In his 1926 book, Wealth, Virtual Wealth and Debt: The Solution of the Economic Paradox, Soddy argued that money and debt were at the root of our economic problems because they were not subject to the entropy law. Real wealth, he said, is concrete: furniture, houses, computers, farm animals, footballs, etc. This wealth, he said, is mutable and subject to decay over time. In other words real wealth is also trapped in the downward spiral of entropy. But money and debt are ‘virtual wealth’, Soddy wrote, abstractions subject only to the laws of mathematics. Debt, in particular, he cautioned, was a claim on future wealth, which could grow out of all proportion to the rate at which real wealth is created. Rather than decay, debt is a human construct that can grow indefinitely at any rate we decide. It is this debt as virtual wealth, according to Soddy, that is the driving wheel of growth:
‘Debts are subject to the laws of mathematics rather than physics. Unlike wealth, which is subject to the laws of thermodynamics, debts do not rot with old age and are not consumed in the process of living. On the contrary, they grow at so much per cent per annum, by the well-known mathematical laws of simple and compound interest… It is this underlying confusion between wealth and debt which has made such a tragedy of the scientific era.’11
Soddy’s thoughts on entropy and the bio-physical limits to growth were ignored at the time. But one of his contemporaries, John Maynard Keynes, was much more influential. Like Mill, Keynes was an iconoclast, a brilliant economist with a restless intellect. In the midst of the Great Depression of the 1930s Keynes advocated that government take an active, interventionist role in both fiscal and monetary policy. Firm government regulation and an active fiscal policy could, he said, kick-start growth in times of economic malaise. He believed the impact of state spending would catalyze the economy, create jobs and stimulate consumption. And he was right. Keynesian economic policies slowly helped to lift the world out of depression and became the dominant tools used by Western governments to manage national economies until the era of Ronald Reagan and Margaret Thatcher in the late 1970s and early 1980s.
But Keynes was not an unthinking cheerleader of growth. He wrote at length about the ethical problems of capitalism and the ‘love of money’ which, he reckoned, was the driving force behind economic expansion for its own sake. An economy that places money at the center will have no cut-off point, he believed, because ‘abstract money will always seem more attractive than concrete goods’. According to his biographer Robert Skidelsky, Keynes suggested that there should be ‘moral limits’ to growth long before the ‘limits to growth’ concept was first popularized in the 1970s. Those limits, Keynes wrote, should be based on a proper understanding of ‘the ends of life and of the role of economic motives and economic growth in relation to those ends’.
According to Skidelsky: ‘Keynes never ceased to question the purposes of economic activity… his conclusion was that the pursuit of money… was justified only to the extent that it led to the “good life”. And a good life was not what made people better off: it was what made them “good”. To make the world ethically better was the only justifiable purpose of economic striving.’12
Georgescu-Roegen and The Limits to Growth
Like Frederick Soddy, the Romanian-American economist Nicholas Georgescu-Roegen was also a pioneering critic of economic growth. In his 1971 book, The Entropy Law and the Economic Process, Georgescu-Roegen refined Soddy’s analysis, arguing that the human economy is a thermodynamic system, which is ultimately dependent on the physical world and therefore constrained by what he termed ‘bio-economic’ limits. Entropy, he said, increases inexorably and eventually runs head on into the finite material basis of growth. Low-entropy energy and materials are combined to turn natural resources into goods, services and the inevitable waste products. It is therefore impossible to escape the limits of the physical world and the inexorable decline in the capacity of energy to do work. This perpetual winding down thus defines the limits of the human economy. Georgescu-Roegen developed his own fourth law of thermodynamics which says, in part: ‘in a closed system, the material entropy must ultimately reach a maximum’ which implies that ‘complete recycling is impossible’.13 He spoke of natural resources in terms of ‘renewable and non-renewable stocks’ and ‘flows’.
These terms are now widely used in the burgeoning field of ecological economics. As the key modern theorist of entropy, Georgescu-Roegen’s analysis was a major influence on this increasingly important field of study. His thought also shaped the enormously influential Club of Rome report, The Limits to Growth, published in 1972. In fact, Georgescu-Roegen was a close friend and confidant of Dennis Meadows, the young Harvard systems-management expert who spearheaded the groundbreaking study.
The Limits to Growth was a runaway bestseller that forcefully put the question of growth and the environment on the public agenda. It sold 12 million copies and had such wide-ranging influence that US President Jimmy Carter even commissioned a report from the Council on Environmental Quality to look at how limits to growth might impact the US economy. The report found that ‘if present trends continue, the world in 2000 will be more crowded, more polluted, less stable ecologically and more vulnerable to disruption than the world we live in now. Serious stresses involving population, resources and environment are clearly visible ahead.’14
The Limits to Growth was a watershed because it raised fundamental questions about endless growth on a finite planet. Meadows and his colleagues used Massachusetts Institute of Technology computers to examine economic growth since the industrial revolution – this was 1972 and the use of computers to make this kind of scientific projection was in itself revolutionary. They primed the machines with data on resource use, food production, land use, population, industrial production, pollution and a host of other variables, including non-linear feedback loops between the various data sets. They then crunched the numbers and came out with extrapolations of what might happen in the next century. Their conclusions were stark and a little scary in the booming 1970s. With capitalism triumphant and the system humming along, decision-makers didn’t really want to bother thinking about such things. The report concluded that, if current growth trends continued, the global economy would hit the wall sometime in the 21st century. The gradual depletion of natural resources and the fouling of the environment would combine to increase prices, collapse living standards, level populations and stop growth in its tracks. Meadows and company did not say this was inevitable, just likely without major changes to the dominant system of industrial production. Nonetheless, they came in for a barrage of criticism from both Left and Right.
From the Left the concern was that the Club of Rome that commissioned the Report was an élitist cabal of technocrats out to sabotage the poor by shutting off the growth tap. Instead of consumption, resource use and environmental limits, they focused on population and inequality, dismissing the ‘limits’ arguments as both premature and irrelevant to the pressing problem of poverty and social justice. The Right also dismissed The Limits to Growth as specious scare-mongering in a time of obvious abundance in western Europe and North America. Few mainstream economists lauded the work; most saw it as technically flawed, falling back on standard neoclassical economics to underscore their criticisms. They were especially exercised because the data failed to take into account the role of new technology and the ‘price mechanism’ – the notion that higher prices, by stimulating new supplies and encouraging substitution, can side-step resource depletion and open the way to perpetual growth.
Neither side really grasped the point: that we are on a collision course with the natural limits of the planet, living off our capital rather than our interest. The day of reckoning will come. We can do something about it, or we can ignore it. The choice is up to us.
In 2004, the authors published Limits to Growth: the 30-Year Update, which used essentially the same model as the original but updated the data. The results echoed the findings of 1972.
As physicist and climate blogger Joe Romm told Thomas Friedman of the New York Times: ‘We created a way of raising standards of living that we can’t possibly pass on to
