October 23, 2017

Rediscovering economics

A talk given at the London School of Economics, 30 January 2002. Chairman: Professor Herbert Girardet


Rather like Herbie I have been very much influenced by traditional societies which are not very fashionable these days. In my opinion it is an act of some arrogance to decree that 99 percent of human experience on this planet is irrelevant to the solution of our problems, you cannot really base your ideas on such a short and very atypical sample of human behaviour as that which has occurred since the industrial revolution. Many of the features of the sort of society which is truly sustainable are inspired by past societies and though we may not wish to copy them exactly, they may be the only true source of inspiration.

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Economists study prices, quantities of commodities exchanged, trade, interest rates, exchange rates, taxes and so forth thus its basic abstraction is the commodity. The economic goal is clear and that is the development of wealth, identified in turn with the growth of GNP. Behaviour that promotes this objective is judged to be ‘economic’ and is described as ‘rational’ whilst any behaviour that compromises it so as better to achieve other goals, social, moral, ecological and so forth is taken to be ‘irrational’.

Almost all economists tend to use the term ‘rational’ in this way and indeed almost all would agree that the task of the economist is to determine how best to ensure the rational distribution of commodities and resources within a society so as to maximise wealth and hence GNP.

It is the thesis of this talk that most of the things that we have to do to keep this planet ‘liveable in’ are not going to be proved to be ‘economic’ and this will be particularly evident when we discuss the urgent problem of climate change because all those changes required to enable us to deal with this critical issue are uneconomic and in terms of the economic jargon ‘irrational’.

For me the first problem with economics is that it is studied in a void, totally ignoring its close interrelationship with society and the natural world. You can say that about any number of subjects and one of the big problems with knowledge today is that it is so hideously fragmented. The late Nicholas Georgescu Rogan, an economist at Vanderbilt University, makes this point very clearly. Speaking of economics he said:

“In terms of this discipline, the economic process is depicted as a circular diagram, a pendulum movement, between production and consumption within a completely closed system. The fact that there is a continuous mutual influence between the economic process and our physical environment carries no weight with the standard economists and the same is true of Marxist economics. In Marx’s famous diagram of production the economic process is presented as a complete circular and self-sustaining affair. The whole thing takes place in a void as if the real world didn’t exist.”

The relationship between economic process and society would be clear if we saw economics in the context of our total experience on the planet, but the laws established by economists only apply to a tiny fragment of our experience. They don’t apply to tribal or even peasant societies where everything was catered for at the family or community level and needs were fulfilled freely as part of one’s obligations. Education, law and order, care of the elderly and infirm were all done within the community and you cannot imagine anything less ‘economic’ but it should be borne in mind that the entire vocabulary of modern economics is entirely irrelevant to the experience of human beings during 99 percent of their experience on this planet.

I once took a taxi in Wellington New Zealand and I asked the driver, a Samoan, if he owned his cab. He said “No” because in his society if he made any money he had to distribute it between his family and the community. How then could he ever afford to buy a taxi cab?  That story illustrates perfectly the difference between a traditional society and the modern world and a traditional economy and the modern world. Within this system you could operate without money, the system was stable, it didn’t change and there was no reason whatsoever to try to expand it.

We talk about sustainability but there is no way that a modern economy, no matter how many Tobin taxes we apply could be sustainable because it is geared to perpetual change. If the economy doesn’t grow at 3 percent per annum you get a massive slump and at 3 percent over a century GNP will have increased by at least 8 times. The planet cannot possibly support the impact of such economic activity and it is clear on those grounds alone that we have to reinvent or rediscover a system which is truly sustainable.

When we take an economy such as that in which the Samoan taxi driver belonged, where they do everything for free and we start modernising it so as to introduce economic growth, we are taking various functions and disembedding them from a context in which they have meaning. Thereafter we monetize or commodify them and allow them to be taken over by the state and the corporations. So where once the whole economy was based on social relationships, as economic growth proceeds, these social relationships are replaced by economic relationships and as each one of these functions is usurped by corporations the community just disintegrates, it loses its raison d’etre. Eventually you end up with an atomised mass society such as we have today in which no one has any obligations towards anyone else and each of us is only concerned with our immediate personal interests. Nothing is less sustainable.

