Beyond Growth

1. See Wilfred Beckerman, Small Is Stupid: Blowing the Whistle on the Greens (London: Duckworth, 1995). See also my review in Population and Development Review, September 1995.

2. See Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (Cambridge: Harvard University Press, 1971), chapters 2 and 3.

3. Herman Daly, Steady-State Economics (second edition, Washington, D.C.: Island Press, 1991; first edition, W. H. Freeman Co., 1977).

4. Environmentally Sustainable Economic Development: Building on Brundtland, ed. Robert Goodland, Herman Daly, Salah El Serafy, and Bernd von Droste (UNESCO, 1991), reissued as Population, Technology, and Lifestyles: The Transition to Sustainability (Washington, D.C.: Island Press, 1992).

5. I sent MIT Press, at their solicitation, a collection of essays on sustainable development, an earlier incarnation of this book. They sent it out for review, and on the basis of three positive reviews, wrote a contract to publish, subject to my doing further editing work. This I did, and sent in the revised manuscript. Some months later I was informed that a distinguished economist on their editorial advisory committee was not happy with the book and wanted more reviews. Did the distinguished economist have specific criticisms? No, I was told, he had not read the manuscript, but just wanted more reviews as a matter of procedure. Not to worry, MIT Press was still committed to publishing the book. So they sent the manuscript out for two more reviews. One was positive, the other was extremely negative. That made a total of five reviewers, all of MIT Press’s own choosing, of which four said publish, and one said do not publish. The negative review “trumped” the four positive reviews, and the press broke its contract. The basic thrust of the negative review, leaving aside ad hominem irrelevancies, was “That is not the right way to look at it.” All of this was the more surprising because I had recently published a collection with MIT Press that was well received (Valuing the Earth: Economics, Ecology, Ethics, ed. H. Daly and K. Townsend [Cambridge, Mass.: MIT Press, 1993]).

The professional staff of the MIT Press was embarrassed by the unexpected and high-handed actions of the distinguished economist on their editorial advisory board. Neither that economist nor the anonymous negative reviewer, whose identities were not hard to deduce, have ever reviewed or criticized in print any of my previous books, which from their perspective are as bad as this one. I do not object to their disagreeing with me—I am sure that they are sincere in their heartfelt opposition. I just think their criticisms should be public in the form of signed, published reviews from which I and others might conceivably benefit. What upset these important economists sufficiently to cause them to engage in such shabby behavior? I tell this story to show that academia is every bit as doctrinaire as the World Bank.

6. K. Arrow et al., “Economic Growth, Carrying Capacity, and the Environment,” Science, 28 April 1995.

7. See Clifford W. Cobb and John B. Cobb, Jr., The Green National Product: A Proposed Index of Sustainable Economic Welfare (Lanham, Md.: University Press of America, 1994). See also Herman E. Daly and John B. Cobb, Jr., For the Common Good (Boston: Beacon Press, 1989).

8. See Herman E. Daly, “Alternative Strategies for Integrating Economics and Ecology,” in Integration of Economy and Ecology: An Outlook for the Eighties, ed. AnnMari Jansson (Stockholm: University of Stockholm Press, 1984), 19–29.

9. Al Gore, Earth in the Balance: Ecology and the Human Spirit (New York: Houghton Mifflin, 1992).

10. President’s Council on Sustainable Development, Washington, D.C., Status Update, April 1995, 11.

11. John F. Haught, The Promise of Nature: Ecology and Cosmic Purpose (Mahwah, N.J.: Paulist Press, 1993), 9, 7. See also, Charles Birch, On Purpose (Kensington, Australia: New South Wales Press, 1980).

12. Stephen J. Gould, “Unenchanted Evening,” Natural History, September 1991, 14. For an insightful discussion see David Orr, Earth in Mind (Washington D.C.: Island Press, 1994), chapter 20.

14. Alfred North Whitehead, The Function of Reason (Princeton, N.J.: Princeton University Press, 1929), 16.

1. Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (Cambridge, Mass.: Harvard University Press, 1971). For a defense of the view that entropy is highly relevant to economics, against arguments to the contrary by some economists, see my articles “Thermodynamic and Economic Concepts as Related to Resource-Use Policies: A Comment,” Land Economics 62, no. 3 (August 1986): 319–21; “Is the Entropy Law Relevant to Natural Resource Scarcity?—Reply,” Journal of Environmental Economics and Management 23 (July 1992): 91–95. See also G. A. Lozada, “Georgescu-Roegen’s Defense of Classical Thermodynamics Revisited,” Ecological Economics 14, no. 1 (July 1995): 31–44. Another theoretical issue not treated in these articles, yet relevant to sustainability, is temporal discounting. The topic is touched on occasionally throughout this book, especially in Part 7, but not dealt with thematically. A good exposition and guide to the large literature on this topic is Colin Price, Time, Discounting, and Value (Oxford: Blackwell, 1993).

