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The theory of a steady state economy (stationary
economy) is not only central to green thinking, something that Senator Bob
Brown admitted, it is in fact the green
fanatics’ ultimate goal. It would also be a totalitarian nightmare. I
think best to begin with description of a steady state economy followed by
the greens’ main criticisms of economic growth and ending with an
explanation of why their green utopia would be a vicious tyranny.
A steady state economy is supposed to be one which
is neither growing nor contracting, meaning that per capita income remains
constant. This is why the classical economists called it a stationary
economy, a far more appropriate description. For a progressing economy
— one that was accumulating capital — to settle into this condition
all technical progress must have come to a halt with no further improvements
being possible. However, Mill pointed out that though he believed the economy
was always on the verge of a stationary state the reason that it did not
reach it “is because the goal itself flies before us” (John
Stuart Mill, Principles of Political Economy, University of Toronto
Press, Routledge & Kegan
Paul, 1965, p. 752). Nonetheless, he gave the impression that its arrival
could not be far away.
Although classical economists thought that the
economy would eventually sink into a stationary state it was not situation
that they welcomed. Mill, however, was the exception and that is why greens
frequently refer to his observations on the subject. His eloquence on the
alleged benefits of a stationary economy crossed over into the romantic. Gray
captured captured Mill’s idealistic mood
beautifully when he wrote that it consisted of “a curious blend of
economics, philosophy and poetry…. a faint suggestion of the indolent
charm of the island of the lotus-eaters” (Alexander Gray The
Development of Economic Doctrine, Longmans, Green and Co., 1948, p.
284-5). In Mill’s utopia not only would society be fairer it would also
be more relaxed, one in which “trampling, crushing, elbowing, and
treading on each other’s heels” (ibid. 754) had disappeared.
It was generally assumed that in a stationary
economy population growth would have driven wages down to a subsistence
level. For Mill, however, “a stationary condition of capital and
population implies no stationary state of human improvement”. His
optimism on this point was based on the belief that so long as population
growth would “be under the deliberate guidance of judicious
foresight” (ibid. 757 and 765) there would be no need for the stand of
living to fall. How this “judicious foresight” would be exercised
he never said. Nevertheless, there is a hint of support for coercive measures
in his writings. (Ibid. 753). And like today’s advocates of a
stationary economy he believed that “a stricter restraint on
population” might become an “indispensable means” to
maintain incomes. (Ibid. 756). Mill comes across as a sanctimonious
Malthusian whose hostility towards population growth impelled the erudite and
ever-witty Gray to observe:
In writing on the population question, his voice
quivers with a righteous indignation which leads him to a violence of
language nowhere to be found in Malthus. Excessive procreation is for Mill on
the same level as drunkenness or any other physical excess, and those who are
guilty should be discountenanced and despised accordingly. (Ibid. 283).
While Mill believed that there was no way of
“avoiding the stationary state” it is green ideology to impose it
on us irrespective of whether it is avoidable or not. Herman E Daly, one of
the founders of the steady state economy movement, laid out the case again
economic growth in a 2009 article. (From a Failed Growth Economy to a
Steady-State Economy). As expected, it was nonsense. According to Daly
there are two ways in which growth now fails us. Firstly, it has become
“uneconomic in our full-world economy”. Pure rubbish. Economic growth
basically consists of capital accumulation. In a free market the rate of
interest not only brings the supply of capital into balance with the demand
for capital it also — as the Austrian school of economics puts it
— allocates it through time. (It doesn’t say much for the
competence of these people when Richard Dennis, a green economist with the
leftwing The Australia Institute makes the silly claim that “growth is
nothing more than a measure of how much stuff we buy and sell.”)
Therefore, so long as the the
rate of interest is determined by the social rate of time preference no
imbalance between investment and consumption can occur. This means that the
idea that growth can become uneconomic is pure bunk. If such a situation
actually did emerge it would mean that the process of capital accumulation
had come to an end. After all, why accumulate capital if it means
accumulating losses? In other words, the classical economists’
stationary state would have arrived.
Daly’s second assertion is that “negative
growth, resulting from the bursting of financial bubbles inflated beyond
physical limits”. This is just as ludicrous as the first one. (I really
think this bloke should write science fiction.) Evidently he thinking he has
made two devastating and irrefutable arguments against economic growth Daly
naturally concludes that our only solution is a “steady-state economy
as the only long run alternative”. (This is exactly how Marxists argue
for a socialist state.)
These booms and busts, as recognised
by the classical currency school*, are caused by credit expansion. The
Austrian school of economics greatly improved on the early monetary theory by
explaining how manipulating the interest rate raises the demand for credit.
