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  • From: "kerrick ." <kereth@gmail.com>
  • To: permaculture <permaculture@lists.ibiblio.org>
  • Subject: Re: [permaculture] Economists don't get it
  • Date: Thu, 4 Mar 2010 09:27:59 -0800

Milton Friedman seems to be a sort of bugaboo among economists; any
roomful of them, it seems, will talk about him in tones both
respectful (but critical) and disdainful (but hushed, as if he might
be listening).

J. M. Greer, not an economist, has written some very thoughtful essays
on the conflicts between economic and physical law, one of which is
here:
http://thearchdruidreport.blogspot.com/2009/11/gesture-from-invisible-hand.html
Excerpt below:

"Consider an agrarian civilization that runs on sunlight, as every
human society did until the rise of industrialism some three centuries
ago. In energetic terms, part of the annual influx of solar energy is
collected via agriculture, stored in the form of grain, and
transformed into mechanical energy by feeding the grain to human
laborers and draft animals. It's an efficient and resilient system,
and under suitable conditions it can deploy astonishing amounts of
energy; the Great Pyramid is one of the more obvious pieces of
evidence for this fact.

"Such civilizations normally develop thriving market economies in
which a wide range of goods and services are exchanged. They also
normally develop intricate social abstractions that manage the
distribution of these goods and services, as well as the primary
wealth that comes through agriculture from the sun, among their
citizens. Both these, however, depend on the continued energy flow
from sun to fields to granaries to human and animal labor forces. If
something interrupts this flow -- say, a failure of the harvest -- the
only option that allows for collective survival is to have enough
solar energy stored in the granaries to take up the slack.

"This is necessary because energy doesn't follow the ordinary rules of
economic exchange. Most other commodities still exist after they've
been exchanged for something else, and this makes exchanges
reversible; for example, if you sell gold to buy marble, you can
normally turn around and sell marble to buy gold. The invisible hand
works here; if marble is in short supply, those who have gold and want
marble may have to offer more gold for their choice of building
materials, but the marble quarries will be working overtime to balance
things out.

"Energy is different. Once you turn the energy content of a few
million bushels of grain into a pyramid, say, by using the grain to
feed workers who cut and haul the stones, that energy is gone, and you
cannot turn the pyramid back into grain; all you can do is wait until
the next harvest. If that harvest fails, and the stored energy in the
granaries has already been turned into pyramids, neither the market
economy of goods and services or the abstract system of distributing
goods and services can make up for it. Nor, of course, can you send an
extra ten thousand workers into the fields if you don't have the grain
to keep them alive.

"The peoples of agrarian civilizations generally understood this. It's
part of the tragedy of the modern world that most people nowadays do
not, even though our situation is not all that different from theirs."

Kerrick

On Thu, Mar 4, 2010 at 8:57 AM, David <david@h4c.org> wrote:
>
> Toby,
>
> On 3/4/2010 8:15 AM, Toby Hemenway wrote:
>> I was just sent this excerpt from an interview with Nobel-prize winning
>> economist Milton Friedman in which he says incredibly stupid things.
>>
>
> It seems to me that he is both wearing blinders and acknowledging that
> such is the case. What is passing strange is that he does not appear to
> understand the implication.
>
> He's saying that in terms of economics (he believes) that price is an
> absolute signal of abundance or scarcity. Since the price goes up and
> down, the resource (oil) /cannot/ be scarce, at least not economically.
> This infers-- and I believe this is part of some schools of economic
> theory-- that "the market knows". Everybody knows what's what, and so
> everybody does what makes sense, and so whatever we see in the market is
> therefore sufficient evidence of what actually is the case, because,
> after all, the market knows. (Of course, this has been demonstrated
> repeatedly not to be true, or there would never be bubbles and bursts...)
>
> He defines "capital" strictly in economic terms-- not physical terms, as
> the interviewer does-- and so again he appears to be applying the same
> circular logic. How can we be living on our capital if the price goes up
> and down? Reality be damned: it had just better not get in the way of
> all the lovely theories:
>
>    "You have to separate the economic from the physical point of view."
>
>
>> **/Ravaioli/****/:/**/ But there are many other environmental problems .../
>>
>> **Nobel Laureate Friedman:** Of course. Take oil, for example. Everyone
>> says it's a limited resource: physically it may be, but economically we
>> don't know. Economically there is more oil today than there was a
>> hundred years ago. When it was still under the ground and no one knew it
>> was there, it wasn't economically available. When resources are really
>> limited prices go up, but the price of oil has gone down and down.
>> Suppose oil became scarce: the price would go up, and people would start
>> using other energy sources. In a proper price system the market can take
>> care of the problem.
>>
>> **/Ravaioli/****/:/**/ But we know that it takes millions of years to
>> create an oil well, and we can't reproduce it. Relying on oil means
>> living on our capital and not on the interest, which would be the
>> sensible course. Don't you agree?/
>>
>> **Nobel Laureate Friedman:** If we were living on the capital, the
>> market price would go up. The price of truly limited resources will rise
>> over time. The price of oil has not been rising, so we're not living on
>> the capital. When that is no longer true, the price system will give a
>> signal and the price of oil will go up. As always happens with a truly
>> limited resource.
>>
>> **/Ravaioli/****/:/**/ Of course the discovery of new oil wells has
>> given the illusion of unlimited oil .../
>>
>> **Nobel Laureate Friedman:** Why an illusion?
>>
>> **/Ravaioli/****/:/**/ Because we know it's a limited resource./
>>
>> **Nobel Laureate Friedman:** Excuse me, it's not limited from an
>> economic point of view. You have to separate the economic from the
>> physical point of view. Many of the mistakes people make come from this.
>> Like the stupid projections of the Club of Rome: they used a purely
>> physical approach, without taking prices into account. There are many
>> different sources of energy, some of which are too expensive to be
>> exploited now. But if oil becomes scarce they will be exploited. But the
>> market, which is fortunately capable of registering and using widely
>> scattered knowledge and information from people all over the world, will
>> take account of those changes.
>>
>
>
> d.
> --
> David William House
> "The Complete Biogas Handbook" |www.completebiogas.com|
> /Vahid Biogas/, an alternative energy consultancy |www.vahidbiogas.com
>
> |
> "Make no search for water.       But find thirst,
> And water from the very ground will burst."
> (Rumi, a Persian mystic poet, quoted in /Delight of Hearts/, p. 77)
>
> http://bahai.us/
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