TOWARDS A NEW ECONOMICS:
Questioning Growth

by Herman Daly

Any discussion of the relative merits of a stationary, no-growth economy, and its opposite, the economy in which wealth and population are growing, must recognize some important quantitative and qualitative differences between rich and poor countries and social classes. Consider the familiar ratio of gross national product (GNP) to total population (P). This ratio per capita annual product (GNP/P), is the measure usually employed to distinguish rich from poor countries. In spite of its many shortcomings, it does have the virtue of reflecting in one ratio the two fundamental life processes of production and reproduction. Two questions must be asked of both numerator and denominator for both rich and poor nations: namely, what is the quantitative rate of growth, and qualitatively, exactly what is it that is growing?

The rate of growth in the denominator P is much higher in poor countries. While mortality is tending to equality at low levels throughout the world, fertility in poor nations is roughly twice that of rich nations. No other social or economic index divides the world so clearly and consistently into "developed" and "undeveloped" as does fertility.

Qualitatively, the incremental population in poor countries consists largely of hungry illiterates, while in rich countries it consists largely of well-fed members of the middle class. The incremental person in poor countries contributes negligibly to production, but makes few demands on world resources. The incremental person in a rich country adds to his country’s GNP, but his high standard of living contributes greatly to depletion of the world’s resources and pollution of its spaces.

The numerator, GNP, is growing at roughly the same rate in rich and poor countries—around 4 or 5 percent annually, with the poor countries probably growing slightly faster. Nevertheless, because of their more rapid population growth, the per capita income of poor countries is growing more slowly than that of rich countries. Consequently the gap between rich and poor widens over time.

Incremental GNP in rich and poor nations has very different qualitative significance. At some point, probably already passed in the United States, an extra unit of GNP costs more than it is worth. Extra GNP in a poor country, assuming it does not go mainly to the richest class of that country, represents satisfaction of relatively basic wants (food, clothing, shelter, basic education, etc,) while extra GNP in a rich county, assuming it does not go mainly to the poorest class, represents satisfaction of relatively trivial wants (more electric toothbrushes, yet another brand of cigarettes, more force-feeding through advertising, etc.).

The upshot of these differences is that for the poor, growth in GNP is probably still a good thing, while for the rich it is probably a bad thing. Growth in population, however, is a bad thing for both; for the rich because it makes growth in GNP less avoidable, and for the poor because it makes growth in GNP, and especially per capita GNP, more difficult. The following discussion is concerned exclusively with a rich, affluent-effluent economy such as that of the United States, and will seek to define more clearly the concept of a stationary-state economy, see why it is necessary, consider its economic and social implications, and finally, comment on an emerging political economy of finite wants and non-growth.

THE ART OF GETTING ON

Over a century ago John Stuart Mill, the great synthesizer of classical economics, spoke of the stationary state in words that could hardly be more pertinent today: It must always have been seen, more or less distinctly, by political economists, that the increase in wealth is not boundless; that at the end of what they term the progressive state lies the stationary state, that all progress in wealth is but a postponement of this, and that each step in advance is an approach to it.

I cannot…regard the stationary state of capital and wealth with the unaffected aversion so generally manifested towards it by political economist of the old school. I am inclined to believe that it would be, on the whole, a very considerable improvement on our present condition. I confess I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on; that the trampling, crushing, elbowing, and treading on each other’s heels which forms the existing type of social life, are the most desirable lot of human kind.

….The northern and middle states of America are a specimen of this stage of civilization in very favorable circumstances…and all that these advantages seem to have yet done for them…is that the life of the whole of one sex is devoted to dollar-hunting, and the other to breeding dollars-hunters…

I know not why it should be a matter of congratulations that persons who are already richer than anyone needs to be, should have doubled their means of consuming things which give little or no pleasure except as representative of wealth…It is only in the backward countries of the world that increased production is still an important object; in those most advanced, what is economically needed is a better distribution, of which one indispensable means is a stricter restraint on population…the density of population necessary to enable mankind to obtain, in the greatest degree, all the advantages both of cooperation and of social intercourse, has in all the most populous countries, been attained…It is not good for a man to be kept perforce at all times in the presence of his species…Nor is there much satisfaction in contemplating the world with nothing left to the spontaneous activity of nature…If the earth must lose that great portion of its pleasantness which it owes to things that the unlimited increase of wealth and population would extirpate from it, for the mere purpose of enabling it to support a larger, but not a happier or better population, I sincerely hope, for the sake of posterity, that they will be content to be stationary, long before a necessity compels therm to it.

