From Dismal Science To Joyful Art

Reframing economics so that it better fits the full diversity of real economic life and can serve as a useful policy guide
for building a humane sustainable culture

One of the articles in Economics In An Intellegent Universe (IC#2)
Originally published in Spring 1983 on page 28
Copyright (c)1983, 1996 by Context Institute

Thanks to the prediction by Malthus (in 1798) that population growth would always outpace economic growth, industrial era economics early on earned the label of “the dismal science”. Even though Malthus’s predictions haven’t come to pass (at least not yet), the name has stuck. It seems somehow to reflect the cloud of unease that so many feel toward the economic side of their lives. It is a cloud that many of us would like to shake off, and indeed most of the articles in the preceding section are stories, at a personal level, of working to rediscover the joys of productive activity and fruitful exchange. Those various personal solutions are important and illuminating, but can we carry them further to a more general vision? How might we reframe our understanding of economics so that it better fits the full diversity of real economic life and so that it can serve as a useful policy guide for building a humane sustainable culture? I don’t have a quick, simple answer to that (reader be warned), but I have come across a number of perspectives and concepts that seem to point in the right direction. I’d like to share these in this article.

IF YOU ARE FOLLOWING the news, you are probably inundated with information on the challenges facing our economy – from Mexico’s debts to the problems of the farmer, from the vigor of new high tech industries to the ups and downs of OPEC. I don’t want to cover that (all too familiar) ground here, but rather to step back and attempt to see the deeper issues our economic system faces. Here too there is a wealth of material to draw on as this is a very active time for economic critics of almost every political persuasion. In exploring this, it seems to me that the difficulties our system is facing include both “classic” problems that have existed in the system for at least a century, and “new” problems presented by changes in technology, the environment, and general culture.

To understand these problems, it will help to start with some history. The most central economic-political issue of the industrial era has been: Which is a better shaper of economic activity and behavior, the market or the government? Laissez-faire capitalism represents the pure market pole, state-run communism represents the pure government pole, and the mixed economies of Europe and the U.S. fall somewhere in between. The great debate begins in the 1700′s at the dawn of the industrial era. Up to that time, economics was always subsidiary to politics and/or religion. By that time in Europe, the age of exploration and colonization had already been underway for 200 years, industrial activity was just starting to gather momentum, and the power of the kingly state was high. The tradition of the state was to intervene heavily in the economy on the argument that only through state regulation could conflicts between different classes be handled justly and a favorable balance of trade maintained. The merchants and manufacturers naturally chafed against these regulations.

It was into this cultural setting that Adam Smith, in 1776, published his Wealth Of Nations in which he synthesized much of the best economic thought of the day into a powerful argument against state intervention in the economy. His basic argument was that the price structure established by the interplay of supply and demand in an unregulated market was the most efficient way to get people producing just those things that others wanted, and that a system of decentralized decision-making in which each producer is free to run his/her business in whatever way is most profitable for her/him was the most effective way to harness human motivation into productive activity. These arguments had a profound impact then and are still influencing us now. Indeed, to adequately understand our present situation, we need to dig more deeply into the characteristics of the market.

The pro-market argument assumes that the goal of economic activity is basically democratic, i.e., to deliver to the public the goods and services it wants, not build pyramids for the Pharaoh. The market theorist would argue that the best indication of how strongly people really want something is how much they are willing to pay for it, and this is reflected in the market price. Those who want a particular item more than other people do, will bid up the price and thus shift more of that item their way. On the cost (supply) side, producers will have to charge enough to meet their own costs, so the price also reflects the relative difficulty of producing each item. Run the argument all the way through, and it can be shown (mathematically) that (in a finite world where choices have to be made), the interplay of the market is indeed the most efficient way of matching those who are able to produce with those who are willing to pay.

There are, however, a number of difficulties hidden in this analysis. The first is that the market is in fact not truly democratic. It is weighted in favor of those who have more wealth to begin with. The root of this is that money, like most other things, obeys the “law” of diminishing returns. That is, the more money you have to spend, the less precious each dollar is to you. Thus a poor person and a rich person might each be willing to spend 1% of their monthly spending on a loaf of bread – indicating an equal relative desire for that item – but the 1% from the rich will outbid the 1% from the poor every time. Thus the market directs production and develops efficiency in a way that is weighted for the benefit of those with more ability to pay.