This distorts the capital structure, inflates prices of capital goods and
creates a financial boom. At the heart of the theory is the recognition that
neither money nor the interest rate is neutral. It therefore follows that the
source of the problem is not economic growth or capitalism but fractional
reserve banking. This why the Austrians (myself among them) were able to
predict the course of the last boom followed by the crash.
One of the silliest objections to economic growth
that greens come up is that it is physically impossible for an economy to
keep on growing. A time must come when it collapses in on itself. I expect
this tommyrot from economic illiterates but not someone trained in economics.
Yet this is basically what Daly is arguing.
He states that GDP is a measure of growth. No it
isn’t. As the Austrian economists stress, growth is net capital
accumulation. This is very simple way of putting. Austrians explain that the
economy has a capital structure consisting of an incredibly complex array of
interdependent stages of production, with each stage made up of heterogeneous
capital goods that embody technology. Increased savings lengthens the
structure by adding more complex time consuming processes to it. This is how
economic growth raises the standard of living. So long as savings increase,
entrepreneurs are free to invest and innovate and technical progress
continues there is absolutely physical limit to growth. Hence the idea that
growth consists of sheer “physical expansion” is utter baloney.
Daly’s next line of attack is that growth is
“making us poorer, not richer” by degrading the environment is
just more baloney. Any with a basic knowledge of economic history would recognise that for the rubbish it. Regardless of green
lies to the contrary, the environment for people is getting better, not
worse. Although coal consumption in the US increased by 45 per cent from 1973
to 1988, sulphur dioxide emissions fell by 23 per
cent and nitrogen oxides by 14 per cent. During the same period nationwide
emissions of lead fell by over 90 per cent.
In addition, modern cars now produce 76 per cent
less nitrogen oxide and 96 per cent less carbon monoxide and hydrocarbon than
cars built in the early 1970s. No wonder pollution data from the EPA shows
that air quality in the US has been improving, not declining as claimed by
anti-growth greens and their media supporters. Fanatical greens are now
reduced using the existence harmless quantities of particles to try and panic
people.
Despite the horror story that Daly would have you
believe urban pollution did not start with rapid economic growth, though
growth is responsible for reducing it. Historical records show that coal
smoke was considered a problem in London even in the thirteenth century. In
1307, Edward I issued a Royal Proclamation restricting the use of coal in an
attempt to curb smoke — to no avail. By the seventeenth century London
was noted for the black pall created by coal burning. When the Anglo-Dutch
war temporarily cut off coal supplies from Newcastle the misery of the poor
was particularly noted by contemporaries. (Incidentally, Europe was in the
middle of the Little Ice Age at this time. Obviously, the English were not
burning enough coal).
The problem of coal smoke continued into the
twentieth century when it was finally solved by the benefits of growth, which
had already solved a multitude of other problems such as the tens of
thousands of metric tonnes of horse manure that had
to be taken from city streets each day (a horse produces about 20 kilos of
dung per day), not to mention the 300 grams of liquid a horse releases per
mile plus the thousands of dead horses that had to be disposed off each year.
It takes little to imagine (except for a ‘journalist’) the risk
to public health that the horse once posed.
The incredible improvements in the
standard of living since those times was made possible by economic
growth. He argues that growth causes congestion. What the devil does he think
Elizabethan London was like? Ancient Rome at its peak had a population of 1
million squeezed into an area of 16 square miles. Compare this with Houston,
a city covering 579 square miles with a population of 2.1 million. Cities
like Houston and Melbourne would have been impossible in the ancient world.
They owe their existence to economic growth and nothing else.
It’s not the defenders of economic growth who
are trying to bluff people — it’s the likes of Herman Daly.
According to Daly the following classical economists
were right about the stationary economy because because
none of the following conditions for sustained economic growth exist
1. The economy is not an open subsystem of a finite
and non-growing biophysical system.
2. Economic growth means physical dimension.
3. The laws of thermodynamics won’t allow it.
Let us get one thing clear about this list: it has
nothing to do with the classical economists’ views on a stationary
state. For them the stationary state arrives because technical progress has ceased, nothing else. It is, therefore, the ultimate and
natural destination of the progressive economy. Only someone totally ignorant
of the history of economic thought could confidently state otherwise.
As for the list itself, numbers 1 and 3 are
pseudo-scientific rubbish when applied to economic growth while number three
is particularly ridiculous. Basically, it is the phony baloney entropy
argument that economic growth will use up the planet’s energy. Put that
way we see it for the nonsense it really is. The concept of entropy has no
application whatsoever to economic growth. And I very much suspect that Daly
knows it. As for number 2, it implies that economic growth will exhaust the
planet’s resources. So why doesn’t Daly provide us with some
proof? If he were right then the long-term trend in industrial commodity
prices would be rising. Yet the chart below shows that for 200 years they
have have been falling. No
wonder he doesn’t provide any figures.
