Steady State Economy

(excerpted from the following reference; for a more complete explanation consult: Daly, Herman E., Beyond Growth, Boston: Beacon Press, 1996)

Economics over the past fifty years have overwhelmingly been dedicated to growth…which in practice has meant growth in Gross National Product (GNP)—the only magnitude in economics expected to grow forever

· The search for optimal scale disappears from macroeconomics because the macroeconomy is, erroneously, not seen as part of anything larger

· But the macroeconomy is itself a subsystem of a larger finite and non-growing ecosystem and so it must have an optimal scale—throughput must be within the regenerative and absorptive capacities of the ecosystem

The whole idea of sustainable development is that the economic subsystem must not grow beyond the scale at which it can be permanently sustained or supported by the containing ecosystem

• Development—qualitative improvement in the state of the arts
• Growth—quantitative increase in the physical scale of the matter/energy throughput that sustains economic activities of production and consumption of commodities
• Throughput begins with depletion and ends with pollution
• Entropy (“used-up-ness”) increases in an isolated system such as ours—entropy is time’s arrow in the physical world
• Refer to diagram p. 28, Beyond Growth
• Sand in upper chamber represents solar energy stock—it is low entropy because it is available to do work
• Any sand that sticks to the bottom chamber glass represents terrestrial energy stocks (resources)—it too is available to do work
• Solar source is stock abundant (meaning it will be there until the Sun burns out, which won’t happen for a long time…we think), but flow-limited (meaning it is available only a little at a time)
• Terrestrial source (that stored in the form of natural resources) is stock-limited (meaning there is only so much of it on earth) but flow-abundant (meaning we can use it as fast as we want…I guess)
• Peasant societies lived off the abundant solar flow; industrial societies depend on using the limited terrestrial stock as fast as possible…apparently

In a Steady State Economy (SSE) aggregate throughput is constant, although its allocation among competing uses is free to vary in response to the market

• Not static—continuous renewal by death and birth, depreciation and production, qualitative improvement in stocks of both people and artifacts
• Not to be thought of as “zero growth in GNP”—qualitative growth is expected…but GNP is not very useful as a measure, because it is indiscriminate

Biophysical Limits to Growth—all are interactive

• Finitude
• Entropy
• Ecological interdependence

Our economy is an open subsystem of our closed ecosystem, which supplies low-entropy raw materials, and receives high-entropy wastes

• Growth of the open subsystem is limited by:
• Fixed size of host ecosystem
• Dependence on ecosystem as source and sink
• Complexity of ecological connections that are more easily disrupted as subsystem grows relative to host

Standard growth economics ignores these limits because the concept of throughput is absent from its preanalytic vision—that of an isolated circular flow of exchange value (figure 2, p. 47)

• Won’t technology and resource substitution outrun depletion and pollution?
• No—only substituting one form of low entropy for another within a finite and diminishing set of low entropy sources
• Reproducible capital is not a near-perfect substitute for resources…it cannot be produced independent of resources
• Besides capital and resources are complementary in production, not substitutable
• You cannot make the same house by substituting more saws for less wood

Ethicosocial Limits to Growth—render growth undesirable in the following instances

• Financing growth imposes a cost on future generations
• In standard economics we balance the future against present costs and benefits by discounting the future—a way of saying that beyond a certain point the future is not worth anything to presently living people (> rate, sooner that point is reached)
• Basic needs of present should take precedence of basic needs of future, BUT basic needs of future should take precedence over extravagance of present
• Financing growth by taking over habitat for other species imposes a current and future cost
• Species extinction compromises services ecosystem provides—these services are, as you recall, tremendously valuable, maybe even inestimably valuable
• Desirability of aggregate growth limited by insatiability of human wants
• “men do not desire to be rich, but to be richer than other men” (J.S. Mill)
• aggregate growth limited by corrosive effects on moral standards, like glorification of self-interest and a “world machine” worldview
• anything goes because “nothing personal…it’s only business”

Toward an SSE

• Failures of the growth economy as forced first steps
• Money fetishism and paper economy
• Since money in the bank can grow forever, so can real wealth, and so can welfare
• Result of emphasizing exchange-value over use-value (according to Marx)
• C-C’ (Barter)
• One commodity directly traded for another—exchange values equal, each trader gains in use-value
• C-M-C’ (Simple Commodity Circulation)
• Begins and ends with a use-value
• Money merely a convenient means of exchange
• M-C-M’ (Capitalist Circulation)
• Begins and ends with money capital—commodity an intermediary step in bringing about expansion of exchange value
• Exchange can grow by itself via compound interest, BUT “you cannot permanently pit an absurd human convention (compound interest) against a law of nature (entropic decay)”
• M-M’ (Paper Economy)
• Concrete commodities disappear
• Such “rent seeking” activities seem to be absorbing more and more business talent
• Faulty National Accounting
• We count the costs of growth as more growth
• GNP does not reveal whether consumption is off income or capital, interest or principal
• We accumulate both positive capital (wealth) and negative capital (illth)—both require transactions and are, thus, added to the GNP
• But should wealth acquired through selling a corn crop be counted the same as illth acquired through paying for a cancer surgery?
• GNP is an index of throughput, not welfare—in a finite world with a fully employed carrying capacity—throughput is a cost, not a benefit

Environmental Economics of Optimal Scale

• The major problem of our time is…what is the proper scale of our macroeconomy relative to our ecosystem?
• Physical exchanges crossing boundary between total ecological system and economic subsystem are the subject matter of environmental macroeconomics
• Flows considered in terms of their scale relative to the ecosystem…no the price of one component relative to another
• Scale = population X per capita resource use—different from the question of allocation
• Arrangement of weight in a boat is question of allocation…the amount of weigh the boat should carry is a question of scale
• Market functions only inside the economic subsystem to solve allocation problem…only!
• Does NOT solve problems of optimal distribution (widely recognized and appreciated), NOR optimal scale (not widely recognized nor appreciated)
• Makes three values in conflict:
• Allocation (efficiency)
• Distribution (justice)
• Scale (sustainability)
• Scale has a maximum limit defined either by regenerative or absorptive capacity of ecosystem to act as:
• Source
• Sink
• Maximum scale is not likely to be optimum scale
• The scale impact must be limited to a level judged to be ecologically sustainable—an economic “Plimsoll Line” must be drawn
• Not determined by prices (this for the allocative solution)…but by social decisions reflecting ecological limits (just as distribution also not determined by prices but by social decision-making)

Cowboy, Spaceman, or Bull in China Shop?

• Avoiding the question of optimal scale—even from the economy as open subsystem of ecosystem context—can be achieved by seeing scale as so small as to make boundaries unviewable (cowboy), or so large as to be congruent with boundaries (spaceman)
• In each case the only question becomes allocation, scale is rendered moot
• The middle position—where we all live—calls the scale question
• The taking of matter and energy out of the ecosystem must disrupt the functioning of that system even if nothing is done to the matter and energy that was removed…it mere absence will affect the workings of the ecosystem
• We need to manage ourselves more than the planet…and our management should be “more akin to child-proofing a day-care center than to piloting spaceship earth”