The second difficulty is that the market is able to directly support only certain kinds of activity, namely activities that deliver a direct and obvious benefit to the buyer. There are a great many important and beneficial activities that don’t fall in that category because their benefits are diffuse and/or long term. Child raising, for example, is crucial to society, and the quality with which it is done can have a major impact on the quality of life experienced by the next generation. Yet where, through the mechanism of the market, are the “willing buyers” lining up to pay for the next generation’s quality of life? In some cultures parents did “invest” in their children as old-age insurance, but in our society, child raising is a gift, not an investment, and the plight of all too many children shows how reluctant that support often is.

In an absolutely pure market system (no other distribution channels), the only way an individual can obtain anything they don’t have is to offer something they do have in exchange for the desired item. For most people, the major thing they have to exchange is their time. Anyone whose time is partially committed to some activity that does not yield immediate marketable benefits (as in child raising, studying, planting orchards, etc.) is at a disadvantage because 1) they have less time to market, and 2) the remaining time they do have is relatively more valuable to them and so they are likely to be underbid until they are impoverished enough so that their relative need goes up enough to offset this. Thus in a pure market system, most people would be discouraged from doing all kinds of things that the society absolutely depends on, and those who did would tend to be relatively exploited.

Fortunately there has never been such a society. In Adam Smith’s day, goods and services were distributed in a great many ways, not unlike today. In addition to income from sales and wages in the market- place, there were also 1 ) redistribution within families (often extended), 2) income from ownership rights – rents, interest, and dividends, 3) mutual aid in communities, 4) charities, 5) crime, and of course, 6) taxation and government expenditure. All of the various non-market forms were part of the assumed background, and indeed if they were all eliminated, neither society nor the market could function.

These criticisms apply to a “perfect” market, which requires that each producer is relatively small, all competing products are indistinguishable (no brand names or advertising), people always act on the basis of a rational computation of their best economic advantage based on full unbiased information, and no one uses political power to gain economic advantages. When these “imperfections” are taken into account, the result is that the market of the real world favors the wealthier, more powerful producers as well as the wealthier consumers.

Do these drawbacks of the market mean that it should be abandoned? That is what Marx thought. Working about three quarters of a century later than Smith, he was in a different cultural setting. Industrial expansion was in full swing, and the unpleasant side effects were becoming all too obvious. Marx argued that free market capitalism, as it was developing at that time, did not truly decentralize decision-making, but simply shifted it from an aristocratic to an industrial elite, and that the dynamics of capitalism were such that wealth (and power) tended to concentrate in the hands of fewer and fewer industrialists. In order to bring the full benefits of industrial economic progress to the great majority, he wanted to turn ownership of industry over to the workers and eliminate the market. The economic system would then need to be (at least initially) administered by the state.

Marx was really more of a critic than a builder, and much of the development of applied Marxist economics has come from later followers. As it has developed in today’s communist countries it often begrudgingly includes some market activity, but the ideal is to have the main aspects of the economy all centrally planned and run. We all have our various opinions about how well this has succeeded, but my favorite comes from Eugen Loebl, a Czech who has been both a political prisoner and a high official (Director of the State Bank) in that country before he left in 1968. In his book, Humanomics, he says:

“We can make two important observations about the experiences of the planned economies. First, they have demonstrated that it is possible to formulate socioeconomic objectives for an economy based on applied science and break these objectives down into target figures for every aspect of production. . .

The second observation that we can make about planned economies is that their plans never work.”

The problem is that the planned approach gets the motivation all wrong and, by centralizing decision-making, makes abysmal use of the intelligence of most of the population. Not subject to the quality discipline of the competitive market, but only required to reach a certain target quantity of production, all this untapped intelligence devotes itself to meeting the quotas with as little effort as possible. The result is often oversized work forces and shoddy output. Attempting to deny the market is at least as bad as attempting to base everything on it.

Where does this leave us? No wonder economics is referred to as the dismal science. Seeing the difficulties of both pure market and pure state, the countries of both Europe and North America have adopted mixed systems of various sorts, but these too have their problems. In the rest of this article, I’ll focus on the situation in the U.S., but the principles can be applied more broadly.

(As for economics as a study, there has been considerable mathematical refinement during the last 100 years or so, but very little conceptual development. Not that there aren’t a few economists, such as Scott Burns, Herman Daly, and Robert Theobald, who are dealing with the subject from a broader perspective, but those economists who influence public policy and business are still conceptually in Adam Smith’s world.)