The greens’ simplistic approach assumes that
resources are fixed and that they diminish as we produce more. Yet the
production of commodities and the downward trend in their prices show that
far from shrinking, they are rapidly expanding. And the trend will continue
— despite fluctuations — into the foreseeable future because
economic growth means the use of fewer and fewer ‘natural
resources’ are used per unit of output, simultaneously expanding the
world’s natural reserves while creating new resources. In short, growth
is making fewer demands than ever before on our so-called finite planet.
What these people cannot grasp is that the
earth’s resources are not finite, measurable or subject to mathematical
laws. In fact, they are enormously responsive to changes in prices. How can
it be otherwise when it is technology that defines resources.
Put another way: resources are a function of technology. For example, there
was a time that finding oil on your land was cause for regret; oil was just a
sticky, smelly nuisance. But technology changed that and oil was transformed
into a highly valuable asset. In 1886, when the Burmah
Oil Company of Britain first started to commercially pump oil, it bought
thousands of barrels of oil from 24 families at Yenangyaung.
In English it means “the creek of stinking waters.” Farming
families in Pennsylvania experienced the same good fortune over 25 years
earlier, as did Arab sheiks at a much later date.
Aluminium is another example. For well into the nineteenth
century aluminium was a precious material, so
expensive that only the rich could afford aluminium
pots and pans. However, once it was discovered how to transform bauxite into aluminium its price collapsed and another resource was
added to the world’s inventory.
Copper is a good example of improved technology
expanding a resource. The lowest grade of copper that can be handled
economically has fallen from about 3 per cent in 1880 to about 0.4 per cent
today. To show how this effects reserves imagine
reserves of a resource were 100 years at a depletion rate of 5 per cent p.a.,
then a technological improvement that reduced the depletion rate to 1 per
cent p.a. would expand reserves to about 600 years. (This is real world
arithmetic, Mr Daly.) Let us see how this operates.
In 1945 estimates of world copper reserves were 100 million tonnes. During the next 25 years 93 million tonnes were mined — yet in 1975 reserves stood at
over 300 million tonnes. They are now about 900
million tonnes. This trend goes for every natural
resource with, I believe, the exception of tungsten, for which there are
substitutes.
The truth is that we have been adding to our
resources for centuries. But we should never forget that it is economic
conditions and technology that determine what is a
resource. Because of this resources change over time and this makes it
impossible to know what tomorrow’s resources will be. Greens refuse to
acknowledge that reserves are expanded, new resources created and old ones
abandoned. They deliberately ignore market feedbacks that give us improved
techniques, new technologies and substitutes. There is nothing dynamic or
original in green thinking. In fact, from a human perspective resources are
infinite as indicated by the following table.
Of course, greens can argue that most of these
resources are not accessible. Well, there was a time not too long ago when offshore
oil fields were not accessible. What makes for accessibility is technology, a
fact that does not fit in with greens’ static mode of thinking. In any
case, if you aim is to put an end to economic growth then no amount of facts
will change your mind.
As I said earlier, for the classical economists the
stationary economy was an inevitability brought on by the exhaustion of
ideas, not scarce resources. It was not be welcomed — with the
exception of J. S. Mill — because of its impact on wages. Green fanatics
are different kettle of fish. The stationary economy is to be imposed by hook
or by crook — and to hell with the masses. This is how Mr Daly describes his utopia:
An economy with constant stocks of people and artefacts, maintained at some desired, sufficient levels
by low rates of maintenance ‘throughput’, that is, by the lowest
feasible flows of matter and energy from the first stage of production to the
last stage of consumption. (Daly, Herman. 1991. Steady-State Economics,
2nd edition. Island Press, Washington, DC. p.17.)
What Daly means — and has stated — is
that the consumption of all goods are to be held to a minimum by the State
which would also have complete control over all resources. He also admitted
that as a matter of policy prices would have to be kept high to reduce
consumption, ie., to enforce a low standard of living. How low is
something they never tell us. In this paradise the
population would be kept stable with the birth rate kept equal to the death
rate. Per capita consumption of energy and materials would also be kept
steady.
Strangely enough, Mr Daly
does not tell us who the noble souls will be who will manfully take it upon
themselves to impose these policies on the rest of us. Nor does he deign to
tell us how that level of consumption will be calculated, what range of goods
will be allowed and who gets what and why. Furthermore, he and his fellow
environmentalists coyly avoid explaining how they intend to enforce their
population policy of keeping the birth rate equal to the death rate.
