Home > The Economy and the Planet > An economics fit for purpose in a finite world

An economics fit for purpose in a finite world

from Herman Daly

Causation is both bottom-up and top-down: material cause from the bottom, and final cause from the top, as Aristotle might say. Economics, or as I prefer, “political economy,” is in between, and serves to balance desirability (the lure of right purpose) with possibility (the constraints of finitude). We need an economics fit for purpose in a finite and entropic world.

As a way to envision such an inclusive economics, consider the “ends-means pyramid” shown below.

Ultimate Political Economy

At the base of the pyramid are our ultimate means, low entropy matter-energy–that which we require to satisfy our purposes–which we cannot make, but only use up. We use these ultimate means, guided by technology, to produce intermediate means (artifacts, commodities, services, etc.) that directly satisfy our needs. These intermediate means are allocated by political economy to serve our intermediate ends (health, comfort, education, etc.), which are ranked ethically in a hierarchy by how strongly they contribute to our best perception of the Ultimate End. We can see the Ultimate End only dimly and vaguely, but in order to ethically rank our intermediate ends we must compare them to some ultimate criterion. We cannot avoid philosophical and theological inquiry into the Ultimate End just because it is difficult. To prioritize logically requires that something must go in first place.

The ends-means pyramid or spectrum relates the basic physical precondition for usefulness (low entropy matter-energy) through technology, political economy, and ethics, to the service of the Ultimate End, dimly perceived but logically necessary. The goal is to unite the material of this world with our best vision of the good. Neoclassical economics, in neglecting the Ultimate End and ethics, has been too materialistic; in also neglecting ultimate means and technology, it has not been materialistic enough.

The middle position of economics is significant. Economics in its modern form deals with the allocation of given means to satisfy given ends. It takes the technological problem of converting ultimate means into intermediate means as solved. Likewise it takes the ethical problem of ranking intermediate ends with reference to a vision of the Ultimate End as also solved. So all economics has to do is efficiently allocate given means among a given hierarchy of ends. That is important, but not the whole problem. Scarcity dictates that not all intermediate ends can be attained, so a ranking is necessary for efficiency–to avoid wasting resources by satisfying lower ranked ends while leaving the higher ranked unsatisfied.

Ultimate political economy (stewardship) is the total problem of using ultimate means to best serve the Ultimate End, no longer taking technology and ethics as given, but as steps in the total problem to be solved. The total problem is too big to be tackled without breaking it down into its pieces. But without a vision of the total problem, the pieces do not add up or fit together.

The dark base of the pyramid is meant to represent the fact that we have relatively solid knowledge of our ultimate means, various sources of low entropy matter-energy. The light apex of the pyramid represents the fact that our knowledge of the Ultimate End is much less clear. The single apex will annoy pluralists who think that there are many “ultimate ends.” Grammatically and logically, however, “ultimate” requires the singular. Yet there is certainly room for plural perceptions of the nature of the singular Ultimate End, and much need for tolerance and patience in reasoning together about it. However, such reasoning together is short-circuited by a facile pluralism that avoids ethical ranking of ends by declaring them to be “equally ultimate.”

It is often the concrete bottom-up struggle to rank particular ends that gives us a clue or insight into what the Ultimate End must be to justify our proposed ranking.

As a starting point in that reasoning together, I suggest the proposition that the Ultimate End, whatever else it may be, cannot be growth in GDP! A better starting point for reasoning together is John Ruskin’s aphorism that “there is no wealth but life.” How might that insight be restated as an economic policy goal? For initiating discussion, I suggest: “maximizing the cumulative number of lives ever to be lived over time at a level of per capita wealth sufficient for a good life.” This leaves open the traditional ethical question of what is a good life, while conditioning its answer to the realities of economics and ecology. At a minimum, it seems a more convincing approximation to the Ultimate End than today’s impossible goal of “ever more things for ever more people forever.”