It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much and much more likelihood of it being improved, when minds cease to be engrossed by the art of getting on. Even the industrial arts might be as earnestly and as successfully cultivated, with this sole difference, that instead of serving no purpose but the increase of wealth, industrial improvements would produce their legitimate effect, that of abridging labor.

The direction in which political economy has evolved in the last hundred years is not along the path suggested in the quotation. In fact, most economists are hostile to the notion of stationary state and dismiss Mill’s discussion as "strongly colored by his ’social views "’(as if the neo-classical theories were not so colored! ); "nothing so much as a prolegomenon to Galbraith’s Affluent Society"; or "hopelessly dated." The truth of the matter, however, is that Mill is even more relevant today than in his own time.

DISCOVERING AN INVISIBLE FOOT

Stationary state signifies a constant stock of physical wealth (capital), and a constant stock of people (population). Naturally these stocks do not remain constant by themselves. People die and wealth is physically consumed (worn out, depreciated). Therefore the stocks must be maintained by a rate of inflow (birth, production) equal to the rate of outflow (death, consumption). But this equality may obtain, and stocks remain constant, with high rate of throughput (inflow equal to outflow) or with a low rate.

This definition of stationary state is not complete until the rates of throughput by which the constant stocks are maintained are specified. For a number of reasons the rate of throughput should be as low as possible. For an equilibrium stock the average age at "death" of its members is the reciprocal of the throughput. The faster the water flows through the tank, the less time an average drop spends in the tank. For the population, a low rate of throughput (low birth and death rates) means a high life expectancy and is desirable for that reason alone—at least within limits. For the stock of wealth, a low rate of throughput (low production and low consumption) means greater life expectancy or durability of goods and less time sacrificed to production. This means more "leisure" or non job time to be divided into consumption time, personal and household maintenance time, culture time, and idleness. This too seems socially desirable.

But to these reasons for the desirability of a low rate of maintenance throughput, must be added some reasons for the impracticability of high rate. Since matter and energy cannot be created, production inputs must be taken from the environment, leading to depletion. Since matter and energy cannot be destroyed, an equal amount of matter and energy in the form of waste must be returned to environment, leading to pollution. Hence lower rates of throughput lead to less depletion and pollution, higher rates to more. The limits regarding what rates of depletion and pollution are tolerable must be supplied by ecology. A definite limit to the size of maintenance flows of specific materials is set by ecological thresholds that, if exceeded, cause system breaks. To keep flows below these limits we can operate on two variables; the size of the stocks and the durability of the stocks. As long as we are well below these thresholds, economic cost-benefit calculations regarding depletion and pollution can be relied upon as a guide. But as these thresholds are approached, "marginal cost" and "marginal benefits" become meaningless, and Alfred Marshall’s motto, "nature does not make jumps," and most of neoclassical marginalist economics becomes inapplicable. The "marginal" cost of one more step may be to fall into the precipice.

Of the two variables, size of stocks and durability of stocks, only the second requires further clarification. Durability here means more than just how long a commodity lasts. It also includes the number of times that the waste output can be reused as input in the production of something else. Nature has furnished the ideal model of a closed-loop system of material cycles powered by the sun. To the extent that our technology can imitate nature’s solar-powered closed-loop, then our stock of wealth will tend to become as durable as our water, soil, and air which are the real sources of wealth since it is only through their agency that plants are able to capture vital solar energy. The ideal is that all physical outputs should be usable either as inputs in some other man-made process, or as non-disruptive inputs into natural material cycles.

