> Keynes makes this point about limits to growth arguments constructed by
> one of the originators of "Bedlamite economics" (Keynes's play on
> "Benthamite economics"), William Stanley Jevons.
>
I wrote about this episode in my new book: The Perverse Economy: The Impact of Markets on People and Nature (NY: Palgrave, 2003):
Although those who had the responsibility for maintaining the Empire were fully aware of the threat of scarcity, economists tended to deride those who would dare to raise the question -- even an economist of Jevons's stature. Although those who had the responsibility for maintaining the empire displayed a keen awareness of the threat of scarcity, economists tended to deride those who would dare to raise the question -- even an economist of Jevons' stature. Although those who had the responsibility for maintaining the empire displayed a keen awareness of the threat of scarcity, economists tended to deride those who would dare to raise the question -- even an economist of Jevons' stature. While almost unanimously praised for his efforts in pioneering the "scientific" value theory that most economists still accept today, the legacy of ”The Coal Question• subjected Jevons to more than a century of ridicule by the same mainstream economists. Ordinary intellectuals uninformed by rigorous training in economics could safely warn about the dangers posed by looming scarcity, but that a leading economist could do so was unthinkable. I never took a class that mentioned Jevons without some snide remark about his "foolish" book on scarcity.John Maynard Keynes, probably the most influential economist of the twentieth century as well as an accomplished controversialist, launched the most famous attack on Jevons's ”Coal Question•. While praising much of his economic work, Keynes mocked Jevons's concern about resource scarcity. Keynes attributed Jevons's book to personal eccentricities, which exhibited themselves in compulsive behavior, such as hoarding paper. Keynes mocked Jevons's mistaken belief in "the approaching scarcity of paper as a result of the vastness of the demand in relation to the supplies of suitable material (and here again he omitted to make adequate allowance for the progress of technical methods." He concluded that for this and other reasons, "there is not much in Jevons's scare which can survive cool criticism" (Keynes 1936a, p. 117). But, of course, scarcity was the farthest thing from Keynes's mind. Writing in the midst of the Great Depression, he was concerned that the wealth-creating capacity of the economy was bound to outstrip the capacity to consume in a purely market-driven economy. He expected that in the near future modern market economies would "have built all the houses, roads and town halls and electric grids and water supplies and so forth which the stationary population of the future can be expected to require" (Keynes 1936b, p. 106). Of course, Jevons was far more realistic than Keynes, at least in so far as the question of resources was concerned. Both wanted to see the build-up of productive capacity, but Jevons realized that to do so would eventually lead to serious problems, incapable of ultimate resolution. Jevons, however, was swimming against a current that he himself was instrumental in creating. While ”The Coal Question• was written for popular consumption, Jevons's theoretical works were highly influential in turning economics away from a concern about scarcity. His pioneering approach to economics shifted its perspective away from a dynamic analysis of the forces that determine the cost of production. Instead of beginning with production, Jevons called upon economics to concentrate on a theory of consumption (Jevons 1871). In effect, this new style of economics focused on how consumers' choices rather than production drive the economy. Economists do not deny that individuals face conditions of scarcity. More than a half century after Jevons pioneered this new economics, now known as neoclassical economics, most economists still downplay the importance of scarcity. After all, poverty still weighs upon a large portion of society. Even the affluent would like to consume more. Economists readily accept that scarcity, in general, represents an obstacle to be overcome. In fact, economists typically define their discipline as the science of allocating scarce resources (see Robbins 1969, p. 16). However, the overarching scarcity that economists study is the general scarcity of capital; that is, complex conditions artificially collapsed down to a single monetary measure. This sort of scarcity does not represent an ultimate barrier to the economy. With the appropriate degree of saving and investment, economists envision a process of capital accumulation that can always promise to continue to build up enough stock of plant and equipment to continually produce more and more goods and services. But, as I will discuss in chapter 3, when pressed, economists cannot give a satisfactory definition of capital. They cannot even measure it. For example, plant and equipment depreciate over time, but economists have no satisfactory method of measuring this depreciation -- only a few rough rules of thumb with no basis in theory. Each school of thought has its own interpretation of capital. None are consistent with each other. Besides, economists continually widen their concept of capital. For example, economists include the aggregate accumulation of education and experience, what they call human capital, as part of the capital stock. I will expand on the subject of human capital later. --
Michael Perelman Economics Department California State University michael at ecst.csuchico.edu Chico, CA 95929 530-898-5321 fax 530-898-5901