The Economics of Life In Space

For mankind to move into Space, it must be

• Affordable in the short term
• Profitable in the mid term
• Self-sustaining in the long term

Each of these should be analyzed in more detail, even if they are self-evident to the optimists among us. Even the definition of short, mid, and long term are subject to discussion, but for these purposes the points above are self-defining.

The long term will begin when Earthbound civilization is no longer necessary for a space faring humanity. By not necessary, I don’t mean not useful: I expect that the cradle of mankind will always be an important part of humanity’s heritage. But at some point the continued expansion of humanity will no longer depend upon Earth resources. This has happened to every expansion of humanity (or a branch of civilization) at some point or another. For example, when Europeans colonized the Americas, the new territories may have initially profited by sending goods to the home country and depended upon tools and technologies created there, but eventually the continued expansion of the frontier no longer depended upon the Motherland. This may take longer (perhaps much longer) in space than on Earth, because the environment is hostile, a high level of technology is needed to survive there, and technological civilizations are complex. It may take tens of thousands of people living in space, or it may take tens of millions to replicate all of our technology. But it will happen.

The mid term will be the period when Earth profits from investments in space, and in some sense this will be a Golden Age of immense profits, rapid growth, unbridled enthusiasm and optimism. Many people have proposed many different potential sources of profit, but two stand out: tourism and Solar Power Satellites (SPSs).

Space Tourism is perhaps an indirect Earth profit generator. As long as launch costs are high (even as cheap as $500/pound), it will only be affordable by the wealthy. But most of the expenses are Earth-bound, and every million dollars spent on Space Tourism will contribute perhaps $2.5M to the Earth’s economy, supporting 25 to 50 families on Earth.  Remember, you can’t spend money in space; every dollar spent on the space program is ultimately spent on Earth, and will continue to be until a space civilization can thrive on its own.

Space-Based Solar Power (SBSP) would directly benefit civilization on Earth, in multiple ways. Not only through stable, low-cost, zero pollution electric power, but also since the construction of Solar Power Satellites and the construction of Earth receiving stations would stimulate the Earth’s economy. Note that SBSP can provide cheap power to remote areas, including many of the poorest nations on Earth. Note that, as with space tourism, every dollar spent on SBSP (both construction and operation) is a dollar spent on Earth. The fact that a large-scale SBSP network would be enormously profitable for some corporations or nations in no way reduces its value to the Earth’s economy. And low-cost reliable power directly contributes to the wealth of the recipient. In a sense, reducing the use of fossil fuels (and the resulting global warming) is only an indirect benefit of SBSP.

Also note that SBSP would be expensive to build and launch from Earth; it will likely be affordable only when we can use space-based resources to build Solar Power Satellites (see my post, Capturing Apophis). But once built, Earth’s civilization benefits for the indefinite future.

The short term is the period – however long – when Earthbound civilization must invest in space. This includes the period when we are beginning to build a network of Solar Power Satellites, or space habitats for living, or space hotels for tourism. While any long-term space-based habitat is likely to produce its own power, food, water, and oxygen (recycling wastes in a closed cycle), most other needs must be met using tools and technologies imported from Earth, including LED’s for lighting the farms, computers, communication equipment, high-technology space suits, VASIMR rocket motors, vitamins, pharmaceuticals, medical equipment. The list is endless, although the relative need and value tails off rather quickly.

More importantly, the Short Term is the period while the costs of launching people, tools, and bootstrap resources into space exceed the profit derived from space-based enterprises, primarily SBSP. But the cost of bootstrapping a space-based civilization is an investment, pure and simple, yielding enormous profits for those clever and resourceful enough to make that investment.

The revenue from a single SPS is of the order of $1 Billion per year, suggesting that an investment of even $100 Billion to build and deploy a hundred SPS’s would be wildly profitable. Yet it would cost a fraction of that to capture an asteroid such as Apophis into Earth orbit, and to launch sufficient people and tools to turn that asteroid into a habitat and a factory to build Solar Power Satellites. Note that Apophis is too small to build more than about a dozen SPSs (assuming half of its mass is reserved for habitats). Yet it is more than large enough to bootstrap the process and support the ongoing space-based resources needed to capture additional asteroids to build thousands of SPSs and habitats for millions of people.

