buyers and sellers come together to agree on a price. Markets are shaped organically through the intervention of companies and governments. What has happened to the electricity sector since the 1980s is part of what has reshaped political economies as a whole, namely neoliberalism. Competition, privatization and marketization (the buzzwords of late capitalism) have led to a fragmentation of the sector, with companies competing with each other for a share of the profits.

Before the neoliberal onslaught, the energy sector worldwide was largely vertically integrated. The generation and distribution of electricity was controlled by a single company and regulated by the government. In such a structure, it is possible to spread innovations and cost-saving practices to other parts of the same company. As the sector unbundled, divisions of the same company became separate companies that competed with each other rather than working together under government oversight.

Contradictions in the energy markets

It seems that solar and wind power plant owners have a competitive advantage over fossil fuels. Solar and wind energy are free gifts from nature. While it may cost a lot of money to build a large solar or wind plant, it costs nothing or very little to operate. There are no fuel or extraction costs. No one enjoys private property rights. In economic jargon, there is no marginal cost. In other words, there is no additional cost in producing an additional unit of energy.

The problem is that the price of energy produced is determined by gas, not renewables. From an electricity distribution perspective, it does not matter how the energy is produced, whether by renewables or fossil fuels. What the utility considers when acquiring the energy is price and availability. Christophers examines the vagaries and complexities of energy markets to show why renewables are consistently at a disadvantage in the neoliberal market structure, so that fossil fuels continue to be favored from a profit-seeking financial investment perspective at all levels.

Another problem that Christophers does not explore is that wind and sun are free gifts from nature and therefore no or very little labor is required in the production of solar or wind energy. Without labor, no surplus value can be created. As we know, profit is derived from the surplus value extracted from labor. Profits in the fossil fuel sector come from the circulation of goods in the market, but renewables do not create this circulation of goods and therefore do not generate the surplus value on which profits depend.

As we have seen, building large wind or solar power plants is very expensive. The preferred method of financing these investments is through lending rather than equity (selling shares). This leaves the renewable energy sector tied to financial institutions and consequently at the mercy of interest rates and monetary policy. Due to the high start-up costs, investors demand a type of security that only governments can provide. Neoliberalism preaches against state intervention.

Even though the share of electricity generation from solar and wind energy is increasing and even overtaking fossil fuels, the overall demand for electricity is also increasing. In absolute terms, energy generation from fossil fuels is increasing. However, solar and wind energy still need a reserve for times when the sun is not shining and the wind is not blowing. This explains why China is the largest investor in renewable energy, but also the largest builder of fossil fuel power plants.

This is a very brief summary of a very thorough book. I imagine most readers will have a hard time getting through the book. But those who do will find it helpful in cutting through the nonsense being fed to us by the mainstream media. The book does not offer any possible solutions to the current form of neoliberal capitalism. But after reading it, it is clear what the solution is. The energy market needs to be restructured from the ground up; this can only be achieved by bringing it into public ownership and taking it completely out of the profit system. If we want an energy system based on renewables, we need to put it beyond the reach of the capitalist market.