The stationary state of wealth and population is maintained by an inflow of low entropy matter energy and outflow of an equal quantity of high entropy matter-energy. (Low entropy matter-energy is highly structured, organized matter and easily usable free energy. High entropy matter-energy is randomized, useless bits of matter, and latent, unusable energy.) Stocks of wealth and people feed on low entropy. Low entropy inputs are received from the environment in exchange for high entropy outputs to the environment. In this overall sense there can be no closed loop or recycling of both matter and energy because of the second law of thermodynamics. However, within the overall system there can be subsystems of individual processes arranged so that their material input-output links form a closed loop. Conceivably all processes in the stationary state could be arranged to form a material closed loop. But the recycling of matter through this closed-loop "world engine" requires energy, part of which becomes irrevocably useless as it is dissipated into heat. Actually, industrial material cycles cannot be 100 per cent closed as this would require an uneconomical, if not impossible expenditure of energy. Thus some of the high entropy output takes the form of randomized bits of matter, and some takes the form of heat.

The limit to using energy to reduce material pollution is the resulting localized thermal pollution, not the very long run, universal thermodynamic heat death. Thus it is important to bear in mind that the expenditure of energy needed for recycling necessarily pollutes.

The mere expenditure of energy is not sufficient to close the material cycle, since energy must work through the agency of material implements. To recycle aluminum beer cans requires more trucks to collect the cans as well as more energy to run the trucks. More trucks require more steel, glass, etc., which require more iron ore and coal, which require still more trucks. This is the familiar web of inter-industry interdependence reflected in an input-output table.

All of these extra intermediate activities required to recycle beer cans involve some inevitable pollution as well. If we think of each industry as adding recycling to its production process, then this will generate a whole chain of direct and indirect demands on matter and energy resources that must be taken away from final demand uses and devoted to the intermediate activity of recycling. It will take more intermediate products and activities to support the same level of final output. The advantage of recycling is that it allows nations to choose the least harmful combination of material and thermal pollution.

The classical economists thought that the stationary state would be made necessary by limits on the depletion side, but the main limits now seem to be in fact occurring on the pollution side. In effect, pollution provides another foundation for the economic law of increasing costs, but has received little attention in this regard since pollution costs are social while depletion costs are usually private. On the input side the environment is partitioned into spheres of private ownership. Depletion of the environment coincides, to some degree, with depletion of the owner’s wealth, and inspires at least a minimum of stewardship. On the output side, however, the waste absorption capacity of the environment is not subject to partitioning and private ownership. Air and water are used freely by all and result is a competitive, profligate exploitation—what biologist Garrett Hardin calls the "commons effect," what welfare economists call "external diseconomies," and what I like to call the "invisible foot."

Adam Smith’s "invisible hand" leads private self-interest unwittingly to serve the common good. The "invisible foot" leads private self-interest to kick the common good to pieces. Private ownership and private use under a competitive market give rise to the invisible hand. Public ownership with public restraint on use gives rise to the invisible hand (and foot) of the planner. Depletion has been partially restrained by the invisible foot. It is therefore not surprising to find limits occurring mainly on the pollution side.

MINI VS. MAXI

The economic and social implications of the stationary state are enormous and revolutionary. The physical flows of production and consumption must be minimized, not maximized, subject to some agreed upon minimum standard of living and population size. The central concept must be the stock of wealth, not as presently, the flow of income and consumption. (Kenneth Boulding has been making this point since 1949, but with no effect on his fellow economists.) Furthermore, the stock must not grow. The important issue of the stationary state will be distribution, not production. The argument that everyone should be happy as long as his absolute share of the wealth increase, regardless of his relative share, will no longer be available. The arguments justifying inequality in wealth as necessary for saving, investment, and growth will lose their force. With income flows kept low, the focus will be on the distribution of income. Marginal productivity theories and "justifications" pertain only to flows and therefore are not available to explain or justify the distribution of stock ownership.

It so hard to see how ethical appeals to equal shares can be countered. Also, even though physical stocks remain constant, increased income in the form of leisure will result from continued technological improvements. How will it be distributed if not according to some ethical norm of equality? The stationary state would make fewer demands on our environmental resources, but much greater demands on our moral resources. In the past a good case could be made that leaning too heavily on scarce moral resources, rather than relying on abundant self-interest, was the road to serfdom. But in an age of rockets, hydrogen bombs, cybernetics, and genetic control, there is simply no substitute for moral resources and no alternative to relying on them, whether they prove sufficient or not.