Our Current Situation

In our mixed system, the question of whether there is too much or too little government activity in the economy is the standard issue that most of our politics revolves around. Yet there are also other “classic” issues that are affecting the behavior of our system. Below is a diagram by Shann Turnbull (Australian business consultant and author of Democratizing The Wealth Of Nations) that gives a view of our current problems in terms of these classic issues.

Turnbull is primarily concerned with how to get a market based system to function in a way that is generally beneficial – that is indeed democratic. Implicit in his analysis is the idea that this can happen only when there is a fairly broad distribution of wealth so that the market has “equal players”, and that money should be a reliable store of value, free from manipulation. In the diagram, two items are identified as key causal factors. Let me now provide more detail on each of these.

Wealth in the form of land and corporations tends to concentrate because the more you have, the more you can afford to reinvest, thereby generating still more. The two main “rules of ownership” that accentuate this concentration are: 1) there are no built-in factors (such as requirements of use or other involvement) that might tend to limit the amount of land or corporate equity one person can own, and
2) there are no built-in factors to limit the life of ownership (such as the time limits on patent rights or the natural depreciation of most personal items, buildings, tools, etc.). Thus wealth in this form, once gained, requires little effort to be retained. Whatever the general merits of these rules, their result, in capitalist countries throughout the world, is to concentrate the ownership of productive assets.

The cultural factor that is linked with this is that most people have little experience in, skill at, or incentive to learn economic management skills. This in turn makes them tend to play the economic game poorly, thereby losing more wealth to those who play it well.

The second key factor – monopoly control of the money system – is something whose importance has been made clearer through the recent worldwide growth of inflation and the problems of large scale international and corporate debt. The banking and money system can be used as a subtle but powerful tool for influencing the economy of a society, as Keynes argued. It can also be used to transfer wealth from one part of society to another unless there are effective controls, beyond the reach of the government, including some effective standard that keeps the value of money steady over time. At the present time our money system has no such standard, and historically, monopoly control has always provided an irresistible temptation to use that power in the interest of the politicians and bankers who control the system.

Neither of these critiques is particularly new. The analysis of the tendency for wealth to concentrate goes back at least to Ricardo and of course was a central theme of Marx. It tends to be associated with left-wing critics of the system. The analysis of the problems caused by monopoly money control goes back at least 100 years to the populist movement, although in recent years it has been most developed by right-wing critics of the system. For me, a major part of the strength of Turnbull’s analysis is his ability to leave the usual ideological feuding behind and show the interaction between these two problem areas. Not included on this diagram, but also contributing to the breakdown of the system, are high levels of spending on nonproductive items such as military hardware. Obviously the system has survived in spite of these problems, but that does not mean they are not significant. They are inefficiencies that we can afford to ignore only during times of general easy affluence.

Yet the current difficulties that economies are facing come from more than just these classic problems. Robert Theobald lists four non-economic “driving forces” that are causing broad changes in our economic life. These are:

1) Technological advances, especially in microelectronics, telecommunications and biology. Of major socio-economic importance is the enormous potential robotics and computers have for reducing the need for semi-skilled factory workers and white collar clerks. Some new highly skilled jobs will be created, but in much smaller numbers than those lost. Thus, unlike the past, any major new spurt in investment is likely to increase unemployment.

2) The declining availability of energy and raw materials. Now that we are starting to bump into the finiteness of non-renewable resources, we are also being made aware that our economic system has absolutely no mechanism for including the interests of future generations in its calculations.

3) The growing importance of maintaining environmental quality. Another vital part of the real economy that our system doesn’t include in its accounting is the natural environment.

4) Changes in the labor force including the entry of more women and the decline in unskilled jobs without a corresponding decline in unskilled workers. The number of people who want jobs is growing at the same time that technological advances are pressing to greatly reduce the number of jobs.

The impact of these on our economic framework is that we must now take into account new factors that are not directly represented in the market-place (future generations, the environment), and we will have to reapproach the whole question of the distribution of work and of goods and services.

In addition to, and in some ways standing above all this is the growing importance of information in our society. John Naisbitt, in Megatrends, identifies the following 10 items as the dominant socio-economic trends going on in the country at this time:

1) We are in a major shift from an industrial to an information-based society.

2) Every new technology (high tech) introduced is balanced by an increased emphasis on personal interaction and community (high touch).

3) National economies are blending into a global economy.

4) Corporate decision makers are moving from short term to long term planning.

5) We are shifting from centralization to decentralization.

6) We are turning away from institutional help to self-help.

7) Representative democracy is giving way to a greater emphasis on direct participatory democracy.