1. Frederick Soddy’s ideas on finance and banking are further discussed in Part 6.

1. See the following: R. Dornbusch and S. Fischer, Macroeconomics, 4th ed. (New York: McGraw-Hill, 1987); R. E. Hall and J. B. Taylor, Macroeconomics, 2nd ed. (New York: W. W. Norton, 1988); R. J. Barro, Macroeconomics, 2nd ed. (New York: Wiley and Sons, 1987).

2. What has macroeconomics contributed to environmental economics so far? As we have seen, the textbooks make no claim to any contribution whatsoever, but that is too modest. National income accounting is a part of macroeconomics, and there has been an effort to correct our income accounts for consumption of natural capital. Current national accounting conventions also treat environmental cleanup costs as final consumption rather than intermediate costs of production of the commodity whose production gave rise to those costs (Hueting 1980; Leipert 1986; Repetto 1987; Ahmad et al. 1989). Traditional national income accountants have not exactly been in the forefront of the effort to correct these two errors, and may even be said to be dragging their feet. However, the conservatively motivated and impeccably orthodox attempt to gain a closer approximation of true Hicksian income (maximum available for consumption without consuming capital stock) will surely make this effort an important foundation of environmental macroeconomics.

Inter-industry or input-output analysis is also a useful tool of environmental analysis, although it is hard to classify it as either micro or macro. But because of its close relation to national accounts, let us call it macro and credit it as an existing part of environmental macroeconomics. Certainly it has been important in elucidating total (direct and indirect) requirements of materials and especially energy that must be extracted from the environment in order to increase any component of the economy’s final bill of goods by some given amount. The concept of carrying capacity is also emerging as a tool of environmental macroeconomics (see Chapter 8, on the Ecuadoran Amazon and Paraguayan Chaco).

3. Any analogy has its limit, and the Plimsoll line is used here mainly to clarify the difference between optimal allocation and optimal scale. But the analogy might be pressed just a bit more regarding the obvious difficulty of determining just where to draw the analogous line for the economy. Drawing the line on a ship’s bow seems comparatively easy, and indeed it is. But carping academic relativists can point out that there would be different Plimsoll lines for fresh and salt water, that the line is not just a physical measurement but involves some social judgment of acceptable risk, that the technical design of the ship will influence the position of the line, etc. Yet in spite of all these difficulties we do manage to draw a reasonable line somewhere, to the immense benefit of generations of seafarers. Likewise for the economy, it is more important that a limit be placed somewhere than that the limit be at exactly the right place.

4. For economists this can be illustrated in terms of the familiar microeconomic tool of the Edgeworth box. Moving to the contract curve is an improvement in efficiency of allocation. Moving along the contract curve is a change in distribution which may be deemed just or unjust on ethical grounds. The scale is represented by the dimensions of the box, which are taken as given. Consequently, the issue of optimal scale of the box itself escapes the limits of the analytical tool. A microeconomic tool cannot be expected to answer a macroeconomic question. But, so far, macroeconomics has not answered the question either—indeed has not even asked it. The tacit answer to the implicit question seems to be that a bigger Edgeworth box is always better than a smaller one!

6. See Herman E. Daly and John B. Cobb, Jr., For the Common Good (Boston, Mass.: Beacon Press, 1989; 2d ed., 1994).

7. See Richard Norgaard and Richard Howarth, “Sustainability and Discounting the Future,” in Ecological Economics: The Science and Management of Sustainability, ed. R. Costanza (New York: Columbia University Press, 1991).

8. The definition of human appropriation underlying the figures quoted includes direct use by human beings (food, fuel, fiber, timber), plus the reduction from the potential due to ecosystem degradation caused by humans. The latter reflects deforestation, desertification, paving over, and human conversion to less productive systems (such as agriculture).

1. N. Georgescu-Roegen (1979) deserves to be quoted at length on this point because so few people have understood it. He writes the “Solow-Stiglitz variant” of the Cobb-Douglas function as:

Where Q is output, K is the stock of capital, R is the flow of natural resources used in production, L is the labor supply, and a¹ + a² + a³ = 1 and of course, aⁱ >o.