Let’s estimate some numbers:

• $2 Billion: Commercialize the technologies to capture an asteroid (large-scale VASIMR, long-duration space flight)
• $2 Billion: Launch the capture equipment and team. This will result in the capture of an asteroid such as Apophis into a highly-eccentric Earth orbit after a period of a year or two.
• $2 Billion: Develop the processes and tools needed to mine, smelt, and process asteroid material into steel, oxygen, and hopefully CO2 and water. Other valuable materials are a bi-product. There are many unknowns, including the raw materials themselves, and zero-gravity smelting, and recycling of effluent gases such as carbon dioxide. Nothing should be vented / wasted.
• $2 Billion: Launch the solar smelters, mining equipment, and tools to process iron ore into steel plates, girders, cables, etc.. Part of this is launching a small fleet of VASIMR tugs, fueled by excess oxygen from the smelters and using solar power for energy, to boost cargo and people from LEO to the HEEO of the captured asteroid. To a degree, this is launching the tools to build the tools to build the tools….
• $2 Billion: Launch the people and habitat resources (LED lights for farms, solar panels for power, initial supplies of oxygen, food, and water, pumps and recycling equipment, ….)

Okay, so I used nice round numbers to get the total cost around $10 Billion. It may even be accurate to within a factor of two. In reality, I’d expect on-going costs of continuing launches of additional people and resources, perhaps $2 Billion per year for the 5 years I expect it would take to build the infrastructure and that first Solar Power Satellite, but then you get another one built every year, and the continuing influx of people and resources builds additional SPSs every year after that.

My expected cost to get that first habitat and first solar power satellite operational is of the order of $20 Billion. But then the investment starts to multiply, and by the time you’ve invested $30 Billion, you’d have 30 Solar Power Satellites in production and your investment ROI is 100% per year (ignoring ground-based costs of receiving and distributing the power, which might be as much as another billion per satellite). Actually, by the time you have two SPSs (ignoring ground costs) or four SPSs (assuming $1B/satellite in ground costs) in operation the operation is self-sustaining and doesn’t require additional capital investments, yet the profits continue to grow.

Assuming the chosen asteroid is Apophis (but see A Choice of Asteroids), the first $10 billion would be spent by 2030, the first SPS operational in 2035 (after spending another $10 Billion), and the entire operation is wildly profitable by 2040 (by which time you’ve invested $30 Billion but your satellites are earning you $30B/year). It sounds like a great investment for my IRA.

A lot of research is needed, and a lot of talent. We need to solve these problems:

• Farming in Space (total closed-system recycling)
• micro-gravity mining
• zero-gravity smelting of ores using recycled reducing agents and probably direct solar power
• zero-gravity refining (separation of metals, slags, and effluent gases into valuable component parts)
• zero-gravity rapid capture and separation of gases from iron and steel production (we can’t afford to waste that carbon dioxide).
• zero-gravity metal forming (turning steel into girders, rods, plates, cables, etc.)
• Welding of large structures in space.
• Low-cost, human-friendly space suits (ie, skin suits) for hard-working people.
• VASIMR (or similar rocket technologies) to use the excess oxygen from the production of iron as a rocket fuel for in-orbit shuttles and to capture asteroids. Oxygen is the primary bi-product of steel production from ore (other than slag, and assuming recycling of carbon), with a ton of oxygen freed for every three tons of iron produced. Thus the 75,000 tons of steel needed for a habitat for the first 8,000 people yields 25,000 tons of oxygen. Building each 180,000 ton SPS (4 km on a side) yields 60,000 tons of excess oxygen. That’s a lot of rocket fuel.
• Low-cost launch to LEO. Part of this may be the economy of scale, as very large heavy-lift rockets are much cheaper per ton to orbit than smaller rockets. I believe this entire operation is highly profitable and sustainable if the launch cost to LEO is $1 million per ton or less. While NASA and the Space Shuttle (or its proposed replacements) can’t approach this cost, commercial private-sector efforts can. And the scale of this project is large enough to justify those investments.