8) Hierarchies are being replaced by networks.

9) The focus of economic growth is moving from the North to the South.

10) We no longer live in an either/or world; people are demanding and getting a multitude of options.

With the possible exception of the move from North to South, each one of these is an expression of the way in which there is more information in our society today, we have more access to it, and we are more skilled at using it.

Subtler than all these items, but woven through them, is the way that we are changing our sense of what is important in life from things and possessing to information and experiencing. The Values and Life Style study by Stanford Research Institute describes the U.S. population as being divided into three major groups: those who are focused on survival needs (about 10%), those who are focused on status and approval needs – the “outerdirected” – (about 60%), and those who are focused on personal growth and experience needs – the “innerdirected” – (about 30%). The striking thing about their study, however, was that the percentage in the “innerdirected” group had grown rapidly during the 1970′s and, consistent with Naisbitt’s trends, showed every indication of continuing to grow during the 1980′s. Every one of the articles in the first section reflects this shift. Of course, in all these trends, the shift does not mean a black and white jump from one category to another. The coming of industrial society did not mean that people stopped all agriculture and in the same way, the shift to an information society does not mean the end of industry. But the balance does shift, and in ways that have profound affects throughout the culture.

A Toolbox Of Concepts

We have come a long way from the cottage industry world of Adam Smith or the black smokestack world of Karl Marx. As I look at our current situation and the dismalness of the standard economic systems, I am reminded of one of my favorite puzzles. In this puzzle the challenge is to take 6 match sticks and arrange them so that each end of each stick is touching the ends of two others. People will usually lay the sticks out in front of them and try all kinds of unsuccessful patterns until they realize that the problem can’t be solved in two dimensions. The solution is very simple when you get it – a pyramid. Likewise, if we are to adequately deal with our new complexity we will need to go beyond the limited market-state dimension. We need a richer vocabulary of models, concepts and options to draw on. I’d like to suggest the following items as particularly helpful conceptual tools for going beyond the traditional domain of economics.

Spheres of Economic Activity While conventional economics claims to be (and needs to be) a broad study of the production and distribution of goods and services, in practice it has focused almost entirely on only one area (or sphere) of productive activity – namely the “cash” economy. The productivity within households, the informal economies within communities, the productivity of ecosystems have all been ignored and/or taken for granted. The reason sometimes given for ignoring the non-cash economies is that since there are no prices, there is no objective way to determine the value of these activities – “since we don’t know how to handle it, we will assume it’s unimportant.” Yet this is hardly a minor oversight. In The Household Economy (still the best introduction to the economic importance of the non-market economies), Scott Burns shows that even in our highly cash-economy oriented society, at least 1/3 of all “income” comes in the direct form of goods and services through productive activities in the household and community. For most people in the world, the cash economy accounts for only a small part of their total economic activity. Nor is this merely an academic problem. The close connection between economics and politics has meant that because these other “economies” have been left out of the standard accounting, they have been systematically undervalued and depleted in the interest of boosting the market economy. The result of this “oversight” has been devastating in many Third World countries where well established community economies have been destroyed as a “side effect” of development programs aimed at boosting the country’s Gross National Product, leaving the country richer on paper but poorer in fact (see, for example, the following article by Belden Paulson). The lesson here is that we cannot expect to develop a useful new economics unless we take into account the household, the community, and the biosphere as significant spheres of economic activity.

Materials, Skills, and Time Economic activity requires inputs. Economists sometimes divide these into such things as land, capital and labor, but I find another set of three categories more useful, i.e. material goods (land, equipment, supplies, etc.), skills (including knowledge) and time. The special thing about this division is that each type of input is governed by distinctly different laws. Material goods are all limited in abundance and normally subject to wear (depreciation and entropy) through use. They obey an economy of scarcity in the sense that they can only be in one place at one time, and use by one person or group generally means that resource or tool is not available for use at the same time by others. Every apple I eat means one less apple available for someone else. (This “economy of scarcity” does not mean that someone must always be left empty-handed, but just that we need to treat our material resources with care. I think it was Gandhi who put it well by saying, “The earth has enough for every man’s need, but not every man’s greed.”)

Skills and knowledge, on the other hand, obey an economy of multiplication. If I “give” a skill to someone else, I don’t thereby lose it. (In fact, my skill probably grows through the process of teaching it to another.) There are no physical limits on the amount of skill and knowledge one can have (and we are obviously still a long way from whatever mental limits may exist). As for depreciation, skills tend to decline not from use but from lack of use.

