Capitalism-and-Its-Critics-A-History-From-the

There Georgescu-Roegen attended lectures by eminent French mathematicians, including Émile Borel, Henri Lebesgue, and Édouard Goursat. He specialized in the rapidly developing field of mathematical statistics. In his doctoral thesis, he came up with a new technique to isolate cyclical movements in a time series, such as annual births, daily rainfall, or quarterly retail sales. (The actual time series Georgescu-Roegen used was for rainfall in Paris.) After obtaining his doctorate, he moved to University College, London, where he collaborated with Karl Pearson, a leading figure in mathematical statistics. Georgescu-Roegen wasn’t intending to become an economist, but his work on time series attracted attention. A representative of the Rockefeller Foundation asked if he would be interested in applying for a fellowship to the United States, where the Harvard University Economics Barometer had begun using new statistical methods to analyze economic cycles.

Georgescu-Roegen applied for the fellowship and got it. In 1934 he and his wife, Otilia, a fellow mathematician whom he had met when they were both undergraduates, arrived in Cambridge, Massachusetts, only to discover that the Harvard University Economics Barometer had closed up shop after failing to predict the Great Depression. At a loss about what to do, Georgescu-Roegen approached Joseph Schumpeter, Harvard’s renowned Austrian economist, who was teaching a course on business cycles. Schumpeter expressed interest in Georgescu-Roegen’s research and introduced him to Wassily Leontief, a Russian mathematical economist who had arrived at Harvard a couple of years earlier. With Leontief’s encouragement, Georgescu-Roegen delved into the mathematical theory of consumer choice. Despite having no formal background in economics, he quickly wrote a series of papers that cemented his reputation as a wunderkind. Schumpeter was so impressed that he asked Georgescu-Roegen to join the Harvard faculty. Feeling obliged to return to Romania, the young scholar turned down the offer, a decision he came to regret.

He stayed in Romania for more than a decade, teaching at the University of Bucharest and advising the country’s central statistical agency. During World War II, Romania fought on the side of the Nazis under General Ion Antonescu, whose fascist regime participated in the Holocaust. After the war ended and Antonescu was overthrown, a new democratic government appointed Georgescu-Roegen as general secretary of an armistice commission. But with the Red Army occupying much of the country, Romania was falling under the control of the Soviet Union. In 1948, shortly after the establishment of a one-party Marxist-Leninist state, Georgescu-Roegen and his wife fled to Turkey aboard a freight ship. After making their way across Europe, they sailed from Cherbourg to the United States. When they got to Cambridge, the Harvard economics community welcomed them back and gave Georgescu-Roegen a temporary teaching post, but Schumpeter’s offer of a permanent position had long since lapsed. In 1949 Georgescu-Roegen accepted an invitation to join the economics faculty at Vanderbilt University in Nashville, where he would remain for the rest of his life.

As a mature scholar, Georgescu-Roegen concentrated mainly on practical questions of economic development and growth. He had grown skeptical about the usefulness of orthodox economic theories, many of which were largely built on axioms of individual choice and the notion of equalizing marginal benefits and costs. In poor societies like the Romania he grew up in, Georgescu-Roegen once pointed out, many people worked as long as they could, regardless of any such calculations. “In the lands of scarcity, income distribution is made not according to marginal pricing, but according to some institutional rules (as within most families, yours too, I think),” he remarked.11

A second problem with economic orthodoxy that Georgescu-Roegen identified was that it largely neglected natural resources and the dangers of degrading or depleting them. In a 1965 paper, “Process in Farming Versus Process in Manufacturing,” he distinguished between two types of inputs to production: “flows” and “funds.”12 The flows were inputs that got used up or transformed into outputs and waste (or pollution) during the production process: things like coal, iron ore, and industrial components, such as screws and rivets. The funds were the “agents of production,” such as labor and physical capital, that helped transform the other inputs into outputs but didn’t get used up themselves. In differentiating between inputs in this way, Georgescu-Roegen was essentially agreeing with Joan Robinson and her colleagues in Cambridge, England, that the neoclassical “production function,” which featured just labor and capital as inputs, was oversimplified and not generally applicable. But it wasn’t until he wrote The Entropy Law and the Economic Process that he turned this critique into a broader critique of perpetual growth as an economic goal.