Daly would argue that no force would be necessary
because the process of having children would be licensed, with the number of
licenses issued being consistent with a stationary, or, better yet, declining
population”. Any form of licensing is useless unless enforced by the
threat of sanctions. So perhaps Mr Daly and his
green disciples will care to tell us what those sanctions will be. Perhaps
China’s barbaric one-child policy gives us a clue. Whichever way one
looks at it, Daly’s green utopia can only be government by the iron
fist.
A modern economy must be progressing or regressing.
It can’t stand still. Entrepreneurship, changes in technology, savings,
taxation and the burden of government, etc., will ensure that it moves in one
direction or the other. What Daly is proposing would result in a
poverty-ridden stagnant economy. It should be obvious that for such a dismal
economic situation to be sustainable for any length of time the government
would have to control savings and investment, entrepreneurship would have to
be suppressed as would inventiveness and production would obviously be
directed by the state. In short, we are back to central planning. But with
the intention of suppressing growth, not encouraging it.
One doesn’t have to parse Daly’s proposals
to see that his sustainable paradise, production would have to be massively
cut, living standards slashed and masses of capital abandoned; and, as
already mentioned, consumption would then be held to a minimum with the state
having complete control over all resources. Furthermore, the citizenry would
also have to be strictly controlled. By what other means you could determine
a populations consumption level and how many
children couples would be allowed to have?
Obviously political parties would have to be banned.
How else does anyone think a government could slash the living standards of
millions of people and still hold on to power? Only through terror is the
obvious answer. It doesn’t take a genius to see that only terror could
sustain this Daly’s green utopia. Let us not forget that Pol Pot was the last utopian to try this type of social
engineering.
Therefore, what is really being proposed is a green
totalitarian state. Perhaps Mr Daly will tell us
how these utopians would gain power, as no electorate would be stupid enough
to vote for their policies once they understood where they would lead. The
cruel irony of Daly’s “Brave New World” is that it would
actually increase per capita pollution, worsen land degradation and create
resource shortages unless its population was reduced to a few millions living
a miserable disease racked medieval-like standard of life. But even that
dismal picture invites the question of how the world’s population would
be reduced.
Daly’s views are representative of the green
movement. Jeremy Rifkin, another green fanatic, was equally open about the
consequences of green economic policies for the standard of living, admitting
that “production will center on goods required to maintain life.”
However, like Daly he did not say who would decide what these goods would be.
Ernest Callenbach’s
book Ecotopia was brutally honest about
greens aims to savagely lower living standards. In his green paradise the
standard of living will have been massively cut and energy prices kept deliberately
high. (This is why the smarter greens love solar and wind.) In case anyone
should think that Callenbach’s views are out
of keeping with what passes for mainstream thinking in green intellectual
circles, Ralph Nader, the white knight of the green movement, gave it his
stamp of approval.
As I said at the beginning of this article, greens
frequently refer to Mill’s stationary economy to justify their concept
of a “steady state”. But even here they cannot be honest. They
have made it abundantly clear that their aim is deindustrialisation.
The following quote makes it very clear that Mill did not support a policy
that would reverse industrialisation or the state
of agriculture:
But a people who have once adopted the large system
of production, either in “manufactures” or in agriculture, are
not likely to recede from it; “and” when population is kept in
due proportion to the means of support, it is not desirable that they should.
(Ibid. p. 768.)
Senator Bob Brown is another green fanatic whose
views are basically the same as Daly’s. He accused our resource
industries of “resource robbery” and fatuously stated that pulp
mills, zinc mills, aluminium smelters, mining,
logging etc., are all “dinosaur industries”. Even so, he is
completely unable to explain why these dinosaurs are not extinct if their
activities have no economic value. Moreover, according to this deep economic
thinker
”[c]onventional
economics that calls for infinite consumption of a finite resource is
absurd….You do not need a crash course in economics to see that, you
need to send our politicians on a short course in logics.”
“conventional
economics” makes no such call. Only an economic illiterate could assert
that economics makes any kind of statement. No science does. Sound economics
explains the nature of economic growth. It says nothing about whether it is
good or bad.
Economic growth is not driven by some
“insatiable greed-at-all-costs mentality,” as our self-righteous
‘environmentalists’ would have you believe. (Notice how greens
sanctimoniously label the rest of us as “greedy” and
“insatiable,” etc.) Growth is only driven by the natural desire
of human beings to improve their welfare, to satisfy their legitimate
aspirations to a better life. But like all fanatical greens Daly and Brown
have only contempt for the aspirations and rights of the masses.
Note: Dealing with the economic nonsense — including their so-called
“steady state economy” — that green activists peddle
requires much more than a single article, no matter how lengthy.
Gerard Jackson
Brookesnews.com
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