The third input, time, is also different. Unlike the others, it can’t be stored or transferred. It is always limited, yet never wears out. It is the most democratic resource, and (as discussed in the article “The Importance of Time“) it is probably the ultimate limiting resource.

The Diversity of Motivations Conventional economics (both as a formal theory and in business practice) assumes that human desires for economic goods and services are unlimited, and that we work primarily for external (outer-directed) reasons, e.g. to get paid so that we can consume. Psychologists like Abraham Maslow suggest instead that people operate on the basis of a hierarchy of needs, starting from survival, going up through security, esteem and love, to self-actualization. The consumption needs of each level are limited, and when they are truly met, attention tends to shift to the next level up until one reaches the level of self-actualization which is a creative need, focused on intrinsic rewards, rather than a deficiency need. In this model, as one becomes more skilled in satisfying various levels of needs, one’s demand for goods and services may actually decline. Clearly, the theory of motivation assumed can make a major difference in the type of economic system developed.

Another useful model for understanding the diversity of human motivation is the idea of the three levels of the human brain developed by Paul MacLean, Chief of the Laboratory of Brain Evolution and Behavior at the National Institute of Mental Health. Physically, our brains are a combination of a central stem that is very like the brains of reptiles, a second layer that is like the brains of other mammals, and an outer neo-cortex that is distinctly human. MacLean suggests that our behavior reflects this physical organization. The reptilian part is concerned with territory, possessions, and physical space; the mammalian part is concerned with relationships, status, and emotions, and the neo-cortex is concerned with synthesis and creativity. The three brain levels trace out the same hierarchy of needs as Maslow’s model, but this model emphasizes that these needs are not only with us all the time, but that different parts of the brain can act independently, even in opposition. In either model, the goal is to meet all the needs in a coordinated way. If we are to develop a realistic new economic framework, we need to appreciate this full diversity of motivations not only between people but within each of us.

Modes of Communication and Organization Conventional economics assumes that there are only two significant forms of communications and organization: via price in the market-place and via command in a hierarchical organization. Capitalist economies use both while Marxist economies rely primarily on hierarchy. Yet as usual, real human behavior is more diverse. Turnbull, in his economic study of aboriginal society for the Australian Parliament, found that he had to include two other economically significant modes: spontaneous communications in small groups, and forms of organization based on membership/ownership/relationship positions. To these I would add a fifth type, the network. Each has its strengths, and by having all of them in our toolbox, we can construct much more appropriate economic systems.

Feedback and Time Lags When your action produces a reaction that affects your next action, you are in a feedback loop. When your action produces a reaction 10 years from now, you are in a feedback loop with a time lag. One of the challenges of real life is that our actions often produce many different reactions with a broad range of time lags. It is all too easy to respond primarily to the immediate feedback and ignore the long term, but the results of this can be disastrous. Farming by heavy cropping without caring for the soil may yield bigger profits now, but destroy the farm within a few years. On the other hand, short term costs can prevent us from making positive long term investments. Normal accounting attempts to include long term effects through such things as depreciation and discounted cash flow analysis, but rarely does the time line extend beyond 20 years. Such a system has no way to compare the value of a building that will last hundreds of years with one that will need to be replaced in 20. And where in our accounting do we include the cost of cancers that develop twenty years from now due to today’s high levels of air/water/soil pollution? It is not an easy problem, but one that a sustainable culture has to be able to deal with.

The Tragedy of the Commons The great hopeful vision of Adam Smith was that the competitive market would turn personal profit seeking into social good by encouraging production yet protecting buyers from overcharging. A truly competitive market can function this way, but unfortunately, overpricing is not the only problem that can come from greed. The following story is a famous example of how profit seeking and time lags can combine in areas outside the market to produce major problems.

English villagers, like villagers in many parts of the world, held certain grazing lands in common. Imagine a village with 10 families, each family with 10 sheep, and suppose that the commons is at the limit of its sustainable grazing capacity with these 100 sheep. As long as each family restricts itself to 10 sheep, all goes well. But suppose one year one farmer expands to 11 sheep. This 1% addition to the herd may push the commons into overgrazed condition, but so slightly that in the first year no one will notice. Everyone else will, however, notice that he has increased his income by 10%. Next year everybody wants to do the same, but if they do, the impact on the commons will be disastrous. The commons may take years to recover, during which time it will support few, if any, sheep.

