FOR THE COMMON GOOD

The fact that this book is written by scholars from economics (Daly) and philosophy (Cobb) and that it covers such a broad range of issues reflects one of the themes of the book: the need to overcome, what they like to call, "disciplinolatry." The discussions that I found most rewarding are on population and entropy, topics which reflect the intellectual background of Herman Daly. This is not to say that Cobb contributed less, but it is a manifestation of my relative ignorance of process theology --- the field of inquiry for which Cobb is well known.

But economics, philosophy, and theology are sufficiently well integrated in the study that it is often impossible to identify the words of one author or the other. This is, of course, as it should be. Any inquiry designed, as this is, to promote serious reconsideration of Western economic thought must be intimately grounded on sound philosophical underpinnings.

The book begins (pp.1-3) with, what they call, the "wild facts" concerning threats to the survival of life on earth. These include global warming, ozone depletion, and the decline in biodiversity. Underlying these crises are, in their view, unrestrained economic and population growth.

But recitation of "the wild facts" is a small fraction of the book --- this is not a study of the environment. The subtitle says it is about "redirecting the economy" but, more specifically, it is about redirecting our thinking about economics.

Who's going to listen to this critique? Should we expect world class economic theorists to give their attention to the arguments found in this book? Probably not, since so many recognized theorists associate their craft with the extensive use of mathematics -- methodology which Daly and Cobb believe has been carried too far in an effort to emulate the hard sciences, especially physics.

This study will probably have its greatest impact on economics through its influence on persons outside the discipline. Daly, for example, has a wide following on electronic computer networks, especially the newgroups on Usenet and special interest groups (listservs) on Internet. From my use of the networks, I can confidently say that there is no other economist whose name appears so often as Daly's in the open-to-everyone, international discussions dominated by students and young faculty. This suggests that the book will be well--received by an audience that runs across disciplines.

A central issue that ties philosophy and economics firmly together in the book is the authors' stand against anthropocentrism. The core of economic theory which has the satisfaction of human desires as the goal of all economic activity is shamefully anthropocentric. Since this issue is such an important theme in the book, (Cf. pp. 107, 190, 200, 203, 254, and 388.) it is surprising that they would single out another important philosophical/environmental doctrine, deep ecology, and criticize it for, essentially, carrying the fight against anthropocentrism too far (p. 378). Airing minor quibbles in a book intended to influence a broad spectrum of opinion unfortunately serves to fracture the intellectual movement that Daly and Cobb are trying to build.

If there is to be forward movement to reconsider the neoclassical economic paradigm from the perspective of (the subtitle) "Community, the Environment, and a Sustainable Future," the methodology underlying the paradigm must be carefully investigated. Daly and Cobb do this under their lengthy consideration of the role of the fallacy of misplaced concreteness. The authors are in agreement with Georgescu--Roegen, who held the fallacy to be, in the language of the authors, "the cardinal sin of standard economics." (p.41) The authors express considerable intellectual indebtedness to Alfred North Whitehead, a critic of economic theory and the intellectual most known for articulating this fallacy.

Their example of misplaced concreteness that I find most interesting concerns the notion (chapter 4) that items of human satisfaction are scarce relative to human desires. Daly and Cobb focus on the demand side --- that economists' conception of Homo economicus includes the insatiability of desires. But insatiability and scarcity are two sides of the same coin --- there can be no scarcity without unsatisfied desires nor can one speak of unsatisfied desires unless scarcity is present. The debate might have been more clearly joined if they had given equal attention to scarcity since economists such as Gary Becker have derived most neoclassical microeconomic propositions from scarcity (without any appeal to utility theory). If economic theory rests on a false objectification of the notion that items of human satisfaction are always scarce relative to human desires, then a major pillar of the paradigm is weakened.

The Daly--Cobb argument that the fallacy of misplaced concreteness is involved in the economists' use of insatiability (and scarcity) just says that the profession is confusing their theoretical construct with with something "out there." Shortages of water, food and shelter are so widespread in the world that we have an abundance of empirical examples which easily fit the theory. But the abundance of empirical examples does not mean that scarcity is ubiquitous nor does it imply that insatiability is congenital. The Daly--Cobb argument is that the reason economists put so much stock in models in which there "can never be enough" is that they think what they are seeing has an objective reality when, in fact, the category is sometimes dominating their perception. A more commonplace and less disputable example of false objectification is the widely--observed phenomena of forcing reality into our models rather than trying new models to fit reality.

As sympathetic as one might be to the Georgescu--Roegen view of the widespread role that the fallacy of misplaced concreteness plays in economics, I think most readers will find that Daly and Cobb employ the criticism too easily across the spectrum of economic thought. One only has to note the long struggle by Bayesian statisticians to convince Classical statisticians that they are falsely objectifying probability to realize the care that needs to be taken to convince others that they are committing this fallacy.

Daly and Cobb portray the wild facts as contradicting neoclassical economic theory. This is the sort of situation which, according to Thomas Kuhn, can lead to a paradigm change. But while the assertion of the inconsistency between the wild facts and neoclassical doctrine occupies a crucial place in the logic of their argument, they take the inconsistency for granted or as obvious rather than documenting the charge. Mainstream economists, on the other hand, believe that it's just as obvious that the wild facts exist, not because economic theory is inadequate, but because it hasn't been fully heeded. The mainstream view is that economics is, if policymakers would only listen, part of the solution, not the problem.