There are a myriad other problems to be solved, but most of them are engineering efforts, not R&D projects. They will still require a lot of talented people, and many more people will be needed to work in space – thousands of them, of every persuasion. Miners. Steel workers. Welders. Electricians. Plumbers. Mechanics. Farmers (lots of farmers). Doctors and nurses. Pharmacists. Cooks. Wait staff. Bartenders. Construction workers. Janitors. Barbers and cosmetologists. Massage therapists. Truck drivers & bus drivers (but we’ll call them space ship pilots). Clerks. Accountants. I suspect a lot of movies might be made in space, so add actors and all those people listed in the credits for your favorite movie. And where lots of people go, families happen. So we’ll also need day care workers. Teachers. Playgrounds. Schools. Police. We might even need a manager or two. Counselors. And a divorce lawyer.

If you have a skill, you’re probably needed in space. Welcome to the future.

I Hope I’m Wrong …

I’ve argued that the future of humanity necessarily involves a future in space. There, we won’t have the room restrictions, resource restrictions, and catastrophe likelihoods that we’ll have so long as we’re confined to the surface of a single planet. There, a single nuclear, or nanotech, or biotech mistake won’t wipe us all out in the blink of an eye.

But to bootstrap into a space-faring civilization takes a huge commitment. Space travel (at least from the surface of the Earth)takes a LOT of energy, which (on average) we don't have to spare. Space travel (and bootstrapping our future) also takes money, which we also (on average) don't have to spare.

One key point of my proposed "space faring future" is that we will need fusion energy, which potentially solves the energy problem. We aren't there, yet, but there is hope. Out as far as the Asteroid Belt, solar energy can handle our needs, but in the very long term (think a thousand years) we’ll need to expand beyond there.

A second key point is that a future in space for humanity is not likely to involve a lot of travel to and from planetary surfaces. Landing deep in a gravity well and launching into space from deep in a gravity well is extremely expensive. I also don't believe that we will colonize Mars or even our moon to any great degree - there's just very little value in that, and a great deal of expense.

That's why I expect that humanity's future will be asteroid and comet based. Comets (and carbonaceous asteroids) provide all of the raw materials (including hydrogen and deuterium for fusion power) that we might need for a space-based civilization, in a readily accessible form. It is relatively cheap and easy to land/take-off from their negligible gravity wells.

However, to get there in the first place (especially with enough infrastructure to build a high-tech industrialized society) will take a lot of energy, which we aren't likely to have to spare until we perfect fusion energy.

I have another very important point, which I haven’t elaborated on the past, largely because it is too depressing.

I don't believe that the USA will be a significant part of humanity's future. We have too many well-meaning people who think our wealth should be spent in other ways, such as feeding the poor, burying excess carbon dioxide, low-income housing, building giant levees around all of our low-lying coastal cities, and (most importantly) preserving the status quo. They want to preserve what we have, or restore what we had, instead of building the future.

I believe that humanity's move into a space-based civilization will be funded by either extremely wealthy dictatorships (think oil sheiks) or other dictatorships that care more about results than about their people or damaging the environment - think China.

You see, we have more than enough wealth to create a comet-based space faring civilization. We could do it now IF we didn't mind launching large nuclear reactors into space (a nuclear submarine is quite similar to a spaceship, a nuclear-powered aircraft carrier could carry more than enough infrastructure and people to colonize an asteroid).

We don't have the needed wealth or energy ON AVERAGE. But there are people (or countries or companies or churches) that have enough wealth that, should they so choose, they could bootstrap the process, and in that way insure their own place in history.

It WILL happen. At least I hope it will - the alternative is likely to be the more-or-less slow demise of humanity, as our per-capita energy falls, as our per-capita wealth averages globally, as billions of people starve and technology fails.