The air and water around us are obvious parts of our “commons”, but so too are such things as the vitality and good will in our communities. If we want to protect these, we may have to restrain some activities by some means other than the competitive market.

Scale and Optimization One of the basic principles in economics is the law of diminishing returns. For example, adding a fourth player to a volleyball team that had three makes a big difference; adding a tenth to nine has less impact. In more precise terms, the basic idea is as follows: Human activity generally involves the blending together of many inputs. Some of these inputs are easily varied (e.g. the number of players), while others are relatively fixed (the size of the court, the one ball). If one input is relatively low, it will be the limiting factor and the other inputs will be underutilized. As the limiting factor is increased up to the point where all the inputs are in optimal balance, the output of the system will increase approximately in proportion to the increase in the limiting factor. But beyond the balance point, the variable input (players) is no longer the limiting factor, and extra amounts of that input will no longer produce as much increase in output, i.e., the returns on that input diminish. Thus every activity has an optimal scale determined by the most limiting fixed input.

The following diagram, showing the general relationship between benefits and costs for some varying input, takes these ideas a step further.

The benefit curve is a direct expression of diminishing returns. The cost curve looks different, but it is just “the other side of the coin” of the same principle. It rises because (usually) the more you want, the harder it is to get – demand drives the price up. Subtracting costs from benefits gives the net benefit of that input (dashed line) which has a maximum at a limited input. Beyond that optimum, more is worse.

While this may all seem obvious and tedious, it is remarkable how poorly we apply these principles in our current economic system. For example, let the “input” in the figure be goods and services from the market-place and let the output we are seeking be quality experience. Conventional growth economics assumes that more will always be better. This implies that there are no other inputs to our experience, thereby ignoring the role of both our own skills and time. Time is especially crucial as a limiting factor, as is discussed in more detail in the article about time.

These principles also help to make clear why concentration of wealth leads to economic inefficiency. A clear example is the distribution of farm land in Third World countries. Consider an initial situation in which there are 11 families who have use of a total of 55 acres, but most of this land is concentrated so that one family works 53 acres and the other ten work 1/5 of an acre each. The small plots are too small to fully utilize the human energy of the 10 families, while the large piece is too large to be farmed intensively. If the land were divided so that each had approximately 5 acres to work, the total yield of the land and the utilization of the human energy available would be much higher. Thus the value of any resource depends as much on its distribution as on its absolute amount.

On the other hand, these same principles suggest that exact equality in the distribution of material goods is likewise undesirable and inefficient. First, people have different interests and abilities, and so different capacities to utilize any particular resource, and second, the long term health of the social ‘ecosystem’ requires diversity. Thus, like most other things, diversity and inequality have an optimal scale.

Game Sums During World War II, mathematicians dealing with questions of strategy developed an area of study known as game theory. The particular concept I want to take from this is the idea that an important characteristic of any game is the total effect it has on all the players. That is, if you add up all the gains and losses, does playing the game create more gains (positive sum), a balance of gains and losses (zero sum), or a net loss (negative sum)? It is a very simple idea, but its importance lies in focusing attention on the whole game, and that some games (i.e. systems) have more positive overall results than others.

Facing The Issues

It is time now to put some of these pieces together. Our initial goal was to find a realistic framework for the economics of a sustainable culture. The ground we have covered so far suggests that the problem with conventional economic theory is that it is too narrow. Too many significant factors have been left out. We can begin to build a broader framework by restating the basic goal we see for economic activity. In conventional economics – capitalist or Marxist – it is to produce and distribute goods and services as abundantly and as efficiently as possible. In the economics appropriate to a sustainable information society it becomes: to sustainably support as high a quality of human experience as possible, as efficiently as possible. We could rephrase the first as “maximize efficient market- place activity” and the second as “sustainably optimize quality of life”. People of Adam Smith’s day would have seen these two as basically the same, except the first was simpler and more precise. Yet the experience of the past 200 years makes it all too clear that they are not the same, and whatever difficulties there may be in defining such things as “quality of life”, we can’t back off from the broad scope this second goal implies and still expect to develop the kind of whole system understanding we need.

This broader scope raises new issues that are likely to be major economic-political issues as we shift from an industrial society to an information (hopefully humane sustainable) one. We will still have the old ones (balance between market and state, rules of ownership, and control of the money and banking system), but to these will be added:

The right relationship between market, household, and community. As trivial as it may sound, one of the most important aspects here is the type of economic statistics that we gather and use. Such things as the GNP measure only market activity and completely ignore productivity outside the cash economy in households and communities. If we are going to use statistics as a basis for policy, we need to develop a whole new set of statistics that track the productivity in each economic sphere as well as tracking overall quality of life. When we begin to treat the non-cash economies on an equal basis with the cash economy, then we can also begin to work out properly balanced, efficient and supportive relationships among them all.