With constant physical stocks, economic growth must be in non-physical goods, particularly leisure. Taking the benefits of technological progress in the form of increased leisure is a reversal of the historical practice of taking the benefits mainly in the form of goods and has extensive social implications. In the past, economic development has increased the physical output of a day’s work while the number of hours in a day has, of course remained constant, with the result that the opportunity cost of a unit of time in terms of goods has risen. Time is worth more goods, and a good is worth less time. As time becomes more expensive in terms of goods, fewer activities are "worth the time." We become goods-rich and timepoor. Consequently we crowd more activities and more consumption into the same period of time in order to raise the return of non-work time, thereby maximizing the total time. This gives rise to what Staffan Linder has called the "harried leisure class."

Not only do we use work time more efficiently, but also personal consumption time, and we even try to be efficient in our sleep by attempting subconscious learning. Time-intensive activities (friendships, care of the aged and children, meditation and reflection) are sacrificed in favor of commodity-intensive activities (consumption). At some point people will feel rich enough to afford more time-intensive activities even at the higher price. But advertising, by constantly extolling the value of commodities, postpones this point.

From an ecological view, of course, this is exactly the reverse of what is called for. What is needed is a low relative price of time in terms of commodities. Then time-intensive activities will be substituted for material-intensive activities. To become less materialistic in our habits, we must raise the relative price of matter. Keeping physical stocks constant and using technology to increase leisure time will do just that. Thus a policy of non-material growth or leisure-only growth, in addition to being necessary for keeping physical stocks constant, has the further beneficial effect of encouraging a more generous expenditure of time and a more careful use of physical goods. A higher relative price of material intensive goods may, at first glance, be thought to encourage their production. But material goods require material inputs, so costs as well as revenues would increase, eliminating profit incentives to expand.

In the 1930’s the late Bertrand Russell proposed a policy of leisure growth rather than commodity growth and viewed the unemployment question in terms of the distribution of leisure. The following words are from his essay, "In Praise of Idleness:"

Suppose that, at a given moment, a certain number of people are engaged in the manufacture of pins. They make as many pins as the world needs, working (say) eight hours a day. Someone makes an invention by which the same number of men can make twice as many pins as before. But the world does not need twice as many pins. Pins are already so cheap that hardly any more will be bought at a lower price. In a sensible world, everybody concerned in the manufacture of pins would take to working four hours instead of eight and everything else would go on as before. But in the actual world this would be thought demoralizing. The men still work eight hours, there are too many pins, some employers go bankrupt, and half the men previously concerned in making pins are thrown out of work. There is in the end just as much leisure as on the other plan, but half the men are totally idle while half are still overworked. In this way it is insured that the unavoidable leisure shall cause misery all round instead of being a universal source of happiness. Can anything more insane be imagined.

In addition to this strategy of leisure-only growth, we can internalize some pollution costs by charging effluent taxes. Economic efficiency requires only that a price be placed on environmental amenities, it does not tell us who should pay the price. The producer may claim that the use of the environment to absorb waste products is a right that all organisms and firms must of necessity enjoy, and whoever wants air and water to be cleaner than it is at any given time should pay for it. Consumers may argue that whoever makes the environment dirtier than it otherwise would be should be the one to pay. Again the issue becomes basically one of distribution—not what the price should be, but who should pay it. The fact that the price takes the form of a tax automatically decides who should receive the price—the government. But this raises more distribution issues, and the solutions to these problems are ethical, not technical.

Another possibility of non-material growth is to redistribute wealth from the low marginal utility uses of the rich to the high marginal uses of the poor, thereby increasing total social utility. Joan Robinson has noted that this egalitarian implication of the law of diminishing marginal utility was "sterilized mainly by slipping from utility to physical output as the object to be maximized." As we move back from physical output to non-physical utility, the egalitarian implications become unsterilized.

Traditional Keynesian full employment policies will no longer be available to palliate the distribution question since they require growth. By allowing full employment, growth permits the old principles of distribution (income-through jobs) to continue in effect. But with no growth in physical stocks and policy of using technological progress to increase leisure, full employment is no longer a workable principle of distribution. Furthermore, we add a new dimension to the distribution problem—how to distribute leisure.

