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The Surprising Conclusion to an Important New Book

by Herman Daly

Book Review: The Failure of Laissez Faire Capitalism and the Economic Dissolution of the West (Towards a New Economics for a Full World), by Paul Craig Roberts

About the author: Dr. Roberts was educated at Georgia Tech, University of Virginia, UC Berkeley, and Oxford University. He was Assistant Secretary of the US Treasury in the Reagan Administration, associate editor and columnist for the Wall Street Journal, Senior Research Fellow at the Hoover Institution, Stanford University, and holder of the William E. Simon Chair in Political Economy at Georgetown University. His honors include the US Treasury’s Meritorious Service Award, and France’s Legion of Honor.

As evident fromFailureCapitalism this description, Paul Craig Roberts writes from a very solid establishment background in academic political economy, financial journalism, and high public office. His radical critique of today’s economics and public policy will no doubt be surprising to some, but it is based on impressive knowledge and experience, as well as irresistibly convincing honesty. He did not inherit his present understanding of political economy, but developed it through study and experience, with openness to the persuasive power of facts, and willingness to question economic dogmas of both the right and the left.

The book is of special interest to ecological economists, not only for the explicit and insightful support his reasoning gives us, but also for the larger financial and political context in which he places steady-state economics. Although written mainly from a US perspective, the book includes a very clear and informative explanation of the European crisis.

Perhaps the best way to whet the prospective reader’s appetite is to reproduce the brief conclusions with which the book ends, and to testify that the rest of the book solidly supports these conclusions by clear reasoning from relevant facts.

“This book demonstrates that empty-world economic theory has failed on its own terms and that its application by policymakers has resulted in the failure of capitalism itself. Pursuing absolute advantage in cheap labor abroad, First World corporations have wrecked the prospects for First World labor, especially in the US, while concentrating income and wealth in a few hands. Financial deregulation has resulted in lost private pensions and homelessness. The cost to the US Treasury of gratuitous wars and bank bailouts threatens the social safety net, Social Security and Medicare. Western democracy and civil liberties are endangered by authoritarian responses to protests against the austerity that is being imposed on citizens in order to fund the wars and financial bailouts. Third World countries have had their economic development blocked by Western economic theories that do not reflect reality.

All of this is bad enough. But when we leave the empty-world economics and enter the economics of a full world, where nature’s capital (natural resources) and ability to absorb wastes are being exhausted, we find ourselves in a worse situation. Even if countries are able to produce empty-world economic growth, economists cannot tell if the value of the increase in GDP is greater than its cost, because the cost of nature’s capital is not included in the computation. What does it mean to say that the world GDP has increased four percent when the cost of nature’s resources are not in the calculation?

Economist Herman Daly put it well when he wrote that the elites who make the decisions “have figured out how to keep the benefits for themselves while ‘sharing’ the cost with the poor, the future, and other species (Ecological Economics, vol. 72, p. 8).

Empty-world economics with its emphasis on spurring economic growth by the accumulation of man-made capital has run its course. Full-world economics is steady-state economics, and it is past time for economists to get to work on a new economics for a full world.”

The Fallacy of the Tragedy of the Commons

by Marq de Villiers

I grew up in a small South African town 16,000 kilometers and more than a hundred years away from America’s Wild West, but nevertheless watched many a cheap Saturday morning movie set in the mesquite and chaparral of that mythically violent but oddly honorable land. They mostly had similar themes — honest, hard-working homesteading family set upon by a variety of villains, whether cattle barons, railroad tycoons, “eastern” mining companies and more, each capitalist with armies of thugs for hire, ready to drive our hero off his land. One of the most common revolved around the hapless prospector (usually shown with pickax and mule to show his essential poverty) who finds a rich seam of gold, somewhere up in them thar hills, but never gets to stake his claim, either because he is killed by thugs on the way to the claims office, or because said thugs have raced ahead and filed ahead of him. All generally worked out by the end of the final reel; the prospector (or if dead, his deserving family) vindicated, and villainous mining corporation driven off, often with the help of a virtuous senator or otherwise honest politician. An oddly anti-capitalist saga, for the America of the post-Depression and I Like Ike years.

