In the early part of the 20th Century, when a wildcatter struck oil, he got a return on his investment of 100 to one. For every unit of energy he used to find and bring the oil to market, he got 100 units back (money is simply a token for the energy, a marker of its value). On that EROI — energy return on energy invested — of 100:1, more than on any other single thing, rests the advent of the Industrial Age and the American Empire. When we discovered oil we won the lottery, a lump sum payment of enough cheap energy to do whatever we wanted to do, until it ran out.

It hasn’t quite run out yet, but something else almost as serious has happened. Today, when an oil company extracts shale oil from rock by fracking (hydraulic fracturing) the EROI is five to one, one twentieth of what it used to be. From a well that costs many multiples of a standard oil well to build and operate, and that will be depleted in three years instead of the traditional 20 or more. This set of facts, more than any other, explains why the Industrial Age and the American Empire are in their final throes.

But to really understand this vital equation, and the fate it ordains for us, consider corn-based ethanol, with its EROI of 1.3 to one, a gain that is only one-seventeenth a fraction of that of shale oil (if the laws of arithmetic have not been repealed, and if I grasp them at all) . By federal law, ethanol makes up about ten percent of gasoline-engine fuel. It was considered an enlightened edict when it was issued because corn ethanol, made from plants, is “renewable,” unlike those nasty fossil fuels, of which no more are being made.

This would make sense if you were talking about a small, diverse farm on which you grow corn without heavy machinery, synthetic fertilizers or noxious sprays, and you distill some of it for fuel, lighting, cooking and occasional mood enhancement (as people once did on the American frontier). But what works on a small scale amid diversity never works when it has been industrialized. Never.

What the federal mandate created is a monster that scarfs up nearly 40% of all the corn grown in the United States, and spews out 16 billion gallons of ethanol a year. The growing of the corn (in endless fields of monoculture) is fossil-fuel intensive, requiring massive inputs of machine fuel, synthetic fertilizer, and pesticides. The processing of the corn is energy intensive, requiring massive amounts of natural gas. In the end the process is not sustainable, renewable, ecological or sensible, but it makes millions of dollars for polluting industries and their bloated captains. And it’s the law!

Did we say that money is merely a token for energy? If that were true, then how could these corporations be making money? Funny thing about that. One of the county’s largest producers of ethanol — Archer, Daniels Midland or ADM — has lost so much money on ethanol it has sold of some of its operations and is actively considering getting out of the business. Green Plains Inc., the country’s fourth largest ethanol producer, lost $42 million just in the first quarter of this year. With its share price down 40% this year, Green Plains skipped a dividend in June and is selling three of its ethanol plants. The entire industry, says CEO Todd Becker, is near the breaking point. According to a study by Iowa State University, the typical ethanol producer in May of 2019 lost 27 cents on every gallon produced.

This calls to mind the old retailers’ joke about the store owner who found a source of shoes for $10 a pair and planned to sell them for $8 a pair, When asked how he was going to make that work, he smiled and said, “Volume!”

Volume is good unless you’re losing money on every transaction, as is the case in the ethanol industry, the fracking industry, increasingly the natural gas industry and the oil bidness in general. They can all keep going as long as investors buy into the “American Oil Revolution” nonsense and the lenders firehose free money all over the place in defiance of reality.

But as stated in Lewis’s First Law of Economics: “If you have some stuff, and you use a bunch of it every day, one day there won’t be any stuff left.” This applies to energy and its token, money — even the highly diluted, imaginary form of money the economy is using as oxygen these days — both of which have lost the ability to perform as they once did, and are never going to get it back.

“Frisco No. 1 1929” by Michael Vance1 is licensed under CC BY-NC-SA 2.0