From this formula it follows that with a constant labor power, Lo, one could obtain any Qo, if the flow of natural resources satisfies the condition

This shows that R may be as small as we wish, provided K is sufficiently large. Ergo, we can obtain a constant annual product indefinitely even from a very small stock of resources R>o, if we decompose R into an infinite series R = Ri, with Ri ? 0, use Ri in year i, and increase the stock of capital each year as required by (2). But this ergo is not valid in actuality. In actuality, the increase of capital implies an additional depletion of resources. And if K → ∞, then R will rapidly be exhausted by the production of capital. Solow and Stiglitz could not have come out with their conjuring trick had they borne in mind, first, that any material process consists in the transformation of some materials into others (the flow elements) by some agents (the fund elements), and second, that natural resources are the very sap of the economic process. They are not just like any other production factor. A change in capital or labor can only diminish the amount of waste in the production of a commodity: no agent can create the material on which it works. Nor can capital create the stuff out of which it is made. In some cases it may also be that the same service can be provided by a design that requires less matter or energy. But even in this direction there exists a limit, unless we believe that the ultimate fate of the economic process is an earthly Garden of Eden.

The question that confronts us today is whether we are going to discover new sources of energy that can be safely used. No elasticities of some Cobb-Douglas function can help us to answer it.

3. Differential rent would equalize the price of both oil sources if demand were sufficient for them to be used simultaneously. But they are used sequentially, and the differential rent is never charged against the earlier subsidy. The demand from future generations is not felt until after they are born. The energy rate of return on investment in petroleum has been declining, so that the real subsidy to the economy has been declining, even while the contribution of higher priced petroleum to the GNP has been rising, See J. Gever et al., Beyond Oil (Cambridge, Mass.: Ballinger, 1986); and C. Cleveland et al., “Energy and the U.S. Economy: A Biophysical Perspective,” Science 225 (1984): 890–97.

4. Marginal benefits fall because, as rational beings, we use resources to satisfy our most pressing wants first. Marginal costs rise because, in like manner, we use the best and most accessible resources first.

6. This is the definition of a sustainable scale. Sustainability does not imply optimality—we may prefer another sustainable scale, one with more or less natural capital, but still sustainable. I think it would be reasonable to consider sustainability as a necessary but not sufficient condition of optimality. But in current economic theory sustainability is not implied by optimality—maximizing present value at positive discount rates implies writing off the future beyond some point and liquidating it for the benefit of the present and near future.

7. Reasoning in terms of broad aggregates has its limitations. Converting natural into man-made capital embraces both the extravagant conversion of tropical hardwoods into toothpicks and the frugal conversion of pine trees into shelters for the homeless. The point is not that all conversions of natural into man-made capital simultaneously cease being worthwhile, but rather that ever fewer remain worthwhile as growth continues.

1. For a discussion employing traditional economic theory in the service of sustainable development at the World Bank, see J. Kellenberg and H. Daly, “Counting User Cost in Evaluating Projects that Deplete Natural Capital: World Bank Best Practice and Beyond,” World Bank working paper (ENV Working Paper no. 66, April 1994).

2. There are two institutions that use the term “ecological economics” in their name; they have overlapping interests and associates, but also many differences that cause some confusion about the meaning of the term “ecological economics.” The International Society for Ecological Economics (ISEE) was founded earlier and truly is the pioneer. It has held three international biennial conferences, and published the proceedings of the first two, with the third due out soon. It has a membership base of around 1,500 world-wide, and is a participatory, broad-based organization, with all the problems that entails. Its growth was due both to the importance of the ideas addressed and issues that it raised, and to the exceptional energy and leadership of its president, Robert Costanza. Its stance toward mainstream economics has been more critical than that of the other institution, the Beijer Institute for Ecological Economics. The latter is a part of the Swedish Royal Academy of Science, and is run by Karl-Goran Maler and Partha Dasgupta, with a board of directors that, although diverse and well-qualified, is nevertheless dominated by an establishment point of view. It is an elite, top-down institution with no participatory base. Its leadership’s orientation is difficult to distinguish from environmental economics of the most neoclassical kind. However, it does foster a relatively open research agenda, focusing to date on biodiversity, common property, and complex systems. It also serves other useful functions, such as engineering the consensus statement by economists and ecologists discussed in the introduction to this book.

Chapter 4 Operationalizing Sustainable Development by Investing in Natural Capital

1. Maintaining capital intact when technology is constant is the same as maintaining physical capital intact. When technology increases the productivity of capital, then it is not so clear what “keeping capital intact” means. The maximum amount that the community can sustainably consume has increased. To count that increase as income, we must continue to maintain the same physical capital intact. This would be the prudent course. We could, however, opt to maintain the old smaller income and take the benefits of the technological improvement in the form of a one-time increase in consumption (of capital), while maintaining only the capital needed to produce the former income stream. Capital includes both natural and man-made. We should avoid the error, common in the past and even now, of consuming the benefits of increased productivity of man-made capital by running down natural capital. As will be argued here, the two forms of capital are complementary. Furthermore, the main reason for the historical increase in the productivity of man-made capital has been that it has had increasing amounts of natural resources to work with, resulting in a decline in the productivity of natural resources (and natural capital). The historical increase in man-made capital productivity has been partly at the expense of reduced natural capital productivity resulting from its extravagant use—as if it were free. Therefore, the historical increase in man-made capital productivity cannot be taken as evidence for an increase in natural capital productivity, or as a reason for optimistic expectations in that regard.