Unasked, in all this, was a simple question: who owns the gold in the first place? The answer would have been, of course, whoever finds it first.

Those days in the Bijou came back to me after an anecdote told me by Maurice Strong, who had recently chaired the Rio conference on the environment that had come to be called the Earth Summit. Maurice, and a company he controlled, had come into possession of one of Colorado’s historic cattle ranches, the 1823 grant to Luis Maria Cabeza de Baca and still known as the Baca Grande Ranch, in Comanche country near Crestone, looking out on the Sangre de Cristo mountains. Among its other assets, the ranch happened to sit on top of one of the west’s great untapped aquifers. Maurice’s company got into dispute with others about this water. First of all, his opponents suspected he wanted to “mine” the water and ship it north to Canada, a nice reversal of the conventional power politics between the two countries. Then, when it became clear that he really didn’t want to do anything with it, claims were filed by other parties demanding access. The legal rationale was simple: in much of the west, water rights operated under the “use it or lose it” principle. If you didn’t use the water, others had to right to appropriate it and use it themselves. There really couldn’t be a clearer anti-conservationist ethic.

Who owned the gold that the prospectors found in all those Westerns? Who owned the water under Maurice Strong’s Baca Grande ranch? The answer is, no one, everyone, anyone.

The question can be extended indefinitely. Who owns, say, the natural gas deposits that have lain, untapped, under the ocean near Sable Island, a hundred kilometers from my house? Who owns the Gorgon gas field under Barrow Island off Australia’s west coast? Who owns the methane hydrate deposits off the shore of New Jersey? Who owns the limestone deposits under California’s central coast (deposits that yield up some of the world’s sublime wines)? Who owns the great boreal forests of Alaska, Siberia, and Canada? Who owns the rocks of the earth? Who, indeed, owns the air? The birds of the air? The water? The oceans? Fish stocks? Who owns the whales?

Who owns nature?

And then another set of questions, about another kind of commonwealth: who owns culture? Who owns languages, science, the accumulated genius of technology? Who owns history? Who owns, in short, the human library? Who owns it, and who has the right to sell it?

In an empty world, these questions, or at least the ones about nature, didn’t much matter. Nature seemed inexhaustible. Still, natural philosophers, as scientists were once called, have wrestled with the issue for millennia, as have political authorities. In Roman times, the Senate put together a series of laws that classified several aspects of what came to be called “the commons” as explicitly owned by the people collectively. These res communes, common things, included water and the air, but also “bodies of water,” that is lakes, and shorelines generally. Wild animals, as opposed to domesticated ones, were included. After the Roman empire collapsed, overrun by what the Romans were pleased to call barbarians, some aspects of the res communes came into dispute — feudal lords, and then kings, claimed to control them.

The implications of a commons is that since no one owns it, anyone can use it, exploit it, and pollute it at no charge.

So where, in a well-ordered world, do private property rights stop? How best to treat the commons so it survives for the benefit of all? How best to allocate the profits that flow from what exploitation is allowed? Private property is the engine of prosperity. Common property is the backdrop before which private actors perform. Both are necessary. So an answer is critical. We have three economic sectors: the private sector, the public (or state) sector and the commons sector. Only the last has no body of law to protect it, and no accounting systems for its profits or losses.

So the question becomes: if the various natural systems of the earth, especially the air, the water, the land and its minerals, and the complex life systems they sustain, are indeed “the commons,” how do we guard against the “tragedy of the commons?” If no one owns the resource and anyone can use it, how do we protect it from depletion?

The tragedy of the commons as a phrase owes its origins to Garrett Hardin’s essay in Science magazine in 1968, though the notion of a social trap involving a conflict between individual interests and the common good goes back, at least, to Aristotle.

Here is Hardin’s description of the tragedy :

Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy. As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, “What is the utility to me of adding one more animal to my herd?” This utility has one negative and one positive component. The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is [obvious]. The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction [of the burden] … The rational herdsman concludes [from this] that the only sensible course for him to pursue is to add another animal to his herd. And another, and another … But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit, in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

Hardin’s argument was widely accepted by economists and free-market enthusiasts. The solution to the dilemma, it seemed obvious, was privatization, the enclosure of the commons.