The status-quo is not an option. In an ideal world, we would find a way to raise the global per-capita wealth to something like what we currently enjoy in western civilization (likely making US much wealthier than at present). In an ideal world, we would find a way to do that while reducing humanity's impact on our global ecology (sounds impossible to me). In an ideal world, we would find ways to feed our burgeoning population while leaving most of the world's natural resources untouched (some people argue that we have no right to take the food that sustains the other carnivores of the world, such as sharks, wolves, crocodiles, hyenas, etc.). Other people would argue that it is more important to preserve the endangered spotted sand flea than to build power plants, factories, or housing.

I don't think it is likely to happen in our current society. We have too many people who want to globally average our wealth, too many people more concerned with reducing our impact on the world than on building our future, too many people more focused on taking the wealth of others than on creating their own wealth.

The status quo is likely to lead to a greatly reduced impact of humanity on the global ecology. That will automatically happen when civilization fails and billions starve and we are reduced to a few tens of millions of people living on the edge of starvation in a non-technological world. The remainder of the world (non-human) is likely to recover quite nicely (perhaps minus a few thousand species that have or will die out because of our impact).

At some point in the future, SOME dictator will decide to move HIS society into space, "screw the masses". It WILL happen, and that dictator will thus insure his place in history. The USA is likely to be a small reference in a footnote about a failed civilization, otherwise forgotten.

My personal attitudes (I'm normally a perpetual optimist) and beliefs (I'm intelligent enough to see that there are extremely serious problems in the world) are in conflict. I see that we DO have the resources, but not the will to expend them, and our excess resources are dwindling.

It would cost us a few billion to capture an asteroid, a few billion more to turn it into a factory for Solar Power Satellites (helping the Earth below), a few billion more to create permanent habitats in orbit. The total expenditures ($10B-$20B for this one project) would be less than we spend annually on pet food, or cosmetics. We spend 10 times this on gasoline every year to fuel our bad driving habits and oversized cars. The largest source of wasted wealth may be our excess expenditures on health care: The USA spends DOUBLE the dollars per person on health care than do the 2 dozen counties with better health care (as measured by their longer average life spans). This is a waste of roughly $600 billion, of which perhaps 20% is due to malpractice insurance and procedures instituted only to prevent malpractice claims (not medically necessary). A tiny fraction of this ANNUAL expense would fund humanity’s future in space.

There are so many solutions that we don’t have the will to implement. High-density urban living. Public transportation. Electric cars. Health care without waste. Eating more vegetables and less beef. Recycling (really, we just need less of a wasteful attitude as represented by our use of disposable packaging). Solar power. Geothermal power. Travelling-Wave nuclear reactors (that consume radioactive waste).

Question: What do YOU believe are the long-term goals of civilization? What SHOULD we spend our wealth on?

Evolution

Evolution - or survival of the fittest (or luckiest) - is a readily provable fact, and one not limited to species: Evolution also applies to ideas (memes) with areas as diverse as religion, music, fairy tales, and urban legends.

The concept of evolution is simple: That which successfully reproduces, survives. If pressures (due to competition or predation) limit the growth of something which has a natural variation (a choice of religions, or music genres, or tales, or an ecosystem, or apes), those variants which most successfully reproduce will succeed versus those less suitable, or less lucky.

Note how few successful religions abound which forbid sex. There have been short term experiments in this direction. More subtly, religions that don't have a strong philosophy of proselytism tend to be dominated by those that do. Remember, survival of the fittest is really just survival of those that successfully reproduce. See The Purpose of Life.

Evolution of species continues today. Mankind is forcing change, which drives evolution. Some of this is merely speeding long term trends (such as reduced success of amphibians in general, or the loss of many marginal species like the spotted owl). Other changes are more worrisome (such as the evolution of anti-biotic resistant bacteria).

Especially with animals (including humans), there are two forces that dominate evolutionary pressures. In addition to reproductive success due to superior survival characteristics, there is reproductive success due to sexual selection (ie, how members of each sex choose mates). More colorful animals are easier to find, and the most showy male is likely to get the most females and successfully reproduce even though he is also the most visible to predators and ends up living a shorter life. Sexual selection may also explain extremely large sauropod dinosaurs; perhaps the males/females liked (or could see) tall females/males better - and sought them as mates - leading to runaway selection for this feature.