Representing the interests of those without voice. The natural environment and future generations have no direct voice in either government or any economic sphere, yet we cannot have a sustainable culture without paying significant attention to their interests. At the moment, our major approach to this issue is through special interest groups and the promotion of government regulations, but is that the best or the only way? What role does art and ritual have to play? How about public opinion mobilized through good communications networks and expressed through selective buying?

One of the most promising approaches is that being taken by the land trust movement. The age-old debate about property rights usually focuses on the limited question of private vs. state and assumes that ownership is either black or white – you either have it or you don’t. In actual practice however, “ownership” generally refers to a whole bundle of rights and they are rarely absolute. By separating these rights, land trusts are finding ways to maintain many of the normal benefits of private ownership for user-owners, and at the same time protect the long term interests of the community, as for example when a conservation land trust holds the development rights to a piece of farm land. An interesting aspect of this approach is that the land trust, which supposedly represents the broader interests of the community, is a non-governmental group. This has both problems and benefits, but it does add a new dimension to the old private vs. state debate. To some extent, government regulation will undoubtedly always be necessary, but it would be dreary indeed if that was our only tool for giving voice to the hills, trees and great grandchildren.

Limits and optimization. In Adam Smith’s day, human energy and technical capacity was (generally) the limiting factor in economic activity, so there was no need to consider holding back from doing all that was technically possible. We, however, are much closer to the limits of “the commons”. We need an economic outlook that can help make optimal use of our limited resources and help us avoid the temptation to add the 11th sheep. An essential tool for doing this comes from realizing that of the three types of inputs, only two of them – material goods and time – are limited. As far as we know, there is no limit to the growth and refinement of human skill. Thus a major strategy for an economic system of a sustainable culture is to focus its growth, not on quantity of goods, but on quality of skill (which is also what you would expect from an information society).

Let me expand on this a bit. There are three places where skill enters into economic activity: skill in design, skill in manufacture or implementation, and skill in use and maintenance. The first two might be called the embodied skill within an object, organization, or system, while the third is the immediate human skill that interacts with that embodied skill. They are like three links of a chain, and the overall efficiency of any economic activity will be limited by the weakest link. For example, it makes no sense to build cars that can last for 100 years (technically not difficult) if people’s skill in use and maintenance is so poor that the cars are wrecked in typically 10 years. As we move to more “long-life” products, the distributed skill in use (especially in households and communities) will become an increasingly important part of the intangible wealth of the society. The new economics needs to develop ways to acknowledge and support all three skill levels with the proper balance, thereby achieving optimal use of the limited resources – materials and time.

Indeed, we need to make a much more profound commitment to genuine efficiency throughout the whole system if we are to have a culture that is both sustainable and humane. The good news is that in fact our present culture is massively inefficient in its use of material resources, human energy and talents, and therefore also time. The progress made in energy conservation (more rapid than most “experts” expected) indicates just the tip of the iceberg of our inefficiency. Most of the products we use could be made to last much, much longer than they now do. While initial costs might be higher, life cycle cost would be much lower, as would consumption of resources. (The difficulty, of course, is that total sales volume would also be much lower.) Rebuilding community is another means through which we can use resources much more efficiently (as illustrated in Serious’s article about the Love Family).

Yet probably the most profound way we are currently inefficient is through our belief in the magic of possessions. Through the culture of consumerism, we have been trained to believe that we can meet psychological needs through objects and activities whose primary value is their symbolic associations. This hope that we can buy our way to happiness drives us to levels of consumption far above what is actually needed for a comfortable and creative existence, yet the satisfaction we seek eludes us (or is at best temporary). This whole bubble of drives and hopes rapidly deflates when we discover that there are in fact effective and much simpler ways to satisfy our needs for security, esteem, and love through psychological skills and relationships. This discovery (not really new, but forgotten by our culture for a while) is very much part of the “megatrend” pattern, and it opens the door to a much more materially efficient society. Some of the possibilities of this shift are explored by Duane Elgin in Voluntary Simplicity.

All of this, however, will not absolve us of the need and the responsibility to make some hard decisions about when enough is enough and what is optimum. While hopefully we can design systems that have as much flexibility and room for personal freedom as possible, there will be places where the community will have to insist that “the commons is limited to 100 sheep”.