2. Regarding the house example I am frequently told that insulation (capital) is a substitute for resources (energy for space heating). If the house is considered the final product, then capital (agent of production, efficient cause) cannot end up as a part (material cause) of the house, whether as wood, brick, or insulating material. The insulating material is a resource like wood or brick, not capital. If the final product is not taken as the house but the service of the house in providing warmth, then the entire house, not only insulating material, is capital. In this case, more or better capital (a well-insulated house) does reduce wasted energy. Increasing the efficiency with which a resource is used is certainly a good substitute for more of the resource. But these kinds of waste-reducing efficiency measures (recycling prompt scrap, sweeping up sawdust and using it for fuel or particle board, or reducing heat loss from a house) are all rather marginal, limited substitutions.

3. The usual definition of complementarity requires that for a given constant output, a rise in the price of one factor would reduce the quantity of both factors. In the two-factor case, both factors means all factors, and it is impossible to keep output constant while reducing the input of all factors. But complementarity might be defined back into existence in the two-factor case by avoiding the constant output condition. For example, two factors could be considered complements if an increase in one factor will not increase output, but an increase in the other factor will—and perfect complements if an increase in neither factor alone will increase output, but an increase in both will. It is not sufficient to treat complementarity as if it were nothing more than “limited substitutability.” The latter means that we could get along well enough with only one factor and less well with only the other, but that we do not need both. Complementarity means we need both, and that the one in shortest supply is limiting.

4. At the margin a right glove can substitute for a left glove by turning it inside out. Socks can substitute for shoes by wearing an extra pair to compensate for thinning soles. But in spite of this marginal substitution, shoes and socks, or right and left gloves are overwhelmingly complements. The same is basically true for man-made and natural capital. Picture their isoquants as L-shaped, having a 90⁰ angle. Erase the angle and draw a tiny 90^o arc connecting the two legs of the L. This seems close to reality.

5. The figures are mainly suggestive, but do have an empirical basis in the estimate that humans currently preempt 40% of the net primary product of photosynthesis for land-based ecosystems. In other words, 40% of the solar energy potentially capturable by plants and available to other living things passes through the human economy, or is in some way subject to human purposes. This seems a reasonable index of how full the world is of humans and their possessions.

7. From the familiar biological yield curve below it is clear that a sustainable harvest of H will be yielded either at a stock of P1 or P2.

In general, P1 is the natural capital mode of exploitation of a wild population. P2 is the cultivated capital mode of exploitation of a bred population. At P1 we have a large population taking up a lot of ecological space, but providing, in addition to a yield of H, other natural services, as well as maintaining a larger amount of biodiversity. Costs are basically harvest cost of the wild population. At P2, we have a much smaller stock giving the same yield of H, requiring much less ecological space, but requiring greater maintenance, breeding, feeding, and confinement costs if viewed as cultivated natural capital. The appeal of cultivated natural capital is to get H from a low P2, making ecological room for other exploited (or wild) populations. But management costs are high. The appeal of P1 and the mode of natural capital proper is that management service is free, and the biodiversity of larger stocks is greater.

1. See J. Kellenberg and H. Daly, “Counting User Costs in Evaluating Projects that Deplete Natural Capital: World Bank Best Practice and Beyond,” World Bank working paper (ENV Working Paper no. 66, April 1994.) User cost is calculated as the estimated additional cost per unit of the substitute resource (backstop) discounted back to the present from the estimated future date exhaustion of the resource in question.

2. The term “throughput” is an inelegant but highly useful derivative of the terms input and output. The matter/energy that goes into a system and eventually comes out is what goes through—the “throughput” as engineers have dubbed it. A biologist’s synonym might be “the metabolic flow” by which an organism maintains itself. This physical flow connects the economy to the environment at both ends, and is of course subject to the physical laws of conservation and entropy.

4. Both goods and factors of production can be either complements or substitutes. For consumer goods, shoes and socks are complements (used together); shoes and boots are substitutes (one used instead of the other). In building a house, bricks and wood are substitutes; bricks and masons are complements. If factors are good substitutes the absence of one does not limit the usefulness of the other. For complements, the absence of one greatly reduces the usefulness of the other. The complementary factor in short supply is then the limiting factor.

5. Keep in mind that no one questions that some resources can be substituted for others, e.g., bricks for wood. But to substitute capital stock (saws and hammers) for wood is only very marginally possible if at all. Capital is the agent of transformation of the natural resource flow from raw material into finished product. Resources are the material cause of the finished product; capital is the efficient cause. One material cause may substitute for another (bricks for wood); one efficient cause may substitute for another (e.g., power saws for hand saws, or capital for labor); but efficient cause and material cause are related as complements rather than substitutes. If man-made capital is complementary with the natural resource flow, then it is also complementary with the natural capital stock that yields that flow.