Even mankind continues to evolve in several ways, and indeed demonstrates evidence of very recent evolution.

For example, there is strong evidence that people have been evolving for external sexual characteristics. Human females have proportionally larger breasts, narrower waists, and broader hips than other primates. (As a human male, I do love that shape.) Human males have shapes that illustrate upper body strength, and have a penis that is larger in proportion to body size than any other ape. Apparently males have been selecting for large breasts and hips (especially in contrast to waist size). And women have been selecting men with broad shoulders, large muscles, and a big penis. And bad boys, at that.

Watching many reality shows (and especially MTV) suggests that human females are still actively selecting for strength, size, and sexual prowess; intelligence is clearly not a requirement. Likewise for human males, actively selecting voluptuous, athletic females with exotic eyes, long hair, and aggressive sexual attitudes.

Our technology is also having a significant effect on the human specie: we are becoming less diverse, as our ability to travel globally is reducing regional and racial disparities at measurable rates. In a few thousand years, there may be no remaining significant racial differences at all as we continue to interbreed and blend. Personally, I think this is a good thing.

We are also enabling the survival and allowing the reproduction of humans who would never live to adulthood without technology and/or large social organizations to care for them. I think this is a bad thing (when genetically caused), as I prefer that our children be smarter, stronger, and healthier. I know many people find my attitude offensive, but really, people, it is not in humanity's best long term interest to support or encourage the reproduction of serious genetic defects or low intelligence. Again, see my post The Purpose of Life.

A few other rambles:

Humanity is the ocean's most effective predator, and our fishing techniques are rapidly changing (evolving) fish to have less desirable characteristics. Fish are maturing younger and at smaller sizes as we select only the largest (previously most successful) fish. Fish that humans like to eat are being selected out - made extinct - versus undesirable, bony, badly tasting, or hard-to-capture fish. A tight school of fish may have worked to confuse dolphins or sharks, but it is an bright sonar target easily capture by our mile-wide nets today. And small and mid-size fish that avoid schooling behaviors make poor (unprofitable) targets.

Note that the world's most successful plants and animals are those whose evolution has made them desirable food for humans (cows, chickens, pigs, wheat, corn, rice, etc.). Then we help them thrive and reproduce, in numbers far exceeding natural populations.

Some people have argued against the use of windmills as a source of renewable electric power, based upon the fact that the turning windmills kill many birds. Tear down the windmills, drill for oil, save the birds. The reality is that more birds are killed by cars and trucks on the highway. (The activists would probably like to outlaw cars and trucks, too.)

I believe in the value of evolution: the birds that learn to avoid the rotating windmill blades will survive and reproduce. We can already see this effect along our highways: fifty years ago it was much more common to hit a bird on the highway, even though speeds were significantly lower then. Think of it as evolution in action (thank you, Larry Niven).

Last, the implications of evolution to a field near and dear to my heart: science fiction.

Contrary to nearly every movie alien, any intelligent life we meet in outer space will not be highly effective carnivorous killing machines. Au contraire, they will be (on their home planet) relatively weak and defenseless, needing superior intelligence to survive and reproduce. A dominant carnivore, or a herbivore that does not need to fear predation due to successful defenses (armor, size, quills, poisons) will cease to evolve. Every intelligent alien ever depicted with huge fangs, great strength, speed, armored skin, etc.,  is absurd, as they would never have evolved intelligence.

No, the most intelligent species will be those that are slow, weak, need protection from the elements, need to build and use tools to thrive, and need a civilization to defend against the superior strength, speed, and teeth of their planet's versions of lions, and tigers, and bears.

Of course, there is some evidence that intelligence is not a long term survival characteristic. We haven't yet met a single intelligent alien.

The Earth's Fragile Ecology

Most of my readers know that I'm fundamentally an optimist (see I am an optimist), and that I believe that science and technology (along with human ingenuity) can and will solve most (hopefully all) of our problems caused by technology and the resulting global population growth.

But it won't be easy, or cheap.