But it is not obvious. Hardin’s theory was the purest poppycock, and widely adopted only because it seemed to convey the essence of free market competition. It was a truly corporatist view.

The main error was to adopt a key proposition of the free market, and of Adam Smith’s, that man is a rational being who always acts in his own best interests, and then to assume that those interests automatically involved multiplication of personal assets. But what Hardin was describing was not rational behavior — it was the purest selfishness. And there is, after all, a crucial difference. A rational being, faced with a dilemma of the commons, would be able to calculate long-term prospects and conclude, quite rationally, that some sort of short-term limit, arrived at through negotiation, would be in his own interests. In other words, in the context of a limited commons, cooperation is a more rational decision than independence. Hardin derived his views from biology — he wasn’t an economist — and preferred a hard-line version of Darwinism called, not surprisingly, survival of the fittest. But “fit” was interpreted narrowly and stripped of its social context. Hardin simply assumed that when men came together without rules, violence or conflict ensued. He had no knowledge of the equally Darwinist view that natural selection could just as easily select for mutual cooperation as for continual family warfare, a view that has been gaining credence among biological evolutionists in the past few decades. He took no account, therefore, of the human ability to develop rules for accessing and using common resources.

Cooperation, when you look for it, is not hard to find. Fishermen in several places have banded together to set sustainable catch quotas. The same thing is true, as Jonathan Rowe pointed out in an essay for WorldWatch, in the rice paddies of the Philippines, in the Swiss Alpine pasturelands, the Maine lobster fishery, the Pacific haddock fishery, and many other places. The case could even be made that as long as settled communities remain intact, the commons flourishes. The community merely needs to be enabled to protect it.

Marq de Villiers is an award-winning writer of books and articles on exploration, history, politics, and travel.  He is also a graduate of the London School of Economics, and his latest book puts his training in economics to good use.  Our Way Out: Principles for a Post-Apocalyptic World offers a refreshing menu of economic options for an overly consumptive population living on an environmentally stressed planet.

Remembering History

Comment to Tim Murray and Tom Butler

by Lisi Krall

It is worthwhile to recall history as we ponder Tim Murray’s proposition that we direct our “energy into stopping economic growth” rather than saving “the environment piecemeal” through conservation efforts.  It’s enlightening to go back to Thomas Jefferson just to gain some perspective on what happened when the market economy was fertilized with the industrial revolution.  Thomas Jefferson, writing in preindustrial America, thought one of the attributes of our nation that would enable us to “become happy and prosperous people” was the fact that we possessed “a chosen country, with room enough for our descendants to the hundredth and thousandth generation.”  Do the math, because it gives you some perspective on Jefferson’s world.  Apparently Jefferson thought we had a big enough unsettled country for agricultural expansion to take place for 20,000 years.   Clearly, Jefferson didn’t anticipate what was coming.  The pace and reach of economic expansion were beyond anything he could have imagined as he looked westward from Monticello at the turn of the 19th century.  Yet little more than a century after Jefferson wrote these words the country had become an industrial giant and most of the land had been given over to private ownership.

It was this pace of economic expansion coupled with a mostly wild country that gave rise to the conservation movement in the United States.  It quickly became abundantly clear that in the wake of our great economic experiment, nothing would be sacred and there was much to lose. In the United States, the conservation movement literally grew out of the rapacious speed and reach of 19th and 20th century capitalism and in this sense was very organic.  The preservation arm of the conservation movement became manifest in a wilderness ethos.  The wilderness ethos spoke to something foreboding about our so- called economic progress, the fact that we clearly had the capacity to put an end to the magic and pulse of a mostly untrammeled country in no short order.  The conservation movement, especially the preservation branch of that movement, helped us to think more critically about the meaning of progress and the place of humans on the earth.  Preservation was a cultural response to the most egregious impulses of capitalism.   It was a cultural meditation and institutional grappling with what a healthy human ecology should look like and when it was necessary to stop so-called economic progress for the sake of something more important.  It led John Collier to comment:

