A Glaring Flaw in Economics Dogma Is Being Exposed

More than a century ago, John Muir theorized that ice-age glaciers carved out Yosemite valley into the beautiful rock formations that we see today. Geologists ridiculed him, because he was not trained as a geologist and thus his ideas were heresy. Muir was right, of course, and I doubt that the geologists apologized to him.

Similarly, John Michael Greer is looking at economics from a perspective untainted by economic dogma. He uses organic agriculture, in contrast to industrial agriculture, as his metaphor. He builds on the work of E.F. Schumacher to describe a "primary" economy that is ignored by most economists (which may explain why our economy is such a mess).

I've included some excerpts below in the hope that anyone concerned about future generations  might click on the link below and read the whole essay. And while you are there, read the comments. His audience has some great questions and insight, especially on the topic of  the value of land and organic farming.

Link: The Archdruid Report: The Wealth of Nature.

… a society that permits the advantages of ecological abuse to go to individuals, while the costs are shared by the whole society, is effectively subsidizing the destruction of its environment.

…fertile land suitable for growing crops does not simply happen. Like anything else of value, it must be made, and once made, it must be maintained; the only difference is that the laborers that make and maintain it do not happen to be human beings.

Soil suitable for crops, after all, is not simply rock dust. A large part of it – sometimes more than half – is organic matter, some living, some dead but not yet wholly decayed, some dissolved into organic colloids complex enough to give analytical chemists sleepless nights, and all of it is put there by the activity of living things over long periods of time. Energy and raw materials flow through soil, uniting bacteria, fungi, algae, worms, insects, and many other living things into one of the most intricate ecosystems on Earth. Plants participate in and depend on this bewilderingly complex world; they draw water and mineral nutrients from it, and cycle leaves and a wide range of chemical compounds back into it.

The farmer who wants to grow crops is attempting to extract wealth from the underground ecosystem of the soil. She can ignore that, and simply plant and harvest with no attention to the needs of the soil, but the soil will be depleted of nutrients in a few years and her crops will fail. Alternatively, she can replace nutrients with chemical fertilizers, predators with pesticides, and so on; if she does this she will have to use steadily larger doses of chemicals to get the same yields, and when the chemical feedstocks run out – as they eventually will – she will be left with soil too sterile and pest-ridden to grow much of anything. If she wants to fulfill Ricardo’s promise and hand the land on to her grandchildren in the same condition that it came from her grandparents, she will have to provide the things the soil needs for its long-term health. Put another way, she will have to barter with the soil, giving it the things it will accept in exchange for crops.

This is the premise of organic agriculture, of course. It’s a premise that has proven itself over millennia, in the Asian farming regions that inspired the organic pioneers of the early 20th century to devise a more general way of doing the same thing, and over decades, in the farms now using organic methods to get yields roughly comparable to those of chemical agriculture. The organic approach has many dimensions, but one may not have received the importance it deserves. To an organic farmer, land is not a commodity that can be owned but a community with which she interacts, and that community has its own economy on which the farmer’s own economy depends.

The same thing is true of every other form of economic activity, though the dependence on nature may be less obvious in some cases than in others. Behind the human activities that produce secondary goods lie nonhuman activities that produce primary goods – the biological cycles that yield soil fertility, crop pollination, and countless other things; the hydrological cycles that put fresh water into reservoirs and taps; the tectonic processes in the crust that put economically useful metals and minerals into veins in the rocks; and, of central importance just now, the extraordinarily complex interplay of biological and geological processes that stored away countless billions of tons of carbon under the earth’s surface in the form of fossil fuels.

Conventional economics assumes that these things get there by some materialist equivalent of divine fiat. This misstates the situation disastrously. Primary goods are produced by an exact analogue of the way that secondary goods are produced: raw materials are transformed, through labor, using existing capital and energy, to produce goods and services of value. The difference is simply that all this takes place in the nonhuman world. Human beings do not manage the production of primary goods, and the disastrous results of trying to do so suggest that we probably never will; on the other hand, in at least some cases – maltreated farmland is a good example – we can interfere with the production of primary goods, and suffer the consequences.

… The cycles of nature that produce goods needed by human beings constitute the primary economy, while the process by which human beings produce goods is the secondary economy. The secondary economy depends utterly on the primary in at least two ways. First, as discussed last week, something like three-quarters of all economic value in today’s world is produced by nature – that is, by the primary economy – and only around a quarter is produced by human labor. Second, even that quarter is made directly or indirectly from primary goods, and cannot be made at all if the necessary primary goods aren’t there. This is why the attempt to replace a depleted natural resource with something else always involves substitution costs: human labor must be brought in to replace some part of the work previously done by nature, and the costs of that part of the work thus end up having to be paid out of the secondary economy.

We have become so used to thinking of economics as a matter of human labor that it’s probably best to point out that what are sometimes called “primary industries” – farming, mining, and the like – belong to the secondary economy, not the primary one. The primary economy consists wholly of those nonhuman processes that yield economic goods to human beings. Thus a farm and the crops grown on it are part of the secondary economy, while the soil, water, sun, and genetic potential in the seed stock that make the farm and its crops possible are part of the primary economy. In the same way, a mine is part of the secondary economy, while the slow geological processes that put ore in the ground where it can be mined are part of the primary economy. If you examine any human economic activity, you’ll find behind it natural processes that make that activity possible; those processes are the inputs from the primary economy that make the secondary economy possible.

Thus Adam Smith’s dictum cited earlier badly needs reformulation. The product of the natural environment of every nation is the fund which originally supplies it with all the necessities and conveniences of life; the annual human labor is simply the energy input required to turn some of that product into forms useful for human beings. The wealth of nations, it turns out, is ultimately the wealth of nature, and the sooner the value of natural cycles and primary goods is taken into account, the better chance our descendants will have of avoiding the self-defeating habits that are pushing modern industrial system down the long road to collapse. To do so, however, will require a clear sense of the difference between value and price, or to put matters another way, between wealth and money – the theme of next week’s post.

I recommend that you read the whole essay and comments at this link: The Wealth of Nature.