The reason that thoughtful people can hold such diametrically opposite views regarding the relation between the wild facts and neoclassical theory is that economists do not, I argue, follow their positivist methodology as systematically as they claim. Many statements of core propositions and assumptions in neoclassical thought (e.g., labor earns its social marginal product, expectations are rational, demand and supply determine price, and people pursue their self--interest) are often treated as tautologies when critical empirical tests get underway.

There is nothing wrong with tautologies but their value depends on the usefulness of the categories in which they are articulated. The criterion for the evaluation of tautologies is not empirical confirmation but the usefulness of the theoretical language in which they are cast.

Cobb and Daly give explicit attention to the usefulness of several notions or categories for sustainable economics. They give primary attention to the market (chapter two), GNP (chapter three), Homo economicus (chapter four), and land (chapter five). But their adherence to the Kuhnian paradigm of the conditions for paradigm change required them, in my view, to assert something that is largely unprovable, viz., an inconsistency between the wild facts and neoclassical doctrine. Before we change the economic paradigm, we must first consider whether the Kuhnian paradigm of paradigm change is applicable to social science, as practiced. When categories of economic analysis are falsely objectified, the propositions they are used to articulate become tautologies, the positivist requirement of falsifiability is violated, and it becomes increasingly difficult to derive an agreed upon list of Kuhnian anomolies.

One of the most revered propositions of neoclassical as well as classical economics is the doctrine of free trade. Several notable economists ultimately broke from this article of faith, but they were never able to bring a substantial number of other economists with them. Daly and Cobb offer a lengthy chapter explaining their disenchantment with value of free and unrestricted global commerce.

The long--standing argument for free trade rests on countries' different endowments. Since Brazil is endowed with a climate for rain--forests and France is well endowed with a climate for vineyards, it's not surprising that they trade lumber and wine. Economics has traditionally viewed trade as a way of overcoming or compensating for the immobility of factor endowments. The two immobile factors in neoclassical theory are called Labor and Capital. If one thinks of capital as plant and equipment, then, as Daly and Cobb argue, capital is clearly not immobile in today's world. Much of what fits the neoclassical assumption of immobile endowments are, what Daly and Cobb call, Land or Nature --- the factors usually omitted from production theory. Daly and Cobb appear, in part, to be objecting to the label "Capital" as the immobile factor in trade literature. But the objection goes much deeper since the absence of Land or Nature as a factor of production is central to their view that considerations of "scale ... relative to the supporting ecosystem, just does not exist in current economic theory." (p.240)

It is here, in their critique of trade theory, that the authors could have given economic theory more credit for evolving in the direction that they desire. The lauded advantages of free trade have always rested on the assumption of no externalities --- that private net returns accruing to firms engaged in trade reflect social net value added. It is only recently that this assumption has been relaxed in "new trade theory." Although it is still difficult for many economists to give up the a priori argument for free trade, the logic of current theory is unambiguous: a demonstration of the welfare gains from free trade must come from empirical evidence and not from the armchair of the social scientist.

Since sustainability is such a central concern to the authors, their work would be remiss without some discussion of the way the future is discounted. Although they include some discussion of discount rates and capitalization theory, I find the omission of any discussion of Hotelling's rule surprising. This rule, named after Hotelling following the rise in oil prices in 1973-74, is the central statement of how the competitive market allocates resources between generations. The central idea in Hotelling's rule (when imbedded in a number of simplifying assumptions) is that nonrenewable resources will be saved for future generations (i.e., not extracted and consumed by the present generation) if the relative prices of such resources are expected to rise at "the" real rate of interest. According to this rule, high interest rates lead to high rates of extraction of nonrenewable resources. The call for sustainability is, from this perspective, a call to get real rates down. Concerns for the welfare of future generations should, according to this rule, be centered around the magnitude of the interest rate used to discount the future.

Daly and Cobb, following Talbot Page, argue that the market is myopic --- that market participants have, for so long, focused on short--term gains that they find it difficult to refocus on the longer--term. Even the most widely accepted reason for discounting the future, viz., technological change or productivity gains, is rejected by Daly and Cobb. They suggest that the modern history of technological change has brought so many risks (radiation, toxic wastes, accidents) that we should consider the possibility of using a negative rate of discount to reflect risk inherent from technological change in the future. (p.155) If one is looking for assertions that are most at variance with prevailing orthodoxy, this one should probably be at the top of the list. It is the kind of hetrodox thinking for which they believe the wild facts call.

The part of the book to which economists are most likely to make the greatest direct response is the Daly--Cobb contribution to the ongoing discussion of our measures of economic welfare. While GNP offers an index of economic activity, hardly anyone would explicitly treat it as an adequate measure of welfare. Daly and Cobb offer their own empirical measure which they call ISEW (Index of Sustainable Economic Welfare). Their index differs from other efforts to measure economic welfare since they emphasize sustainability. This emphasis implies, for example, that the economic activity surrounding the depletion of nonrenewable resources, which increases GNP, lowers the ISEW. There is too little space here for a detailed evaluation of the index, but it will hopefully receive serious attention in major economic journals.

In summary, the book is catholic in scope and this review has focused on selected topics. I think their study will be widely discussed and will play a significant role in an emerging discussion to reconsider the economic paradigm. Given the increasing perception of environmental degradation, For the Common Good should enjoy considerable success --- the "wild facts" are generating a receptive audience.