  1. March 4, 2015 at 7:11 pm

    I remain confused with regard to who establishes the criteria for this hypothetical structure of reality that you offer. If it is to be philosophers then we are already in trouble. If it is to be theologians, that’s asking the impossible. If it is to be scientists, their rational lacks constraint , the very reason why we are now facing imminent annihilation. From following this blog, we know it can’t be economists, since division within their ranks is rampant. Perhaps it’s bankers to whom you refer, for surely they’re predictable. They follow the scent of money wherever it leads and whatever the cost of its obtainment — human or otherwise. The problem is that they can’t themselves either. That’s why we have 1 % controlling the resources essential to the other 99%. Human nature is obviously corruptible and predicting greed is the single biggest obstacle to the creation of any universal anything that includes money. Without being able to identify the purists within humanity, I don’t feel comfortable letting any of these groups make the ultimate determinations by which to sculpt a workable economics for the World. Perhaps you could further elucidate your thinking in this regard.

    • John McDonald
      March 8, 2015 at 7:09 pm

      One place where Daly has elucidated his thinking is his book (with John Cobb), “For The Common Good: Redirecting the Economy Toward Community, the Environment, and a Sustainable Future.”

  2. March 5, 2015 at 12:14 am

    You do have a strong point, eden, yet please let us hold back there momentarily, for it is more in the political facet of “political economy,” and we have Herman Daly opening a conversation to introduce entropy front and center. Will he invite Stephen Hawking? I hope so, this is a riddle needing people like him, too.

    Entropy is also usable with the caloric unit measure within standard accounting principles and accepted reporting formats.

    Entropy and potentials expressed by quantum physics in the information age are the bed rock foundation from where we may sculpt a modern, workable political economy able to prosper and facilitate full human potential in a full world.

    Where do we start? The Dali Lama says education, let’s try there. Full commitment to education, especially women.

    Political economists can help him by projecting the likely real world impact of a full world-wide commitment to education. Reduced stress from a lower population and per capita commercial intensity restores Earth productivity for a gently declining population. An economy based on qualitative growth creates sustainable prosperity.

    This is the place. Now is the time. An Admiral once wagged his finger in my face and I pass it on, “If not you, who?”

    • blocke
      March 5, 2015 at 9:19 am

      Since any science devised by rational-empirical man will be “imperfect” then science cannot be relied upon in economics to be our unique guide. What is the principle cause of the “imperfection” of a science based on people, i.e., egoism, of individuals, families, groups, and nations. So to stop “imperfect” science from being controlled by an egoism, some sort of supervisory board needs to be set up that represents a broad range of egoisms within the ranks of science.

  3. Macrocompassion
    March 5, 2015 at 10:50 am

    Ethics must surely be in our minds at all times and the improvement of our macroeconomic situation does not culminate in an ethical situation but should be based on one.

    In particular the present unjust society in which we live needs modification by making the opportunity to earn a living equal for all. This can be achieved first not last, by a sensible government introducing a better taxation system, where the advantages of land ownership are taken as land value taxes (as proposed by Henry George in 1879, “Progress and Poverty”), so that effectively we all have a more equal opportunity.

    • BC
      March 9, 2015 at 10:39 pm

      “In particular the present unjust society in which we live needs modification by making the opportunity to earn a living equal for all. This can be achieved first not last, by a sensible government introducing a better taxation system, where the advantages of land ownership are taken as land value taxes (as proposed by Henry George in 1879, “Progress and Poverty”), so that effectively we all have a more equal opportunity.

      Precisely! Thanks for sharing the Georgist perspective. Eliminate taxation of labor, production, and savings, and tax highly progressively monopoly land resource rents, rentier speculation, “energy slaves” per capita, energy and resource waste, resource depletion per capita, pollution, traffic, and so on.

      Currently, the combined cost of gov’t AND “rentier taxes” (annual imputed net interest costs of the outstanding debt of 350% of GDP and 900% of wages) is approaching 50% of private GDP. Add in private health care and education costs, and the cumulative share is an equivalent of 54% of GDP!!!

      The cost of supporting BAU, EXTREME income and wealth inequality, and UNECONOMIC allocation and distribution of resources, income, purchasing power, and political influence and power is PROHIBITIVE to further real per capita growth and sustaining well-being per capita for the bottom 90% of households.

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