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The 1971 book is an intellectual tour de force, which ranges across economics, physics, biology, mathematics, and the philosophy of science virtually at will. Sections on statistical mechanics and the arithmetical continuum lap up against accounts of Marx’s two-sector model of economic growth and Georgescu-Roegen’s answer to his own question: “Why Is Economics Not a Theoretical Science?”13 (Its “laws” aren’t truly general, he said. They apply to specific institutional settings, such as a capitalist economy with wage labor and private ownership of capital. In other settings, such as a peasant economy, they break down.) Between these intellectual perambulations, Georgescu-Roegen laid out the essence of his argument, which was that all forms of economic production—capitalist, socialist, and preindustrial—are physical activities, and therefore they are subject to the laws of nature.

More particularly, they must respect the Second Law of Thermodynamics—the law of degradation or entropy—which states that all energy transfers result in the loss of some usable energy, so that over time the amount of usable energy in the system declines, and the amount of unusable energy, or waste, increases. To illustrate his point, Georgescu-Roegen cited the operation of a railroad steam engine that pulls carriages along a track and turns its fuel, coal, into useless ashes. He argued that economists, in representing the economy as a closed system wherein money flows from households to businesses and back again in an endless loop, had made a major error: “Even if only the physical facet of the economic process is taken into consideration, this process is not circular, but unidirectional,” he wrote. “As far as this facet alone is concerned, the economic process consists of a continuous transformation of low entropy into high entropy, that is, into irrevocable waste, or, with a topical term, into pollution.”14

One interpretation of Georgescu-Roegen’s invocation of the entropy law is that, since any economic system relies on energy, and many energy sources are in limited supply, the degradation law places an upper limit on economic production, which eventually will be reached, with potentially catastrophic consequences for humanity. This is the lesson that many commentators have taken from Georgescu-Roegen’s magnum opus, and it is certainly something that he wanted to get across. Noting that the path of economic development had produced an ever-increasing reliance on fossil fuels, he wrote, “every Cadillac produced at any time means fewer lives in the future.”15 Emphasizing the pressure of rising populations, he added: “Population pressure and technological progress bring ceteris paribus the career of the human species nearer to its end only because both factors cause a speedier decumulation of its dowry.”

But Georgescu-Roegen didn’t confine his argument about rising entropy to energy resources. He applied it to the economy as a whole, arguing that the entire production process involved converting “low entropy” commodities, such as cotton, lumber, and metal ores, into “high entropy” goods, such as steel frames, automobiles, and domestic appliances. After the book was published, some physicists pointed out that, strictly speaking, this was a misuse of the degradation law, which didn’t apply to such objects. But Georgescu-Roegen’s slipup about the scope of the entropy law didn’t negate his larger argument that economic development was subject to physical constraints and the threat of exhausting natural resources. His essential claim, he would subsequently make clear, was that these resources couldn’t be re-created or recycled indefinitely—a point on which he was scientifically correct. “It can be shown that even by recycling (for instance, glass bottles), we cannot go back to the original situation without lowering the quality of the natural resources that we can consume,” the Danish scientist John Schmitz, the author of a book about the Second Law of Thermodynamics, wrote in a 2007 article about Georgescu-Roegen.16