The distribution of work and resources. This is not really a new issue, but it has been greatly intensified by the trends in our current situation. As the bonds of family and community have weakened and as wealth has concentrated, we have come to rely more heavily on market-place jobs as the primary legitimate means of obtaining goods and services. Because this is inadequate, we have also turned to more and more government welfare, but as a society our feelings remain ambiguous about the legitimacy of this.

Thus we find ourselves with the demand for market jobs rising just at the point when the need for these jobs is declining, and when much of the work that needs to be done exists outside the market. We will either 1) attempt to prevent market-place from becoming more efficient for the sake of providing more jobs (disastrous for sustainability and unlikely to succeed in the face of international competition),
2) move in the direction of the “third-worldization” of our society with larger and larger gaps between the “haves” and “have-nots” (a system that makes very inefficient use of human and material resources), or 3) we will need to develop new means of maintaining the flow of goods, services, and opportunities through the whole social system.

What are the alternatives? There are many. Job sharing, more part-time work, shorter work weeks, and other forms of reducing the average amount of time spent in a job all have the advantage of spreading the responsibilities and pleasures of market-place work as well as spreading access to goods and services. We can also work to strengthen community and extended family bonds. In addition, we can make broader use of ownership rights. In his book, Democratizing The Wealth Of Nations, Turnbull describes a variety of ways to redesign the rules for owning land and corporations so that these forms of wealth will spread rather than concentrate. The Mondragón cooperatives described in a later article provide another major approach to spreading ownership. Finally, there are many ways (private, governmental, small group level to international) for directly redistributing buying power.

Clearly, if we wanted to find ways of more broadly and flexibly distributing both the wealth and the work of the society, we easily could, but during the industrial era, we have been reluctant to do so. Why should we, as a society, behave any differently as the information era develops? Perhaps the simplest way to answer this is to note that the industrial era, with its focus on material goods and the economy of scarcity, trained people to see life in terms of zero sum games – if you gain it must mean I lose. The information era, with its economy of multiplication, will have more experience with and give more attention to positive sum games – if you gain, I’ll gain too through feedback loops. These new perceptions will get our minds to appreciate the value of the sharing our hearts have always understood.

That is the general idea, but we can also be more specific. Job sharing and other forms of shorter work times will grow more popular because, in our information and experience rich society, our personal time will become increasingly valuable, and our relative interest in market-place goods and services will decline (see the article on time). We will strengthen community as part of the “high touch” trend – because community will be one of our most effective sources of quality experience. We will broaden ownership rights as in the Mondragón cooperatives because intelligence is becoming the leading business asset, and as the intelligent labor force comes to understand it is in the driver’s seat, it will have no reason to accept anything less than the Mondragón level of control. As this experience grows and community life strengthens, we will apply the same principles to land. We will support direct transfers of buying power to support activities outside the market economy because we will understand from experience how important these non-market activities are to health of the society. We will understand that adequately supporting labors of love is the most efficient way to maximize the amount of positive creativity in the world around us.

In building these new modes for distributing both work and wealth in the society, it seems to me that it will be essential for us to understand that this is not purely an economic problem. Economic distribution is intimately tied up with questions of legitimacy, status and power. In effect, it is not the neo-cortex we have to deal with, but the mammalian and especially the reptilian parts of our brains. These may do us a great service by forcing us to make these changes in truly balanced ways.

Do these new perspectives indeed move us in the direction of “economics as a joyful art”? Classical economics came to dismal conclusions because it assumed that the only “tools” available were the market and the mores of the time. Marxist economics has shown itself to be even more dismal through its heavy dependence on hierarchical structures and the state. I hope this discussion makes it clear that we are no longer bound by these limitations. We have new concepts, new techniques, and whole new cultural patterns to work with. We can make use of all kinds of modes of communication and forms of organization. We can take into account all the different factors that really contribute to productive activity. We don’t have to act in stupid and self-defeating ways just because the way we did things in the past is too narrow for the future. Our economics can be as intelligent, as subtle, as beautiful, as joyful as the universe it reflects.

In doing this, we will always need to combine and balance many diverse elements including things that may not be easily quantified. We will have to use our full capacity to value and discriminate, even though we may be greatly aided by the techniques of mathematics and the information processing abilities of computers. Thus at its foundation, the charting of our economic life will remain that kind of fully human process we call an art.


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