A stationary population, with low birth and death rates, would imply a greater percentage of old people than in the present growing population, although hardly a geriatric society as some youth worshippers claim. Since old people do not work, the distribution problem is further accentuated. However, the percentage of children will diminish, so in effect there will be mainly a change in direction of transfer payments. More of the earnings of working adults will be transferred to the old and less to children.

What institutions will provide the control necessary to keep the stocks of wealth and people constant, with the minimum sacrifice of individual freedom? It would be far too simpleminded to blurt out "socialism" as the answer, since socialist states are as badly afflicted with growth mania as capitalist states. The Marxist eschatology of the classless society is based on the premise of complete abundance; consequently economic growth is exceedingly important in socialist theory and practice. And population growth, for the orthodox Marxist, cannot present problems under socialist institutions. This latter tenet has weakened a bit in recent years, but the first continues in full force. However, it is equally simpleminded to believe that our present big capital, big labor, big government, big military type of private profit capitalism is capable of the required foresight and restraint, and that the addition of a few effluent and severance taxes here and there will solve the problem. The issues are much deeper and inevitably impinge in the distribution of income and wealth.

Why do people produce junk and cajole other people into buying it? Not out of any innate love for junk or hatred of the environment, but simply in order to earn an income. If—with the prevailing distribution of wealth, income, and power-production governed by the profit motive results in the output of great amounts of noxious junk, then something is wrong with the distribution of wealth and power, the profit motive, or both. We need some principle of income distribution independent of and supplementary to their income-through jobs link. A start in this direction was made by Oskar Lange, who attempted to combine some socialist principles of distribution with the allocative efficiency advantages of the market system. However, at least as much remains to be done here as remains to be done in designing institutions for stabilizing population. But before progress can be made on their issues we must recognize their necessity and blow the whistle on growth mania.

STUNTING growth mania

Although the ideas expressed by Mill have been totally dominated by growth mania, there are an increasing number of economists who have frankly expressed their disenchantment with the growth ideology. Arguments stressing ecological limits to wealth and population have been made by Kenneth Boulding and Joseph Spengler, both past presidents of the American Economic Association. Recently E.J. Mishan, Tibor Scitovsky, and Staffan Linder have made penetrating antigrowth arguments. There is also much in Galbraith that is anti-growth—at least against growth of commodities whose desirability must be manufactured along with the product.

In spite of these beginnings, most economists are still governed by the assumption of infinite wants, or the postulate of non satiety as the mathematical economists call it. Any single want can be satisfied, but all wants in the aggregate cannot be. Wants are infinite in number if not in intensity, and the satisfaction of some wants stimulates others. If wants are infinite, growth is always justified—or so it would seem.

Even while accepting the above hypothesis, one could still object to growth mania on the grounds that given the completely inadequate definition of GNP, "growth" simply means the satisfaction of ever more trivial wants, while simultaneously creating even more powerful externalities that destroy ever more basic environmental amenities. To defend ourselves against these externalities, we produce even more, and instead of subtracting the purely defensive expenditures, we add them. For example, the medical bills paid for treatment of cigarette-induced cancer and pollution-induced emphysema are added to GNP, when in a welfare sense they clearly should be subtracted. This should be labeled swelling, not growth. The satisfaction of wants crated by brainwashing and "hog washing" the public over the mass media also represents mostly swelling.

A policy of maximizing GNP is practically equivalent to a policy of maximizing depletion and pollution. This results from the fact that GNP measures the flow of a physical aggregate. Since matter and energy cannot be created, production is simply the transformation of raw material inputs extracted from the environment; consequently, maximizing the physical flow of production implies maximizing depletion. Since matter and energy cannot be destroyed, consumption is merely the transformation into waste of GNP, resulting in environmental pollution. One may hesitate to say "maximal" pollution on the grounds that the production inflow into the stock can be greater than the consumption outflow as long as the stock increases as it does in a growing economy.

