Today I thought I would pass on the thoughts of ecological ("steady-state") economist Herman Daly, whose essay What Is The Limiting Factor? was recently re-printed at Countercurrents. You might think of Daly's piece as a follow-up from a theoretical point of view to my Monday post Understanding Paul Krugman's View Of The Future. Krugman is exactly the kind of no-limits-to-growth cretin Daly is criticizing in his essay. I'll interject a few clarifying remarks during the presentation and at the end. And now without further ado—
In yesteryear’s empty world capital was the limiting factor in economic growth. But we now live in a full world.
Consider: What limits the annual fish catch — fishing boats (capital) or remaining fish in the sea (natural resources)? Clearly the latter. What limits barrels of crude oil extracted — drilling rigs and pumps (capital), or remaining accessible deposits of petroleum — or capacity of the atmosphere to absorb the CO2 from burning petroleum (both natural resources)? What limits production of cut timber — number of chain saws and lumber mills, or standing forests and their rate of growth? What limits irrigated agriculture — pumps and sprinklers, or aquifer recharge rates and river flow volumes? That should be enough to at least suggest that we live in a natural resource-constrained world, not a capital-constrained world.
Ah, yes—peak fish, peak oil, dying trees and dangerous levels of CO2-equivalent in the atmosphere. These on-going events do more than merely suggest that limits on natural resources or our exploitation of them are the limiting factors, but that's how academics make such points.
Economic logic says to invest in and economize on the limiting factor. Economic logic has not changed; what has changed is the limiting factor. It is now natural resources, not capital, that we must economize on and invest in. Economists have not recognized this fundamental shift in the pattern of scarcity.
Nobel Laureate in chemistry and underground economist, Frederick Soddy, predicted the shift eighty years ago. He argued that mankind ultimately lives on current sunshine, captured with the aid of plants, soil, and water. This fundamental permanent basis for life is temporarily supplemented by the release of trapped sunshine of Paleozoic summers that is being rapidly depleted to fuel what he called “the flamboyant age.”
So addicted are we to this short-run subsidy that our technocrats advocate shutting out some of the incoming solar energy to make more thermal room for burning fossil fuels!
I believe this is a reference to injecting sulfates into the atmosphere to cool the Earth's surface, which is one of several geo-engineering solutions to global warming floating around.
These educated cretins are also busy chemically degrading the topsoil and polluting the water, while tinkering with the genetic basis of plants, all toward the purpose of maximizing short-run growth. As Wes Jackson says, agricultural plants now have genes selected by the Chicago Board of Trade, not by fitness to the ecosystem of surrounding organisms and geography.
Our current U.S. energy secretary Dr. Steven Chu is a big fan of tinkering with the genetics of plants to get them to produce complex hydrocarbons (oil) instead of the simpler sugars produced through normal photosynthesis.
What has kept economists from recognizing Soddy’s insight? An animus against dependence on nature, and a devotion to dominance.
I don't think that's the most fundamental insight we can achieve in this matter, and I will discuss that briefly at the end.
This basic attitude has been served by a theoretical commitment to factor substitutability and a neglect of complementarity by today’s neoclassical economists. In the absence of complementarity there can be no limiting factor — if capital and natural resources are substitutes in production then neither can be limiting — if one is in short supply you just substitute the other and continue producing. If they are complements both are necessary and the one in short supply is limiting.
Economists used to believe that capital was the limiting factor. Therefore they implicitly must have believed in complementarity between capital and natural resources back in the empty-world economy. But when resources became limiting in the new full-world economy, rather than recognizing the shift in the pattern of scarcity and the new limiting factor, they abandoned the whole idea of limiting factor by emphasizing substitutability to the exclusion of complementarity. The new reason for emphasizing capital over natural resources is the claim that capital is a near perfect substitute for resources.
