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mentioned, economists automatically focus on money, but not on the various
streams of energy and materials.
As a result, energy had simply been treated like any other input, which in
effect caused it to be virtually ignored historically. Here, standard economic
analysis can help us out, because it can be applied to any situation in which
prices are changing for some economic aspect of production. Producers sub-
stitute toward the use of relatively less expensive resources and away from
those that are becoming relatively more expensive. This means that producers
demanding energy in creating products or services will simply move toward
a more conservative use of that increasingly expensive resource. Thus, at
least over time, technological change is assumed to inexorably accommo-
date this adjustment process. Devotees of economics, whether economists
or business leaders, supported by a faith in technological innovation and
the pricing system innately tend to assume this process will go relatively
smoothly. This being the case, economists did not expect or predict a crisis.
Unfortunately for any economy—especially a highly developed econ-
omy—there is no substitute for energy. It is needed ubiquitously in all
productive processes. Because the massive technological changes, which
might have been able to alleviate the situation, were impossible to obtain
in the short run, a situation temporarily representing absolute scarcity
was set up—for which the only safety valve was inflation. Consequently,
confusion, marked by much finger-pointing and social-political discord,
reigned supreme.
Toward Economic Reality
Some pricing information will help make the point here. Gasoline brought
prices at the pump of 30 to 34 cents per gallon, even in the late 1940s. (Of
course, the actual signs at the service stations would say 31.9 or 32.9 cents,
but that is just marketing at work.) Over 25 years later, at the onset of Oil
Shock in 1973, the nominal price (unadjusted for inflation) was still in the
range of 32 to 36 cents per gallon. Economically, this long-term stability of
the nominal price means that the real cost of gasoline, supported by the cost
advantages obtained due to expansion in extraction, production, refining,
and marketing, had dropped considerably during the quarter of a century
postwar period. Until the 1930s, oil production was little more than an infant
industry. In retrospect, the industrialized world, and especially the United
States, was becoming seriously hooked on petroleum immediately after
World War II.
The importance for economic adjustment is that, because some moderate
inflation occurred over that time, relative to all other inputs, the real cost of
energy was actually declining over that extensive period. Clearly, it became
easy to take for granted the role of energy. Corporations, entrepreneurs, and
certainly consumers did exactly what economic theory would predict; they
opted for the relatively less expensive resource (in this case, fossil fuel) in
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