In The Entropy Law and the Economic Process, Georgescu-Roegen didn’t say when resource depletion would reach a crisis point, but his language suggested that the moment of reckoning wasn’t too far off. The intensification and mechanization of agriculture could “enable mankind to feed a population even greater than seven billions by 2000 A.D,” he wrote, but this would be possible only by “eating more quickly into the ‘capital’ of low entropy with which our planet is endowed.”17 In the two centuries since the start of the industrial revolution, Georgescu-Roegen said, humanity had placed itself “in the position of a fantastic spendthrift,” and the running down of key resources had raised the question of how much would be left for future generations to exploit. “There can be no doubt about it,” he wrote. “Any use of the natural resources for the satisfaction of non-vital needs means a smaller quantity of life in the future. If we understand well the problem, the best use of our iron resources is to produce plows or harrows as they are needed, not Rolls Royces, not even agricultural tractors.”18

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Georgescu-Roegen was essentially arguing that most members of his own profession were very poor guides to existential questions of resource depletion. He said that they had gone astray by representing industrial production as a process that “neither induces any qualitative change nor is affected by the qualitative change of the environment into which it is anchored.”19 Occasionally economists did discuss natural resources, he acknowledged, “yet the fact remains that, search as one may, in none of the numerous economic models in existence is there a variable standing for nature’s perennial contribution.”

The book appeared at a moment when, outside the economics profession at least, concerns about population growth, resource depletion, and environmental degradation were rising. On April 22, 1970, millions of Americans attended rallies and other events to observe the first Earth Day, which was organized by Senator Gaylord Nelson, a Wisconsin Democrat, and Denis Hayes, a Harvard graduate student. In 1972 a group of environmentalists and systems analysts connected to MIT, led by the wifeand-husband team of Donella and Dennis Meadows, published a lengthy report titled The Limits to Growth. Citing extensive computer simulations, the report warned: “If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years.”20 To prevent such a disastrous blowup, the authors called on humanity to prepare for “a period of great transition—the transition from growth to global equilibrium.”21

The Limits to Growth wasn’t merely an academic jeremiad. It was commissioned by an international group of politicians and business leaders known as the Club of Rome. Bearing this semiofficial imprimatur, the report attracted a great deal of media attention—and a lot of hostile fire from economists, who questioned everything about it: its methodological basis, its simulations, and its purported neglect of basic economics. The report’s “imposing apparatus of computer technology and systems jargon conceals a kind of intellectual Rube Goldberg device—one which takes arbitrary assumptions, shakes them up and comes out with arbitrary conclusions that have the ring of science,” Peter Passell, Marc Roberts, and Leonard Ross wrote in The New York Times Book Review.22 In the journal Challenge, under the ironic headline “Is the End of the World at Hand?,” MIT’s own Robert Solow—the same Solow who had spent a decade and a half tussling with Joan Robinson—said “the Doomsday Models are bad science and therefore bad guides to public policy.”23 The most serious problem with their simulations was that they ignored the market price system and technical progress, Solow argued. As essential resources like oil and iron ore got scarcer, he said, their prices would rise sharply, which would give countries a strong incentive to use them more efficiently and develop substitutes for them. In fact, this was already happening, Solow claimed. He provided figures to show that, relative to each dollar of GNP that the US economy produced, the inputs of iron ore and copper it used had fallen significantly during the previous two decades. “I am no believer that the market is always right, and I am certainly no advocate of laissez-faire where the environment is concerned,” Solow wrote. “But the price system is, after all, the main social institution evolved by capitalist economies (and, to an increasing extent, socialist economies too) for registering and reacting to relative scarcity.”24

The economists who criticized The Limits to Growth, and there were many of them, didn’t confine their arguments to querying its computer simulations and economic logic. They also questioned its call for a new “global equilibrium.” The report’s simulations showed that, in order to attain this state, the global population and global capital stock would eventually have to be held constant.25 Clearly, this would involve reducing the rate of births and holding the rate of capital accumulation to the same rate at which capital depreciated. After two centuries of capital-driven industrial expansion, net capital accumulation would cease. So, for all intents and purposes, would exponential economic growth—although the authors of The Limits to Growth argued that technological progress would continue to raise living standards. Many economists were aghast. Restating a basic precept of postwar Keynesianism, Wilfred Beckerman, an economist at Oxford University, emphasized the role that economic growth and rising prosperity had played in alleviating social divisions and fending off political extremism. “If growth were to be abandoned as an objective of policy, democracy too would have to be abandoned,” Beckerman wrote in his 1974 book In Defence of Economic Growth. “The costs of deliberate non-growth, in terms of the political and social transformation that would be required in society, are astronomical.”26