William Nordhaus and James Tobin were quite explicit (“Is Growth Obsolete?,” 1972, NBER, Economic Growth, New York: Columbia University Press):
The prevailing standard model of growth assumes that there are no limits on the feasibility of expanding the supplies of nonhuman agents of production. It is basically a two-factor model in which production depends only on labor and reproducible capital. Land and resources, the third member of the classical triad, have generally been dropped… the tacit justification has been that reproducible capital is a near perfect substitute for land and other exhaustible resources.
The claim that capital is a near perfect substitute for natural resources is absurd...
Stand up and take a bow, Mr. Krugman! — you are just one among many absurd (albeit educated) cretins who struggle mightily to advance the Capitalist dream.
It is not for nothing that our system is called “capitalism” rather than “natural resource-ism.” It is ideologically inconvenient for capitalism if capital is no longer the limiting factor. But that inconvenience has been met by claiming that capital is a good substitute for natural resources. Ever true to its basic animus of denying any fundamental dependence on nature, neoclassical economics saw only two alternatives — either nature is not scarce and capital is limiting, or nature’s scarcity doesn’t matter because manmade capital is a near perfect substitute for natural resources. In either case man is in control of nature, thanks to capital, and that is the main thing. Never mind that manmade capital is itself made from natural resources.
At this point Daly makes some academic arguments based on the work of his mentor Nicholas Georgescu-Roegen. Read the original essay if you want to review those arguments. However, these thoughts about debt and limits to growth ring true.
It is now generally recognized, even by economists, that there is far too much debt worldwide, both public and private.
Actually, it is very hard to find economists who don't believe that more debt is the key to growth. Australian Steve Keen comes to mind. Most of them are just like Krugman—the answer to huge levels of debt is economic growth achieved through more debt.
The reason so much debt was incurred is that we have had absurdly unrealistic expectations about the efficacy of capital to produce the real growth needed to redeem the debt that is “capital” by another name.
In other words the debt that piled up in failed attempts to make wealth grow as fast as debt is evidence of the reality of limits to growth.
But instead of being seen as such, it is taken as the main reason to attempt still more growth by issuing more debt, and by shifting bad debts from the balance sheet of private banks to that of the public treasury, in effect monetizing them.
Perfectly stated!
Ultimately Herman Daly wants to argue that we need to create a "steady-state" economy instead of clinging to this endless growth nightmare we've got now. I think that's a hopeless dream, albeit a good one. In my view the urge to growth and increasing our "comfort" runs very deep in Human Nature. That's precisely the reason why so few people take the notion of an ecological economy seriously. The imperative to expand economies to increase our comfort gives rise to "an animus against dependence on nature, and a devotion to dominance [of nature]" (quoting Daly). Thus I think that a "steady-state" economy can not exist in the state of (human) nature.
One might argue that hunter-gatherers and pre-industrial small-town & village societies were living in harmony with the resources available to them. That's the usual counter-argument. However, these kinds of societies were resource-constrained. I would argue that if they had not been, the urge to growth would have appeared inevitably and automatically, just as it did about 250 years ago when two amazing things happened: science & technology gave humans 1) the ability to manipulate & dominate the natural world; and 2) extract energy from it in the form of fossil fuels, first coal and then much later, crude oil and natural gas.
Temporarily, for over 200 years, resource constraints disappeared from the discussion.
It was a predictable consequence of this seemingly unlimited growth that it would be rationalized as the natural order of things because that's the outcome humans desired (and still do). Standard economic theories exist and dominate human thinking because that's what people want to believe. (Short-term thinking also enters into this, but it does not account for our slavish devotion to the notion of unlimited growth.) Hence people do not want to believe Herman Daly or Thomas Malthus or anybody else positing limits to growth, despite the abundant evidence all around them indicating that we have hit such limits.
But I do not want to belabor these points. After about 250 years of increasing exploitation of the natural world, resource constraints have once again come into play. We've come full circle! The dream is nearly over. The next 100 years will make this conclusion entirely clear to those who survive this on-going natural holocaust.
Daly's arguments are sound, and that's our take-home lesson for today. Not that anyone will be listening.
Thank you.
Posted by: Fran Joseph | 05/13/2012 at 10:37 AM