The living world, like traditional society, ran itself. Functions required to maintain the integrity of the living world, the fertility of soil and the stability of climate were provided by the normal functioning of ecological systems. But these functions have now been commodified and taken over by corporations who discharge them by way of chemical fertilisers, pesticides and vast dams all of which damage and degrade the environment.

In more general terms we can regard economic growth as giving rise to a new organisation of matter which we can call the technosphere, a world of human artefacts, a surrogate world which is rapidly being made to supplant the ecosphere, the real world of living things on which we all ultimately depend. As this technosphere expands the latter contracts but unfortunately this systematic destruction of the real world is not counted as a cost in tems of economics. No value is attributed either to society or to the natural world by corporations whose aim is to maximise economic growth come what may.

In principle, social and environmental problems can be internalised and brought within the compass of the environmental system but this means seeing them in purely economic terms and assuming that they will be amenable to scientific and technical solutions. The US is the breadbasket of the world, yet much of its land is being eroded so fast that it is being turned into a semi wilderness by destructive industrial agriculture. Rather than return to sound ecological agriculture the very opposite is happening and seventy percent of farms in California are now so large that they belong not to farmers but to corporations who operate them through contractors. Sound farming has ceased to be economic because an adequate soil conservation programme would increase annualised private net farm income by a mere 1 percent.

This brings us to the big problem – climate change. If we do nothing about this much of the world will become uninhabitable. As climate change proceeds sea levels will rise and we will have storms, floods and droughts, many of them in areas which are vital to food production. Clearly fossil fuels must be phased out but we must also learn to use less energy. We must also become self sufficient in terms of food, careful of water and we must learn to diversify our crops whether or not this is ‘economic’. Small farms will play a vital role as they are incomparably more productive per acre than large farms. But all of these moves can be seen as ‘uneconomic’ and every one reduces GNP instead of increasing it whilst some would actually be illegal under WTO regulations.

To conclude, Harman Daly who has a chair in ecological economics at the University of Maryland wrote a book called ‘For the Common Good’, which is probably the best book ever written on this issue. He still believes that our problems can be internalised but when it is the very capacity of the Earth to support life that has to be internalised, it is time to restructure basic concepts and start with a different set of abstractions. This in effect means completely re-writing economics in the light of the unified theory of the ecosphere. Thank you very much.

Further discussion

The following three questions and answers are examples of the general thrust of the discussion that followed Mr Goldsmith’s lecture.

Why can’t there be an internalised self-sustaining economy for each country, with the international economy as the icing on the cake ?

There has always been trade but never before has everything else been subordinated to trade. Trade is the overriding goal and if something upsets trade it is illegal. At the WTO an environmental regulation is classified as a ‘technical barrier to trade’. Something to be got rid of because it increases the costs of industry. This is so destructive way in every that that it can’t last. But this is good news except that it will take time to recreate small communities, farms and companies.

Modern economic theory undermines the foundations of human society and the vitality of the living world by its heedless support for commodification, development and growth. Neither of the above can sustain the impact of development on the scale of that which is required to maintain a steady global increase of GNP, and it is time to rethink our values and our attitude to the production and distribution of wealth

How can the individual make a contribution ?

There are several ways. We can boycott products, we can become active shareholders, we can join organisations.

I’m entirely with you as to the unsustainability of the world economy but man may be the problem because of his rapacity and fecundity. [Peter Warren, World Development Action Trust]

Tribal people could solve their problems because their solutions were an integral part of their cultural patterns, they didn’t need any experts, they operated on a set of prescriptions and proscriptions. They dealt with population control via taboos. Ie: no sexual activity while the mother was feeding the babies, so children were spaced out. The same for their use of natural resources – a matter of cultural feedback.

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Professor Giradet: Thank you Teddy, you have given us a unique and unrepeatable evening. The question Teddy poses is this, how can we reconceptualise the world that we live in? Perhaps the most important message from this lecture and the questions that followed it is that the answers will come from ordinary people and not from the political or economic establishment.

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