6. Forgone consumption is the essence of investment. Consumption is reduced by reducing either per capita consumption or population. Therefore investment in natural capital regeneration includes investment in population control, and in technical and social structures that demand less resource use per capita.

7. See Herman E. Daly, “The Perils of Free Trade,” Scientific American, November 1993.

8. J. M. Keynes (1933), “National Self-Sufficiency,” in The Collected Writings of John Maynard Keynes, vol. 21, ed. Donald Moggeridge (London: Macmillan and Cambridge University Press).

1. Herman E. Daly and John B. Cobb, Jr., For the Common Good (Boston, Mass.: Beacon Press, 1989; second edition, 1994).

2. Clifford W. Cobb and John B. Cobb, Jr., have continued this work. See their book The Green National Product (Lanham, Md.: The University Press of America and The Human Economy Center, 1994). Cobb and Cobb sent the original (1989) ISEW to numerous experts likely to be critical of it (e.g., Carol Carson, Robert Eisner, and E. J. Mishan). These eminent critics were offered a small honorarium and publication of their criticisms, with the understanding that Cobb and Cobb would then redo the ISEW in the light of those criticisms, or else explain why not. That is basically the plan of the book, and I recommend it both for its substance and as an example of generosity and fairness in dealing with one’s critics. Many good criticisms were made, the index was revised, but the basic pattern described above remained. For an application of the ISEW to England, with similar findings, see Tim Jackson and Nick Marks, Measuring Sustainable Economic Welfare—A Pilot Index: 1950–1990 (Stockholm: Stockholm Environmental Institute, 1994), published in cooperation with the New Economics Foundation, London, England. For a survey of the relations of ISEW to GNP in the U.S., the U.K., Germany, Austria, and the Netherlands, with preliminary evidence for a threshold beyond which increasing GNP no longer leads to increasing ISEW, see Manfred Max-Neef, “Economic Growth and the Quality of Life: A Threshold Hypothesis,” Ecological Economics 15/2 (November 1995): 115–18.

1. For a recent critique of GNP see Roefie Hueting (1980). Hueting does not adopt Fisher’s concepts, but offers many insightful comments on the shortcomings of GNP.

2. In the language of benefit-cost analysis, S becomes benefit and T becomes cost. Hence, S/T is the same thing as the benefit-cost ratio. The objective function is then to maximize the benefit-cost ratio, a familiar enough mechanical welfare function, but not, of course, expressed in the same units we are using here.

3. It is ironic that when Keynes introduced the concept of user cost applied to man-made capital, he appealed to the analagous case of “raw materials (where) the necessity for allowing for user cost is obvious” (Keynes 1936, p. 73). Nowadays, in trying to introduce user cost on raw materials into national accounts, we appeal to the analagous case of man-made capital where allowing for user cost is obvious! I am indebted to Mr. Salah El Serafy for this observation.

1. Herman E. Daly, “The Population Question in Northeast Brazil: Its Economic and Ideological Dimensions,” Economic Development and Cultural Change (University of Chicago), July 1970; and “A Marxian-Malthusian View of Poverty and Development,” Population Studies (London School of Economics), March 1971.

I am grateful to the Fulbright Commission for a lectureship that allowed me to spend three months in Northeast Brazil in 1983. Also, for discussions and suggestions I am indebted to my colleagues at the Universidade Federal do Ceará, the Fundação Joaquim Nabuco, and the Instituto Brasileiro de Geografia e Estatística. Responsibility for all points of view and any errors, of course, rests with me.

1. “The Population Question in Northeast Brazil: Its Economic and Ideological Dimensions,” Economic Development and Cultural Change, July 1970; “A Marxian-Malthusian View of Poverty and Development,” Population Studies, May 1971.

2. Perfil Estatistico de Crinacas e Mães no Brasil: Caracteristicas Socio-demográficas, 1970–1977 (Rio de Janeiro, IBGE), 99. This study will henceforth be cited as “Perfil.”

4. See comment by Yony Sampaio, with my reply, in Economic Development and Cultural Change, January 1976.

5. PNAD is an acronym for Pesquisas Nacionais por Amostra de Domicilio (National research based on household sample).

7. Total fertility is the number of live births per woman if she survived to menopause and were subject to the age-specific fertility rates currently prevailing in the population in question.

8. For 1970 the child mortality below two years of age was 192.3 per thousand, and in 1977 154.7 per thousand (Perfil, 55).

9. Thomas W. Merrick and Elsa Berquo, The Determinants of Brazil’s Recent Rapid Decline in Fertility (Washington, D.C.: National Academy Press, 1983), 24.

