May 25, 2017

Rewriting economics

This is one of a series of six talks by Edward Goldsmith, broadcast on the World Business Report programme of the BBC World Service, 15-19 December 2003.

See Related Articles on the right for others in the series.

At Oxford I studied economics, but found what I was taught somewhat unconvincing. Economists identify their discipline with the study of its subject matter. As the highly respected economist Kenneth Boulding notes, it studies “prices, quantities of commodities exchanged, produced and consumed, interest rates, taxes and tariffs”. The assumption is that it is only by studying the interrelationships between these variables that one can determine how to achieve modern society’s economic goal: the growth and usually the maximization of GDP, and for economists, behaviour that contributes towards the achievement of this goal is alone judged to be “economic” and thereby “rational”.

The problem is that modern economics has been developed in total isolation from other disciplines. Thus the late Professor Georgescu-Roegen of Vanderbilt University shows how “the economic process is depicted as a circular diagram, a pendulum movement between production and consumption within a completely closed system”, which does not include the natural world. For this reason alone the latter is not attributed any value and can thereby be degraded with impunity.

But there is another reason why this must be so. For Professor Samuelson, author of the best-known university textbook on economics, anything to acquire value, must “become scarce”, while “the more there is of a commodity the less the relative desirability of its last little unit becomes, even though its total usefulness grows as we get more of the commodity”. So, it is obvious why a large amount of water has a low price, or why air is actually a free good despite its vast usefulness.

Thus, Worldwide some 12 million hectares of land are said to be lost to erosion every year. But, as we are told by economists Earl R. Swanson and Earl O. Heady that “an adequate soil conservation” plan that would meet “soil loss tolerance levels for 20 years into the future” would increase “annualised private net farm income by only one percent”, and this is too little for there are “more profitable investments that can be made in the farm business”. So in purely economic terms soil conservation is not economic, and is hence largely ‘irrational’.

So the question we must ask is whether we have to wait until there is so little agricultural land left on our planet that the return on investments made in the appropriate soil conservation plan becomes competitive, before it can be adopted, and regardless of how many people starve in the meantime? Of course, economists will tell us that ecological costs can be ‘internalised’.

For Professor Herman Daly, the father of Ecological Economics, this can be a reasonable procedure “when the externalities involved are of a minor nature”, but once it is “the very capacity of the Earth to support life that must be internalised, it is time to restructure basic concepts and start with a different set of abstractions that can embrace what was previously external.” This, of course, means little less than rewriting economics.


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