A full world

Originally published on Los Thunderlads, 28 February 2009:

The 1-15 February issue of Counterpunch carries the third of three short articles in which Paul Craig Roberts surveys the academic discipline of economics. On the 15th, I noted the first two parts, in which he defended supply-side theory and attacked the theory of comparative advantage. This third part concludes with Roberts declaration that “If economics is to be of any use to humanity, it must cease being absurd.”

Roberts points out that the world mainstream economists describe is one empty of things humans have made. In this “empty world,” the only limits on production are the limits of human productive activity. ”Nature has no role in the game.” In the real world, by contrast, nature is full of things humans have made. The limited availability of natural resources, of “natural capital,” imposes sharp, sometimes terrifying limits on production. Roberts calls for economics to be reinvented to give a realistic description of this “full world.”

Roberts takes up the banner of mathematical economist Nicholas Georgescu-Roegen, who proposed that the discipline of economics essentially start over. Georgescu-Roegen attacked the “Solow-Stiglitz production function,” which, according to Roberts, “assumes that man-made capital is a substitute for nature’s capital. Therefore, as long as man-made capital can be reproduced, there are no limits to growth.” Roberts asserts that Georgescu-Roegen “destroyed the Solow-Stiglitz production function,” but mainstream economists cling to it “because it is a mathematical way of saying that ecological limits on economic growth do not exist.” Georgescu-Roegen proposed replacing the Solow-Stiglitz function and the body of economic theory that depends on it with a new understanding of production. “In contrast to the Solow-Stiglitz absurdity, Georgescu-Roegen made it clear that production is the transformation of resources into useful products and waste products. Labor and man-made capital are agents of transformation, while natural resources are what is transformed into useful products and waste products. Man-made capital and natural capital are complements, not substitutes.” Nicholas Georgescu-Roegen died in 1994; the most notable living exponent of his ideas is economist Herman Daly. Roberts particularly recommends Daly’s 2007 book Ecological Economics and Sustainable Development.