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.

The Future of Industrial Agriculture

Jeff Vail at the Rhizome blog analyzes the thought-provoking essays at The Oil Drum by Stuart Staniford and Sharon Astyk on the nexus of Peak Oil and agriculture, with Staniford suggesting that peak oil will not result in relocalization of agriculture because the industrialization of agriculture is a more efficient use of energy and is not practicably reversible, and Astyk rebutting that idea. Vail offers a third perspective: that we have insufficient information to reach a conclusion about when energy scarcity will result in relocalization of agriculture, but that we will likely cross this threshold in the not-too-distant future and should prepare accordingly.

Below is Vail’s summary of the arguments on industrial agriculture. Click on any of the links for more detail.

Link: Jeff Vail

A. Why would centralization of agriculture increase efficiency?

1. Economy of place: It is more efficient to grow oranges in Florida than in a heated greenhouse in upstate New York (or, to use the classic example, wine in Portugal than in England).
2. Economy of scale: It is more efficient for one man to grow ten orange trees than ten men to each grow one for a variety of reasons.
3. Specialization of knowledge processes: A contributor to #2 above, but particularly important in the era of increasingly scientific and knowledge intensive farming—farmers can afford to specialize in farming, whereas people who are only part-time farmers cannot to the same degree.
4. Justification for intensive capital expenditure: An industrial farmer can justify the expense of a complex combine harvester that automates processes, whereas a small holder may not be able to. (Stuart Staniford)

B. Why would decentralization of agriculture increase efficiency?

1. Transportation & operation cost: decentralized farming has the potential to require transportation over shorter distances to market than centralized farming, and therefore less embodied energy cost. Likewise, tractors and combines use oil, whereas hoeing and hand weeding do not.
2. Superior suitability for sustainable operation: for now, decentralized agriculture seems more capable of maintaining topsoil and is more adaptable to varying water regimes.
3. Greater resiliency to black swan & gray sway events: decentralized agriculture is less susceptible to terrorism, is more likely to incorporate the biodiversity necessary to overcome disease, and may be more adaptable in the face of global warming.
4. Less exposure to capital cost creep: decentralized agriculture is less dependent on expensive machinery that is subject to increasing cost as the cost of manufacture and raw materials increase. (Sharon Astyk)

The Future of Industrial Agriculture

Thinker and writer John Michael Greer describes why organic farming is the next step in the evolution in agriculture that is unfolding in the United States. Excerpts below.

Link: The Archdruid Report: Agriculture: Closing the Circle

It’s extremely common for people to assume that today’s industrial agriculture is by definition more advanced, and thus better, than any of the alternatives. It’s certainly true that the industrial approach to agriculture – using fossil fuel-powered machines to replace human and animal labor, and fossil fuel-derived chemicals to replace natural nutrient cycles that rely on organic matter – outcompeted its rivals in the market economies of the twentieth century, when fossil fuels were so cheap that it made economic sense to use them in place of everything else. That age is ending, however, and the new economics of energy bid fair to drive a revolution in agriculture as sweeping as any we face.

Industrial farming follows an extreme case of the extractive model; the nutrients needed by crops come from fertilizers manufactured from natural gas, rock phosphate, and other nonrenewable resources, and the crops themselves are shipped off to distant markets, taking the nutrients with them. This one-way process maximizes profits in the short term, but it damages the soil, pollutes local ecosystems, and poisons water resources. In a world of accelerating resource depletion, such extravagant use of irreplaceable fossil fuels is also a recipe for failure.

…organic farming moves decisively toward the recycling model by using organic matter and other renewable resources to replace chemical fertilizers, pesticides, and the like. In terms of the modern mythology of progress, this is a step backward, since it abandons chemicals and machines for compost, green manures, and biological pest controls; in terms of succession, it is a step forward, and the beginning of recovery from the great leap backward of industrial agriculture.

The Future Value of Organic Farming and Farmers Markets

Writer and thinker John Michael Greer describes why organic farming is more than politically correct fad embraced by affluent suburban tree huggers who shop at Whole Foods.

If you believe that the current American lifestyle of energy use is sustainable, then stop reading. But if you are concerned about the future and prosperity of the next generation of Americans, read on.

Excerpts from Mr. Greer’s article are below. Click on the link to read the whole blog post (the comments are very interesting also).

Link: The Archdruid Report: Agriculture: The Price of Transition.

Unlike air and water, the vast majority of the food we eat comes from human activity rather than the free operation of natural cycles, and the human population has gone so far beyond the limits of what surviving natural ecosystems can support that attempting to fall back on wild foods at this point would be a recipe for dieoff and ecological catastrophe. At the same time, most of the world’s population today survives on food produced using fossil fuels and other nonrenewable resources such as mineral phosphate and ice age aquifers. As the end of the fossil fuel age approaches, other arrangements have to be made.