Most people seem unaware of the major ecological problems we face, focusing instead on a few relatively minor (but well publicized) potential problems such as Global Warming or loss of biodiversity.

Here are a few more for your consideration.

Loss of topsoil: Globally, current farming techniques results in topsoil being lost to erosion at rates far greater than natural replenishment. Topsoil (the only part of the Earth's regolith that can readily support crops) is being lost at a huge rate, resulting in reduced crop yields and even desertification in some areas. Currently, the recommended solution is to globally convert to no-till farming, which has the problem of requiring greatly increased use of herbicides and insecticides with their attendant and largely unknown long term effects.

Ocean anoxia: The huge influx of topsoil and fertilizer into the oceans is producing larger and more frequent dead zones, where nearly everything larger than a bacteria dies due to lack of oxygen. All of the nutrients lead to bacterial blooms which consume all free oxygen, and while some mobile fish can swim to the surface to gulp oxygenated water or swim out of the region, bottom dwellers and the myriad small critters that comprise the bulk of the food chain have no such ability. They die, and so do other life forms that depend upon them. This process happens to thousands of square miles every year, and the area and event duration is increasing.

Overfishing: The oceans are being depleted of desirable foodstocks are rates far greater than can be maintained. Already, many once common seafoods are becoming rare, and many fisheries are now effectively ocean deserts, completely devoid of large fish. At present, there are two approaches to solve the problem. One is to create huge "no fishing" zones to serve as replenishment stocks for the regions around them. This works in the short run (assuming enforcement by fast, armed ships), but eventually the fish will evolve to avoid fishing zones. The second solution is one that our leaders have done completely backwards. They have established minimum take sizes, where the fisherman is allowed to keep only fish above a certain size. Sounds good at first, as the young fish are allowed to live, feed, and grow. Unfortunately, there is something called evolution. Fish which once grew quickly to a large size (to avoid predation) are now evolving to grow more slowly and to reproduce at a much smaller size (avoiding predation by the most effective ocean predator, us). As a consequence, reproductive success is reduced, and the remaining fish are becoming less and less desirable. The solution? Capture (and eat) medium sized fish, encouraging these species to grow quickly to a large (safe) size and to produce large numbers of offspring to ensure that enough of them escape us to maintain their species. But this will take technology, and leadership.

Falling water tables: Everyone has heard of (or experienced) the relative and growing shortage of fresh water. Many people don't realize how serious the problem has become. Many cities (especially in desert areas but including many water-rich areas such as Orlando, Florida, USA) are pumping fresh water out of the ground at rates much greater than natural replenishment. Eventually the wells will run dry. Going deeper is often not a solution because of salt water, no water, or pollutants such as oil, lead, or arsenic. Along the oceans, pumping fresh water out of the ground encourages salt water incursion, a serious problem. One side effect of excessive ground water pumping is that springs dry up, and rivers that once ran to the ocean now shrivel and disappear. Water wars will result when cities / states / nations consume the fresh water that other downstream cities / states / nations need to survive.

Chemical pollution: To me, the most serious pollution issue is from the long term unanticipated side effects of biochemicals we create and dump into the environment. These include insecticides, herbicides, drugs, hormones, and especially antibiotics. We don't understand the long term effects of insecticides and herbicides; we ignore the possible unintended effects of long exposure to low doses of hormones and many other drugs (traces of which can be detected in many or most municipal water supplies), and we are rapidly breeding (thanks to evolution and the overuse of antibiotics) new bacteria (and likely viruses) which are immune to all known antibiotics. This alone could result in a plague which could destroy most human life.

The growth of cities: We tend to put cities (especially large, growing ones) at the worst possible places: in river valleys, along flatland floodplains, along the mouths of rivers. The same places that are the best possible farmland. We should build them on mountains, in deserts, rocky, hilly terrain, even floating on the oceans. Leave the good farmland to farming. Leave the river deltas for farming and allow the annual floods that replenish their topsoils and ecologies. Our cities continue to grow at alarming rates, covering the surrounding land with buildings and asphalt. And polluting or burying the former topsoil in the process.