10. Charles H. Wood and José Alberto Carvalho, “Population Growth and the Distribution of Household Income: The Case of Brazil,” The Sociological Quarterly 23 (Winter 1982): 53.

11. J. Mayone Stycos, “Social Class and Differential Fertility in Peru,” Proceedings of the International Population Conference, New York, 1961, vol. 2 (London, 1963), 123–38.

12. Jorge H. Zambrano Lupi, “Fertility and Educational Status in Mexico City” (in Spanish), Demografía y Economía 13 (4), no. 40 (1979): 442.

13. Kanti Pakrasi and Ajit Haider, “Fertility in Contemporary Calcutta: A Biosocial Profile,” Genus 37 (3–4), (July-Dec. 1981): 201–19.

17. João Lyra Madeira, “Migrações Internas no Planejamento Economico,” in Migrações Internas no Brasil, ed. Manoel A. Costa (Rio de Janeiro: Instituto de Planejamento Economico e Social, 1970, 42.

19. See Karl Marx, Capital, chapter 33, “The modern theory of colonization,” pp. 379–83 in Great Books edition (University of Chicago, 1952).

21. For an interesting study of changing sexual attitudes in different social classes, see Rose Marie Muraro, Sexualidade de Mulher Brasileira (Editora Vozes, Petropolis, R. J., Brazil, 1983).

22. Nathaniel H. Leff, Underdevelopment and Development in Brazil, 2 vols. (London: George Allen and Unwin, 1982). See especially chapter 4, volume 1.

23. O Problema Demográfico Brasileiro (Associação dos Diplomandos da Escola Superior da Guerra, Grupo 05, Belo Horizonte, MG, 1982). (My translations.)

1. Herman Daly and Robert Goodland, “An Ecological-Economic Analysis of Deregulation of International Commerce under GATT,” Ecological Economics 9, no. 1 (February 1994).

1. Definition of free trade: the deregulation of exchanges and transfers by individuals and corporations across national boundaries. The contrary of free trade is not autarky; it is regulated trade—i.e., the regulation by the national community of the exchanges that its members make with those outside the community. The purpose of such regulation is to protect the common interests of the national community.

2. Some economists argue that all costs are internalized and that what may look like uncounted costs simply reflect values for which willingness to pay is low. Country X has no pollution controls simply because they are not willing to pay the price for cleaner air or water. Their willingness to pay may be low because of their low desire for the value in question or because of their low income. Differences in willingness to pay, for whatever reason, are held to be legitimate reasons for competitive advantage, whereas differences in degree of cost internalization are not. Two points need to be made in response. First, there really are large differences in degree of cost internalization, independent of differences in willingness to pay. Second, even if the issue is restricted to willingness to pay, it is quite possible for one country’s willingness to pay to be so far out of line with that of another country as to constitute a good reason for restricting trade. If Country X has a very low willingness to pay to avoid sixteen-hour-per-day child labor, that fact creates in Country Y no obligation to subject its own citizens to similar conditions, or even to accept the effect that such a low willingness to pay would, through free trade, exert on its own employment structure and community life. That world resources would be more efficiently allocated by free trade, when evaluated on the basis of prices reflecting willingness to pay in Country X, is not the relevant criterion for Country Y.

3. See Tim Lang and Colin Hines, The New Protectionism: Protecting the Future against Free Trade (London: Earthscan, 1993).

4. In this context I cannot resist reciting my favorite quote from John Maynard Keynes: “I sympathize therefore, with those who would minimize, rather than those who would maximize, economic entanglement between nations. Ideas, knowledge, art, hospitality, travel—these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible; and, above all, let finance be primarily national” (J. M. Keynes [1933], “National Self-Sufficiency,” in The Collected Writings of John Maynard Keynes, vol. 21, ed. Donald Moggeridge [London: Macmillan and Cambridge University Press]).

5. “Is Growth Obsolete?” in Economic Growth, National Bureau of Economic Research, general series, no. 96E (New York: Columbia University Press, 1972).

6. Neither the MEW nor the ISEW considered the effect of individual country GNP growth on the global environment, and consequently on welfare at geographic levels other than the nation. Nor was there any deduction for harmful products, such as tobacco or alcohol. Nor was any adjustment made for the diminishing marginal utility of aggregate income. Such considerations would further weaken the correlation between GNP and welfare. Also, the fact that personal consumption is the major component of both the GNP and the ISEW (as well as the MEW) introduces a strong autocorrelation bias, thus making the observed lack of correlation more dramatic.

7. Comparative advantage has been called the “deepest and most beautiful result in all of economics.” See Ronald Findlay, “Comparative Advantage,” in John Eatwell et al., editors (The New Pal-grave: A Dictionary of Economics), The World of Economics (New York: W. W. Norton, 1991), 99.