This poses a challenge, because nearly every resource currently used in industrial agriculture, from the petroleum that powers tractors and provides raw materials for pesticides, through the natural gas and phosphate rock that go into fertilizer, to the topsoil that underlies the whole process, is being depleted at radically unsustainable rates. Some peak oil theorists, noting this, have worried publicly that the consequences of declining petroleum production will include the collapse of industrial agriculture and worldwide starvation.

…The organic farming revolution …may be the most promising and least often discussed of the factors shaping the future of industrial society. It’s not a small factor, either. In 2005, the most recent year for which I have been able to get data, some four million acres of land completed the transition from chemical to organic agriculture, about a million acres over the previous year’s figure.

Because it uses no chemical fertilizers and no pesticides, organic agriculture is significantly less dependent on fossil fuels than standard agriculture, and yet it produces roughly comparable yields. It has huge ecological benefits – properly done, organic agriculture reverses topsoil loss and steadily improves the fertility of the soil rather than depleting it – but it also translates into a simple economic equation: a farmer can get comparable yields for less cost by growing crops organically, and get higher prices for the results. As the prices of petroleum, natural gas, phosphate rock, and other feedstocks for the agrichemical industry continue to climb, that equation will become even harder to ignore – and in the meantime the infrastructure and knowledge base necessary to manage organic farming on a commercial scale is already solidly in place and continues to expand.

Transportation, at least in North America, is a thornier problem. The railroad system that once connected North American farmland to the rest of the planet, and enabled it to become the world’s breadbasket, was effectively abandoned decades ago, and it’s an open question whether enough of it can be rebuilt in the teeth of catabolic collapse to make any kind of difference. In the meantime, though, another set of adaptive responses is taking shape. All over the US, though it’s especially common on the west coast, local farmers markets have sprung up over the last decade, and much of the produce sold in them comes from small local farms.

In cities where the farmers market movement has set down strong roots – I’m thinking particularly of Seattle, where five weekly farmers markets and the seven-days-a-week Pike Place Market supply local shoppers with produce of every kind – the economics of modern farming have been turned on their heads, and truck farms from 10 to 100 acres located close to the city have become profitable for the first time in many decades. Once again, the infrastructure and knowledge base needed for further expansion is taking shape.

All these transformations and the others that will come after them, though, have their price tag. The central reason why modern industrial agriculture elbowed its competitors out of the way was that, during the heyday of fossil fuel consumption, a farmer could produce more food for less money than ever before in history. The results combined with the transportation revolution of the 20th century to redefine the human food chain from top to bottom. For the first time in history, it became economical to centralize agriculture so drastically that only a very small fraction of food was grown within a thousand miles of the place where it was eaten, and to turn most foodstuffs into processed and packaged commercial products in place of the bulk commodities and garden truck of an earlier era. All of this required immense energy inputs, but at the time nobody worried about those.

As we move further into the twenty-first century, though, the industrial food chain of the late twentieth has become a costly anachronism full of feedback loops that amplify increases in energy costs manyfold. As a result, food prices have soared – up more than 20% on average in the United States over the last year – and will very likely continue to climb in the years to come. As industrial agriculture prices itself out of the market, other ways of farming are moving up to take its place, but each of these exacts its price. Replace diesel oil with biodiesel, and part of your cropland has to go into oilseeds; replace tractors altogether with horses, and part of your cropland has to go into feed; convert more farmland into small farms serving local communities, and economies of scale go away, leading to rising costs. The recent push to pour our food supply into our gas tanks by way of expanded ethanol production doesn’t help either, of course.

All this will make life more challenging. Changes in the agricultural system will ripple upwards through the rest of society, forcing unexpected adjustments in economic sectors and cultural patterns that have nothing obvious to do with agriculture at all.

…Today’s industrial agriculture and the food chain depending on it, after all, were simply the temporary result of an equally temporary abundance of fossil fuel energy, and as that goes away, so will they. The same is true of any number of other familiar and comfortable things; still, the more willing we are to pay the price of transition, the better able we will be to move forward into the possibilities of a new and unfamiliar world.

Organic Farming Absorbs CO2

Giant agricultural conglomerates hate this kind of information — they have to hire more lobbyists and make more campaign contributions to get government to ignore the facts and continue to subsidize them.

Link: QuantumShift.tv – Soil: The Secret Solution to Global Warming – USA video

Research by the Rodale Institute reveals that sustainably-farmed soil holds up to 30% more carbon than conventional agriculture. Converting US farmland to organic on a wide scale would reduce CO2 emissions by as much as 10%. The extra carbon in the soil also increases food nutrients, which could greatly reduce health care costs. In this QuantumShift special report, farmer Percy Schmeiser urges the President and Congress to shift existing agricultural subsidies to support sustainable farming practices.