To the extent that wealth becomes more durable, the production of waste can be kept low by expanding the stock. But is this in fact what happens? If one wants to maximize production, one must have a market. Increasing the durability of goods reduces the replacement demand. The faster things wear out, the greater can be the flow of production, one must have a market. Increasing the durability of goods reduces the replacement demand. The faster things wear out, the greater can be the flow of production. To the extent that consumer reaction and weakening competition permit, there is every incentive to minimize durability. Planned obsolescence, programmed self-destruction, and other waste making practices so well discussed by Vance Packard are the logical result of maximizing a marketed physical flow. If we must maximize something it should be the stock of wealth, not the ecological limits that constrain this maximization.

But why this perverse emphasis on flows, this flow fetishism of standard economic theory? Again the underlying issue is distribution. There is no theoretical explanation, much less justification, for the distribution of the stock of wealth. It is a historical datum. But the distribution of the flow of income is at least partly explained by marginal productivity theory, which at times is even misinterpreted as a justification. Everyone gets a part of the flow—call it wages, interest, rent or profit—and it all looks rather fair. But not everyone owns a piece of the stock, and that does not seem quite so fair. Looking only at their flow helps to avoid disturbing thoughts.

But even if wants were infinite, and even if we redefine GNP to eliminate swelling, infinite wants cannot be satisfied by maximizing physical production. As people grow richer they will want more leisure. Physical growth cannot produce leisure. As physical productivity increases, leisure can be produced by working fewer hours to produce the same physical output. Even the common-sense argument for infinite wants—that the rich seem to enjoy their high consumption—cannot be generalized without committing the fallacy of composition. If all earned the same high income, a consumption limit occurs sooner than if only a minority had high incomes. The reason is that a large part of the consumption by plutocrats is consumption of personal and maintenance services rendered by the poor, which would not be available if everyone were rich. By hiring the poor to maintain and even purchase commodities for them, the rich devote their limited consumption time only to the most pleasurable aspects of consumption. The rich only ride their horses—they do not clean, comb, saddle, and feed them, nor do they clean the stables. If all did their own maintenance work, consumption would perforce be less. Time sets a limit.

The big difficulty with the infinite wants assumption, however, is pointed out by Keynes, who in spite of the use made of his theories in support of growth, was certainly no advocate of unlimited growth, as seen in the following quotation:

Now it is true that the needs of human beings seem to be insatiable. But they fall into two classes—those needs which are absolute in the sense that we feel them whatever the situation of our fellow human begins may be, and those which are relative in the sense that we feel them only if their satisfaction lifts us above, makes us feel superior to, our fellows. Needs of the second class, those which satisfy the desire for superiority, may indeed be insatiable; for the higher the general level, the higher still they are. But this is not so true of the absolute needs—a point may soon be reached, much sooner perhaps than we are all of us aware of, when those needs are satisfied in the sense that we prefer to devote our further energies to non-economic purposes.

Lumping these two categories together and speaking of infinite wants in general can only muddy the waters. The same distinction is implicit in Mill, who spoke despairingly of "consuming things which give little or no pleasure except as representative of wealth…"

The source of growth lies in the use made of surplus, the controllers of surplus may be a priesthood that controls physical idols made from the surplus and used to extract more surplus in the form of offerings and tribute. Or there may be feudal lords, who through the power given by possession of the land extract a surplus in the form of rent and the corvee. Or they may be capitalists (state or private) who use the surplus in the form of capital to gain more surplus in the form of interest and quasi-rents.

If growth must cease, the surplus becomes less important and so do those who control it. If the surplus is not to lead to growth, then it must be consumed, and ethical demands for equal surplus could not be countered by productivity arguments for inequality as necessary for accumulation. The surplus would eventually enter into the customary standard of living and cease to be recognized as a surplus. Accumulation in excess of depreciation, and the privileges attached thereto, would not exist.

We no longer speak of worshipping idols. Instead of idols we have an abomination called GNP, large parts of which, however, bear such revealing names as Apollo, Poseidon, and Zeus. Instead of worshipping the idol, we maximize it. The idol has become rather less concrete and material, while the mode of adoration has become technical rather than personal. But fundamentally, idolatry remains idolatry.

This article was excerpted from an article entitled "Toward a Stationary-State Economy," in Patient Earth, edited by John Harte and Robert Socolow. New York: Holt, Rinehart and Winston, Inc., 1971.

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