In the short term, the economists largely prevailed in the argument over resource constraints. In October 1973, OPEC introduced its oil embargo on Western countries, and crude oil prices tripled. High energy prices led to significant conservation efforts in advanced countries, including the development of more fuel-efficient motor vehicles and the allocation of more research dollars to renewable energy. On this point, at least, Robert Solow had been proved right: the price system and the profit motive did lead to changes in technology and behavior. Homeowners and businesses started to insulate their buildings, and the rising cost of gasoline prompted the Detroit carmakers to retire their most egregious gas guzzlers, at least temporarily. (Decades later, when gas prices were low again, they would bring them back in the form of SUVs.) According to the organization Our World in Data, per capita carbon dioxide emissions in the United States and the United Kingdom peaked in the early 1970s and have been generally declining ever since.27 With the American population still growing, however, overall US emissions continued to climb until the new millennium, when they started to fall back.28 And on a global basis, $\mathrm { C O } _ { 2 }$ emissions continued to rise, with impacts on the climate that were increasingly difficult to dismiss.

Amidst all the criticism of the Limits to Growth report, there was one member of the economics profession who was willing to defend it: Georgescu-Roegen. As a skeptic of formal models, he didn’t find convincing the timeline it presented, with an ecological disaster occurring within a hundred years, but its overall argument was clearly in the same spirit as his thesis in The Entropy Law and the Economic Process. In November 1972 he wrote to Dennis Meadows and asked him to send all the critical comments about the report by economists, so he could write a rebuttal. In his response, Meadows said: “Your analysis of the entropic nature of resources has had a substantial influence on the thinking of the members of my group.”29 Georgescu-Rogen’s rebuttal eventually appeared in Southern Economic Journal in 1975, and it singled out Solow’s arguments for inspection. Even if the resource intensity of some production processes was declining, he pointed out, the rapid growth of GDP meant that the overall consumption of natural resources was still increasing sharply: in a single decade, US steel consumption had risen by almost 50 percent. Addressing Solow’s claim that higher prices would prompt countries to economize on their use of scarce resources and switch to more plentiful ones, Georgescu-Roegen referred to it as “the fallacy of endless substitution.”30 He conceded that it was sometimes possible to switch one input for another (for example, by using aluminum instead of copper in making kitchenware and electrical power lines), but he pointed out that the substitute resources (bauxite, in this case) were also in limited supply and would eventually run out, too. To overlook this basic fact of nature was “to ignore the difference between the actual world and the Garden of Eden.”31

In his article, which was titled “Energy and Economic Myths,” Georgescu-Roegen also addressed the possibility of creating alternative sources of energy. He said that the only limitless, or virtually limitless, energy source was sunlight, but in the 1970s efforts to capture solar energy hadn’t progressed very far. For the foreseeable future, therefore, humanity would have to rely on carbon fuels and other scarce resources. The issues raised by The Limits of Growth couldn’t be wished away by economists “who have always suffered from growthmania,” Georgescu-Roegen wrote.32 Even if there was no scientific basis for the Club of Rome report’s claim that a continuation of current growth trends would generate a terminal crisis within a century, “it would be madness to ignore the study’s general warnings about population growth, pollution, and resource depletion.”33