8. Absolute advantage is the rule for maximizing returns to capital when capital is mobile. Comparative advantage is the rule for maximizing returns to capital subject to the constraint that capital stays at home. This remains true in spite of an improvement in the definition of cost from Ricardo’s labor cost to the modern concept of opportunity cost. The difficulty about assumed capital immobility remains. Opportunity cost is the correct concept—but the opportunity set, out of which the opportunity cost (next best alternative) is defined, is the whole world when capital is mobile, and the nation when capital is immobile. When the opportunity set for capital is the whole world, then absolute advantage governs; when it is the nation, then comparative advantage governs.

9. In their July 1993 draft “Trade and Environment: Does Environmental Diversity Detract from the Case for Free Trade?” Jagdish Bhagwati and T. N. Srinivasan reaffirm the view that free trade remains the optimal policy in spite of environmental issues. But their conclusion is based on what they call “a fairly general model . . . but one where resources, such as capital, do not move across countries” (p. 11). Of course, if capital is immobile between nations comparative advantage arguments still hold. The point is that in today’s world capital is highly mobile. Nor do the authors advocate restricting capital mobility to make the world conform to the assumptions of their argument—much the contrary! Their willingness to draw concrete policy conclusions from such an injudiciously abstracted model is a classic example of what A. N. Whitehead called “the fallacy of misplaced concreteness.” At least they honestly stated their assumption, albeit without flagging its critical importance to their argument.

10. David Ricardo, Principles of Political Economy and Taxation, Sraffa edition (Cambridge, England: 1951), 136–37.

11. Adam Smith (1776), The Wealth of Nations (New York: Random House, 1971), 423.

12. Sir James Goldsmith, in The Trap (New York: Carroll and Graff, 1993), has made cogent arguments in opposition to free trade in the modern sense of free movement of goods, capital, and people. Sir James seems to argue for keeping labor and goods at home, while letting capital flow internationally. This would, I think, be a great improvement over the present system, but I believe I would still prefer Ricardo’s original solution of keeping capital at home and letting goods flow internationally. This is because control of production usually inheres in capital, and it is in the interest of community to keep that control as local as feasible.

13. W. J. Baumol, Environmental Protection, International Spillovers, and Trade (Stockholm: Almqvist and Wicksell, 1971). Economists tend to dismiss such wage effects as merely “pecuniary externalities” which deserve less attention than “technological externalities.” The latter refer to costs or benefits shifted to third parties in a manner external to the price system; the former refers to third party effects that operate through the price system. Since lowering the price of labor by free migration is a cost to the preexisting labor force, and a benefit to employers and foreign laborers, which is mediated by the wage rate, it is classed as a pecuniary externality and not given much consideration in economic theory—i.e., it is “merely a matter of distribution.”

14. The category “nonsupervisory employees” accounts for 80% of the labor force in the United States. Between 1973 and 1990 their real wages fell by 17%. Labor productivity did not fall over this period—in fact it continued to rise, although at a diminished rate. But the price of manufactured goods fell as a result of the United States moving to a more open economy. After 1972, the trade/GNP ratio moved above its usual historical level of about 13%, reaching 25% in the 1980s. In spite of these facts, we are continually told that free trade benefits everyone by reducing the prices that consumers pay. True enough, except that it has caused the wages of 80% of the workforce to fall faster than prices, so that their real wages have fallen by 17%. No doubt the remaining 20% of the population has done very well indeed. A mere question of distribution, economists tell us. But there is no prospect of a significant redistribution, and even if there were, it is hard to believe that the gains to the upper 20% would be sufficient to compensate the losses of the lower 80%. See Ravi Batra, The Myth of Free Trade (New York: Scribners, 1993).

15. In the United States the free traders won the fight over NAFTA. U.S. citizens were assured that the nation would gain more jobs than it lost because we exported more to Mexico than we imported from them. Yet it is exactly that Mexican payments deficit in current account that caused a drain of reserves and a flight of both the foreign and domestic capital that was financing the Mexican deficit, resulting in a 40% devaluation of the peso relative to the dollar. Now U.S. citizens are being told that they have to serve as guarantors for some 20 billion dollars worth of Mexican debt. Never mind that the 20 billion comes from a fund that is supposed to be used to stabilize the dollar, not the peso. Never mind that the guarantee is to protect the bad investments of many on Wall Street who so enthusiastically promoted NAFTA and were earning very high returns. And never mind that the devaluation has resulted in a trade surplus for Mexico and a reversal of the net job gain argument used to sell NAFTA in the first place. The threat of more illegal immigration from Mexico, previously used to help pass NAFTA, is once again pressed into service (by the global integrationists!) to argue for the loan guarantee.