The profit-motive finds no use in Wilderness; and Wilderness can perish utterly in its remote silences, without bringing the profit-seeking temple down in ruin on men’s heads. Wilderness therefore, as a symbol of all in the human aspiration and caring which holds itself out from the profit-pursuing imperative, can safely be crushed down.  One after another of the absolutism of profit-pursuit has been somewhat tamed, somewhat restrained, during the century behind us.  There remains Wilderness, as a fact and an aspiration: Wilderness, which by its very definition says to the money-profit motive: You shall not enter here.

We might ask ourselves whether we would have the same impulse to stop economic growth were it not for all the preservation and conservation that has heretofore taken place.

I don’t think there’s any question that the form the preservation movement has taken has been historically conditioned.  Preservation has functioned on the basis of setting aside wild places and otherwise leaving the economic engine of capitalism in place. No one would disagree with the fact that we’ve reached a different historical moment where those involved in preservation and conservation need to be more vocal about ending an economic arrangement based on growth.  In fact, the limits to this historically specific preservation strategy have been understood for quite some time.  In the mid 20th century Aldo Leopold makes a “plea for the preservation of some tag-ends of wilderness, as museum pieces, for the edification of those who may one day wish to see, feel, or study the origins of their cultural inheritance.”  Clearly he understood the limitations of this approach.  Yet it is one thing to acknowledge this and another to claim, as Murray does, that if our energy “to save the environment piecemeal had been put into lobbying for a steady state economy, development pressure everywhere would have ceased, and habitat would be safe everywhere.”  Tom Butler is right, “there is no way to prove or disprove this opinion,” but I would offer that history tells us that preservation has made a remarkable difference, not only in the integrity of that which has been preserved, but also in extending a cultural ‘habit of thought’ and cultivating a wilderness ethos.

Tim Murray is correct in his sense that if we can’t stop the growth machine we are going to lose the war.  But as Tom Butler points out, what we preserve can at least provide “the seedbed of recovery for wildness to begin the long dance of evolutionary flowering again after this dark episode of human-caused extinction.”  And ending our efforts to preserve and conserve would be, as Butler also tells us, “an ethical breach with our fellow members of the biotic community.”   We stand a much better chance of winning the war by our preservation and conservation efforts, by retaining something of the pulse of the wild places on earth.  In the shadow of these places we continue to cultivate an awareness of limits and can at least measure the extent of our loss.  In a world where the when-to- stop rule is vague, these are not insignificant contributions to changing our path.

I would also add that we seem to have made little headway in our economic discourse on the issue of ending growth.  I doubt very seriously this has had anything to do with the time and energy spent on conservation and preservation. In fact, it’s likely that the efforts at preservation and conservation have had a more profound influence on our thinking about the limits to economic expansion than anything else has.  Rather than target our frustration about the lack of movement on the no-growth front at the conservation movement, we might do better to analyze why so little progress has distilled from our no-growth rhetoric.

I have no doubt the historical moment has arrived where the preservation movement needs to speak out more explicitly about the problem of economic growth in an effort to save what is wild.  But it is equally important that those who speak out against economic growth bring the loss of the wild and the need for a healthy human ecology to a central and pivotal focus in their discussions of scale.  No-growth discussions about optimal scale don’t elaborate on how much of what is wild should remain wild, instead, these discussions deal in the vague world of costs and benefits and promoting development without growth. These discussions evaluate whether we’ve gone beyond an optimal scale when “the cost to all of us of displacing the Earth’s ecosystems begin to exceed the value of the extra wealth produced” or when the benefits of growth are overshadowed by the costs. Without greater clarity on the true meaning of development and optimal scale we no-growth advocates might succeed in orchestrating a perfectly domesticated steady-state world, where we are all half crazy for want of a diverse and magical external world to resonate with our genome and our psyche.

Lisi Krall is a professor of economics at the State University of New York at Cortland, a member of CASSE’s executive board, and the author of Proving Up: Domesticating Land in U.S. History.