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By the mid-1970s, the environmental movement was emerging as a major presence on the international stage. In 1972 the United Nations held its first Conference on the Human Environment. Three years later the US Congress passed the Energy Policy and Conservation Act, which created new energy conservation standards for appliances and fuel-efficiency requirements for cars. The rising concern with ecological issues prompted a critical reexamination of industrial capitalism from a number of different perspectives. In 1973 E. F. Schumacher, a German-born British economist, published Small Is Beautiful: Economics as If People Mattered, which advocated a shift away from the factory system and mass production to smaller-scale, less energy-intensive production methods. Channeling Carlyle, Marx, and many other critics, Schumacher started from the premise that the modern industrial economy was not merely environmentally unsustainable but also dehumanizing and psychologically unsatisfying: “Wisdom demands a new orientation of science and technology toward the organic, the gentle, the non-violent, the elegant and beautiful.”34 Like J. C. Kumarappa, Schumacher had studied village-based economies in India. He quoted from one of Kumarappa’s books with approval, and his overall philosophy of rejecting materialism and encouraging the growth of smallscale production shared a good deal with the approach that Gandhi’s economist had espoused. Indeed, Schumacher even used some of the same terminology as Kumarappa: “From an economic point of view, the central concept of wisdom is permanence…,” he wrote. “Nothing makes economic sense unless its continuance for a long time can be projected without running into absurdities.”35

In environmentalist circles, there was a lot of discussion about how much growth, if any, could be countenanced going forward. Schumacher said: “There can be ‘growth’ towards a limited objective, but there cannot be unlimited, generalised growth.”36 The Limits to Growth report had outlined a scenario in which net capital accumulation would cease. But some members of the Club of Rome argued that a lower level of GDP growth would be consistent with ecological balance if strenuous efforts were taken to conserve energy, reduce emissions, and develop clean power sources, such as solar and hydroelectric. This idea became known as “sustainable development,” and it would go on to gain widespread support.

Georgescu-Roegen and his followers rejected it out of hand. In his 1977 book, Steady-State Economics, Herman E. Daly, an American World Bank economist who had been a student of the Romanian at Vanderbilt, advocated a future in which the population remains constant and economic growth virtually ceases. The concept of a steady-state economy wasn’t new. But when John Stuart Mill and other classical economists wrote about it during the nineteenth century, they conceived of it as arriving of its own accord, after all productive investment opportunities were exhausted. Daly presented the steady-state economy as an essential goal, an alternative to “money fetishism and growthmania” that would preserve the Earth’s resources and prevent an ecological disaster.37 To help make it a reality, he called for birth quotas to curtail population growth and strict limits on the use of depletable resources.

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Georgescu-Roegen himself staked out an absolutist position. For a time, he joined the Club of Rome, but he quickly fell out with its leadership over its endorsement of limited growth. He even rejected the idea of a steady state economy. In his article “Energy and Economic Myths,” he referred to it as a “topical mirage” and added: “The crucial error consists in not seeing that not only growth, but also a zero-growth state  … cannot exist forever in a finite environment.”38 Two years later he expanded this argument in a more technical paper, which appeared in the journal BioScience.39 Maintaining the global economy at its current scale would require perpetually exploiting carbon fuels and minerals, which would eventually run out, the article pointed out. To illustrate the point, Georgescu-Roegen included a drawing of the universe as an hourglass, with its trove of resources running down.

Going beyond the steady-state advocates, Georgescu-Roegen advocated a drastic new approach to preserving ecological balance that he called bioeconomics. “The term is intended to make us bear in mind continuously the biological origin of the economic process and thus spotlight the problem of mankind’s existence with a limited store of accessible resources, unevenly located and unequally appropriated,” he wrote in a 1977 journal article.40 In practical terms, Georgescu-Roegen advocated concerted efforts to develop solar energy, “the only clean and essentially unlimited source,”41 and he put forward a “minimal bioeconomic program”42 that was designed to curb the use of depletable resources. This program included gradually reducing the global population to a level “that could be adequately fed only by organic agriculture”;43 strictly regulating energy usage; ending the production of “instruments of war”44 and devoting the resources that were used on armaments to underdeveloped countries; ending the “morbid craving for extravagant gadgetry”;45 and substituting leisure for worktime. “We must come to realize,” he wrote, “that an important prerequisite for a good life is a substantial amount of leisure spent in an intelligent manner.”46