16. Humanitarian advocates for the poor illegals often argue that they only take menial jobs that Americans would not take, and therefore cause no harm. I wish it were that simple. But the reason no American will take such jobs is that competition from illegals has lowered wages and working conditions below the acceptable minimum standards. Many Americans used to work their way through college at menial jobs because those jobs paid enough. Now that is not the case and students have to go into debt instead. Alternatively it is argued that the U.S. unemployed are just not qualified for the new jobs generated by our economy, and therefore qualified immigrants are needed. But if those qualified immigrants were not available we would invest more in raising the quality of skills among our own unemployed.

1. Juan Martinez-Alier, with Klaus Schlüpmann, Ecological Economics: Energy, Environment, and Society (Oxford, England: Basil Blackwell, 1987).

2. For more on money, and Soddy, see the afterword in Herman E. Daly and John B. Cobb, Jr., For the Common Good, 2nd ed. (Boston: Beacon Press, 1994).

Reprinted from History of Political Economy 12, 4 (1980), Duke University Press.

1. In fairness to Millikan it should be noted that in concluding his vigorous defense of science he did temper his optimism with the following caution: “I am not in general disturbed by expanding knowledge or increasing power, but I begin to be disturbed when this comes coincidentally with a decrease in the sense of moral values. If these two occur together, whether they bear any relationship or not, there is real cause for alarm” (Millikan 1930, p. 129).

2. This point has been forcefully made by the biologist Garrett Hardin. See Garrett Hardin and Carl Bajema, Biology: Its Principles and Implications, 3d ed. (San Francisco: 1978), 257.

3. When a bank lends to A it forgoes the opportunity of making the same loan to B, so in that sense there is an opportunity cost in allocating the virtual wealth among borrowers, but there is no opportunity cost to the bank in acquiring the virtual wealth in the first place.

4. In fact, Boulding told me he was very much aware of Soddy the scientist, having slept through his chemistry lectures at Oxford, but knew nothing of his economic writings. As for sleeping through chemistry lectures, even the writer of one obituary tribute remarked that it would be idle to pretend that Soddy was a successful classroom teacher.

1. Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (Cambridge, Mass.: Harvard University Press, 1971).

2. Nicholas Georgescu-Roegen, Analytical Economics (Cambridge, Mass.: Harvard University Press, 1966).

3. As noted by Mark Blaug in Great Economists Since Keynes (Totawa, N.J.: Barnes and Noble, 1985), 71: “It is only fair to add that Georgescu-Roegen’s later books have not been well received, or rather, have been respectfully received and quickly put away. For various complex reasons, not to mention the difficult style in which they are written and the intimidating references they contain to theoretical developments in physics and biology, these works have received virtually no critical discussion from economists.”

4. Evolution, Time, and Welfare in Economics, ed. A. M. Tang et al. (Lexington, Ky.: D. C. Heath Co., 1976).

5. Harold Barnett and Chandler Morse, Scarcity and Growth (Baltimore, Md.: Johns Hopkins University Press for Resources for the Future, 1963).

6. Herrmann Heinrich Gossen, The Laws of Human Relations and the Rules of Human Action Derived Therefrom, translated by Rudolph C. Blitz, with an introductory essay by Nicholas Georgescu-Roegen (Cambridge, Mass.: MIT Press, 1983).

1. See the cogent discussion by Phillip E. Johnson, Reason in the Balance: The Case against Naturalism in Science, Law, and Education (Downers Grove, Ill.: InterVarsity Press, 1995).

2. See George M. Marsden, The Soul of the American University: From Protestant Establishment to Established Nonbelief (New York: Oxford University Press, 1994).

3. Steady-State Economics (San Francisco: W. H. Freeman Co., 1977; Washington, D.C.: Island Press, 1991).

1. C. J. H. Wright, An Eye for an Eye: The Place of Old Testament Ethics Today (Downers Grove, Ill.: InterVarsity Press, 1983), 112.

3. Robert B. Coote and Mary P. Coote, Power, Politics, and the Making of the Bible: An Introduction (Minneapolis, Minn.: Fortress, 1990).

1. The term “maximize” should not be taken to imply any precise mathematical solution of an ethical problem. It is a convenient way to bring efficiency into a problem of serving more than one value. There are three values in play: sufficiency, sustainability, equity. Efficiency, treated in the text as a fourth value, is really a derivative value in that its goodness derives from its ability to permit a greater degree of attainment of any one of the three basic goals, given some set level of attainment of the other two.

2. The current discussion on “biodiversity” would, in my opinion, be more fruitful if it were framed in terms of the ever-increasing takeover of total life space by one species, rather than in terms of the number of different species that can remain viable in the ever-shrinking total habitat left over for them as the human niche expands. Continued human expansion means that other species will disappear or become domesticated like cattle (or zoo specimens) for their instrumental value.

Notes