Are there long term solutions? My favorite is to move humanity off of Planet Earth and into space habitats. See Colonizing the Solar System and Population Unlimited. Unfortunately, I expect that humanity will tend to continue to exploit the Earth in ever greater degree until the point is reached where most of the population will abruptly die. And then the survivors just might be smarter and do it right the next time. That, my friend, is evolution in action.

ECONOMICS 101

Some fundamental tenants, followed by discussion and ramifications:

1. There is no such thing as savings.
2. Money is not real (although it is a valuable accounting tool).
3. Prices are set by supply and demand.
4. Any attempt by people or governments to change any of the above is doomed to failure.

There is no such thing as savings, other than to store food or other supplies in a larder. We all live off of the current productivity of workers. For you to retire, you must convince someone else to work on your behalf (to provide you with food, clean water, sanitation,  energy, health services, everything you need). At the beginning of life, your parents did that. At one time, we would depend upon our children to provide for our old age. Investing in children was investing for retirement. But that time has past.

In today's society, we save for our retirement and therefore depend upon society to care for us. The only way that works is if:

1. We invest a portion of our current work productivity in infrastructure (capital) so that other, future, workers can be more productive. (In exchange, we expect those future workers to support us in the future via a fraction of their increased productivity.)
2. A large enough fraction of the population is working in primary production to provide for the non-workers.
3. The population dynamic is such that the future expected number of retirees is proportional to the future number of primary workers. This does not match reality!

Money is not real. Actually, money can be real, if it consists of coins or other valuable items (gold coins are real, as are gems and many other commonly recognized commodities). Paper money, or a coin whose value is based on a promise, is not real. Unfortunately, governments can print more money or stamp more coins. This dilutes the value of the existing currency, making it proportionally less valuable. Note that the total value of the good and services in the economy remains unchanged - only the number (accounting value) associated with the measurement of the economy increases.

The picture is not really so simple, but it will serve our purposes. The great thing about the concept of money is that it creates an accounting tool that allows us to share productivity, to allow a civilization to work together (some farmers, some miners, some builders, some engineers, etc.) where each of us can achieve greater productivity in a narrow field than any of us could if we each had to provide for all of our needs. Can a farmer build a house or a car? Can an engineer raise cattle and chickens for meat, milk, eggs? Yes, but not as well as a professional. And that, my friends, is the true source of wealth.

Prices are set by supply and demand. This is always true in the long run, although short term variation due to greed, fear, stupidity, and the delays needed to change production will happen. Capitalism works, for the most part, but it is slow to respond to changing markets. If oil prices jump, economic theory says that exploration, production, and distribution will increase supply to match (or exceed) demand. However, it takes years to find new sources of oil, drill the wells, build the distribution networks, the refineries, etc..

The government should have a role in pricing, to ensure fair competition, avoid fraud, and to make certain that the consumer fairly pays all costs associated with a commodity. For example, if a bottle of water is sold to the consumer, the price (manufacturing, distribution, and taxes) should reflect the total life cycle cost of that bottle of water, including the renewability of the water source (no dropping water tables stealing water from the future), and the disposition of the bottle (the cost of disposal or recycling - don't dump our current waste on our children).

Any attempt by people or governments to change any of the above is doomed to failure. History is full of failed attempts to control an economy. Price fixing invariably leads to shortages. Government attempts to define production invariably result in reduced choice and quality, with higher prices. Printing more money causes inflation. And since there is no such thing as savings, it is incredibly stupid to "invest" social security funds in government debt. All such debts must be repaid by taxes on future workers, whether you call them social security taxes or anything else. Who could come up with this concept? Unless the worker's funds are invested in things resulting in future productivity gains (which can include factories, research, infrastructure), this scheme is doomed to failure. Yes, I'm in favor of privatizing social security, just as I'm against the concept of government debt (except in the short term as a balancing mechanism). Unfortunately, it may be too late.

However, in our current economic environment I support government investment in real estate or other businesses (as well as research), because only then can we boost real worker productivity and escape the fragile house of cards we live in.