Is a steady state economy obtainable? Is it desirable?
I’m not sure why a steady state economy would be desirable. It would simply mean that that wealth has reached its maximum limit, and that one can no longer increase production. That said, I think it’s impossible, given that the entire point of innovation is to make more out of less. In other words, if we maximized the use of the Earth’s natural resources (and were incapable of getting these resources elsewhere) then it would make more sense that we begin to utilize these resources more efficiently, increasing production of goods per resources used. This is what we have been doing for millenia. Take for example the agricultural revolution: the same plot of land could grow many times the amount of food it did originally. This allowed for a massive boom in population. I’m not sure why it’s not possible that this would happen again, in any given resource that could be produced by man.
Obtainable? No. Economies grow in response to consumer demand. Humans can only guess consumer demand and attempt to satisfy it. Consumer demands are not limited by ecological constraints or physical constraints. So the human capacity to exploit resources by manipulating them in different ways in order to satisfy that demand are only constrained in time not by ecology or physics.
Desirable? ABSOLUTELY NOT!!! There is no human or group of humans or computer or group of computers or group of humans and computers that can manage an economy as it can not take into account consumer demand and is even less able to account for changes in that demand. So any attempt by humans and computers to manage an economy by constraining demand or supply or both is doomed to fail as this group of humans and computers does not have information available to actors in the economy. The only result is low growth relative to more free people.
I have a copy of Herman Daly’s Steady State Economics sitting on my desk right now. Haven’t read it yet but I’ve skimmed a few pages, basically sounds like a central planner’s wet dream with the impetus of saving the world (birth licenses, resource consumption restrictions etc). There is a section on economic growth fallacies that I think is highly relevant but the rest seems like it may be a bit kookoo. I’ll refrain from commenting further until I’ve actually read the thing though.
I agree with you all. I think the biggest flaw of the steady state economy is it does not take into account subjective valuations of individuals. Yes, perhaps some individuals within an economy may choose “steady state” for themselves, which is fine and dandy. But that does not mean that all individuals desire to. As ThreeTrees stated, the steady state economic approach is tantamount to central planning.
I do find some of the concepts of ecological economics worthy and perhaps even friendly with Austrian Economics, but Ecological Economics normative mandates are a far cry from Austro-libertarianism. Its normative approach runs afoul of the economic calculation problem and the knowledge problem.
even the definitions they manufactor to tell the story of ‘steady state economy’ contradict.
the model considers that ‘The steady state economy is an entirely physical concept’. , and its measured by GDP.
huh?
can you elaborate on the contradiction?
I highly doubt it’s possible, and certainly not desirable. Economies are always in flux, demands and supplies always changing. There are far too many variables for any computer or government to hope to control an entire economy. Plus, it’s growth would be low and skewed, producing less wealth than a free market.
John decides to measure the purely physical product of a local factory.
does he get out weighing scales?
does he count?
does he measure the factories total physical production by looking at the number stamped on the front and back of a piece of paper known as fiat ‘currency.’ which the factory did not even receive for selling its entire produce, but it is imagined is the paper it would have received had it sold its stock.
Thanks for killing GDP. I’m going to have to remember the essence of this post.
do you know of any papers that have explicitly refuted a steady state economy? seems like an interesting topic…
A steady state economy is an economy of relatively stable size.
My personal interpretation and understanding is that a good dose of the first half of Human Action is meant as inoculation against statements such as the above. size is meant by these people as a measure of physical quantity. yet economics can only be understood as the phenomenon involving acting man . who values the services material renders to him…, perhaps they confuse economics with accountancy? or maybe worse…
Here are two quotes from Mises and then after that Robbins, they are not ‘directly’ on the topic but i think them relevant.
It is of primary importance to realize that parts of the external world become means only through the operation of the human mind and its offshoot, human action. External objects are as such only phenomena of the physical universe and the subject matter of the natural sciences. It is human meaning and action which transform them into means. Praxeology does not deal with the external world, but with man’s conduct with regard to it. Praxeological reality is not the physical universe, but man’s conscious reaction to the given state of this universe. Economics is not about things and tangible material objects; it is about men, their meanings and actions. Goods, commodities, and wealth and all the other notions of conduct are not elements of nature; they are elements of human meaning and conduct. He who wants to deal with them must not look at the external world; he must search for them in the meaning of acting men.
…
The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences. It is a fact that people in dealing on the market are motivated not only by the desire to get food, shelter, and sexual enjoyment, but also by manifold “ideal ”urges. Acting man is always concerned both with “material ”and “ideal ”things. He chooses between various alternatives, no matter whether they are to be classified as material or ideal. In the actual scales of value material and ideal things are jumbled together. Even if it were feasible to draw a sharp line between material and ideal concerns, one must realize that every concrete action either aims at the realization both of material and ideal ends or is the outcome of a choice between something material and something ideal.
also Mises writes about no fixed constants as in the natural sciences; I guess the Solow model is just an abstract thought experiment; maybe serves its purpose as a foil or pedagogical tool, like the ERE, but unlike the plain state of rest which has a realist construction… But the wiki page seems to refer to the steady state economy as an ‘actualizable’ economy, and has text on its merits and demerits and other nonsense…
Mises taught us that economic calculation is made possible by money prices and private property markets. but money prices lose all meaning when seen outside of the entrepreneurial perspective, i.e. from the perspective of a central planner or from the point of view of an abstract ‘social construct’.
Robbins
Professor Cannan commences by contemplating the activities of a man isolated completely from society and enquiring what conditions will determine his wealth—that is to say, his material welfare. In such conditions, a division of activities into “economic” and “non-economic”—activities directed to the increase of material welfare and activities directed to the increase of non-material welfare —has a certain plausibility. If Robinson Crusoe digs potatoes, he is pursuing material or “economic” welfare. If he talks to the parrot, his activities are “non-economic” in character. There is a difficulty here to which we must return later, but it is clear prima facie that, in this context, the distinction is not ridiculous.
But let us suppose Crusoe is rescued and, coming home, goes on the stage and talks to the parrot for a living. Surely in such conditions these conversations have an economic aspect. Whether he spends his earnings on potatoes or philosophy, Crusoe’s getting and spending are capable of being exhibited in terms of the fundamental economic categories.
…
Value is a relation, not a measurement. But, if this is so, it follows that the addition of prices or individual incomes to form social aggregatesis an operation with a very limited meaning. As quantities of money expended, particular prices and particular incomes are capable of addition, and the total arrived at has a definite monetary significance. But as expressions of an order of preference, a relative scale, they are incapable of addition. Their aggregate has no meaning. They are only significant in relation to each other. Estimates of the social income may have a quite definite meaning for monetary theory. But beyond this they have only conventional significance.
actually, last night I did find a pretty direct section in Human Action.
Wow. Mises thought of this back then!? Brilliant.
Actually I think the whole of Human Action is designed to innoculate against the idea of a Steady State Economy. The Stationary Economy is a purely hypothetical model, the SSE is an entirely different animal. The methodology behind SSEs is strict control of natural resources in order to create artificial scarcity and influence the price level and lower consumption. Mix with transferrable birth licenses and serve.