in 1848, John Stuart Mill devotes key developments to what he calls “the Stationary State.”9 The question asked by Mill is that of the fundamental purpose of economic activity: “To what goal? Toward what ultimate point is society tending by its industrial progress?”
Although he believes in wealth creation through the application of liberal economics principles, Mill writes that “the increase of wealth is not boundless: At the end of what they term the progressive state lies the stationary state.” The revolutionary nature of Mill’s questioning of the very finalities of the liberal economy lies in his understanding of the profound impact human societies are already having on the biosphere. “If the Earth must lose that great portion of its pleasantness which it owes to things that the unlimited increase of wealth and population would extirpate from it,” he writes, “for the mere purpose of enabling it to support a larger, but not a better or a happier population, I sincerely hope, for the sake of posterity, that they will be content to be stationary, long before necessity compel them to it.”
But if Mill is pessimistic on the finality and purpose of what we would now call economic growth, he is optimistic on the ability of humans to find a new path to development and believes that “a stationary condition of capital and population implies no stationary state of human improvement.”
It is in the building of fair and shared prosperity that humans will find this new meaning, according to Mill: “Only when, in addition to just institutions, the increase of mankind shall be under the deliberate guidance of judicious foresight, can the conquests made from the powers of nature by the intellect and energy of scientific discoverers, become the common property of the species, and the means of improving and elevating the universal lot.”
Hence, in the middle of the nineteenth century, Mill discovers the sustainability–justice nexus. While a number of scholars today advocate “de-growth” in order to avoid the worst of ecological crises, it was John Stuart Mill, a founding father of the neo-classical school, who first envisioned, at the peak of the first industrial revolution, the transition to a “stationary state” where social and environmental concerns would be addressed jointly.
What twentieth-century economics forgot
For Rodrik (2016),10 modern economics would be different from (and allegedly superior to) other social sciences by its mastery of formal models. Twentieth-century economics would be remarkable for the gradual improvement of its quantitative techniques, building on the invention of the social statistics (by Quetelet) and mathematical formalization (by Cournot), to develop econometrics (Cowles commission), game theory (von Neumann) up to computational and big data economics today. In reality, the question of instruments appears secondary in the constitution of twentieth-century economics. The real rupture is not formal but substantial: it is the break with philosophy, ethics, and justice.
While, as we have just seen, issues of distribution and principles of justice were at the heart of the work of the founding fathers of what has long been called for a good reason “political economy,” they have been marginalized and in the end almost forgotten in the course of the last century. This move away from justice by neo-classical economics was compounded by a focus on short-term policy by its most formidable opponent: Keynesian economics. Let us study these two counter-revolutions in turn.
To begin with, twentieth-century neo-classical economics forgot about inequality. Three key moments marked that reversal. First, it was the admission in 1887 of Charles Dunbar, who viewed economics as a science that should stay clear of ethical considerations, into the American Economic Association (founded in 1885). Dunbar would become AEA’s second President, taking over Richard T. Ely, a progressive who lamented the “contradiction between things as they are and our social ideal.” Second, the development of welfare theorems by Léon Walras in 1920 and the definition of optimality by Vilfredo Pareto in 1930 ended up conflating productive and distributional issues, abandoning inter-personal comparisons and limiting justice policy to the hypothetical possibility – but seldom the reality – of compensation of the “losers” by the “winners” on the market. Finally, the “great dilemma” posited by Arthur Okun between equity and efficiency in the 1970s – the former being assimilated as a loss in terms of the latter – separated even more mainstream economics from distributional concerns.
Hence, in the course of a century, neo-classical economics offered three possible options for considering justice: to deny it, to assume it, and finally to trade it off. In his Richard T. Ely lecture, labor economist Finis Welch went as far as to engage in a reasoned and passionate “defense of inequality,” arguing that: “All economic science proceeds from inequalities.”11
This defense of inequality in the name of efficiency is, simply put, a serious mistake. Fundamentally, inequality is not just unfair: it is both inefficient and unsustainable. Numerous scholars have been working in the last two decades to demonstrate that the current income inequality crisis (a detailed picture of which can be found in the recently released World Inequality Report 2018)12 hinders progress in key dimensions of human well-being and economic dynamism. Wilkinson and Pickett13 have shown that higher income inequality translates into lower physical and health attainments for US states and comparable countries at the international level (income inequality increasing the prevalence of obesity, drug abuse, stress, mental illness).14 Stiglitz15 has extended the logic of the argument to show how income inequality favors rents to the detriment of innovation and gradually plagues economic development.
Inequality is not just detrimental to current well-being but affects both resilience (collective resistance to shocks) and sustainability (understood as the long-term horizon of human well-being, that must be compatible with the limits of the biosphere). The seminal work of the late Elinor Ostrom16 can be understood as drawing a connection between equality and the ability of communities around the world to organize efficiently in order to exploit natural resources sustainably and to resist ecological shocks such as climate change. This line of analysis has been extended to show that, through several other channels, inequality harms sustainability17 (an issue we will explore in detail in Chapter 10).
Finally, the idea that self-interest and efficiency are the key incentives of human behaviors is deeply unconvincing. Amartya Sen showed that humans look much more like “rational fools” than Homo œconomicus while the quest for fairness appears to be a much more powerful incentive than the pursuit of efficiency. Justice is neither a by-product, a collateral benefit, nor an instrument of efficiency: It is the core demand of humans everywhere on the planet.
In fact, inequality economics has made a noted comeback in the last fifteen years, contrasting with its eclipse from academic and policy debates between the late 1970s and early 2000s (the critical and popular global success of Thomas Piketty’s Capital in the 21st Century, that documents the contemporary rise in income and wealth inequality, being the most visible sign of this renewed interest). Two scholars have been trailblazers in this renewal: Amartya Sen, who has renewed theories of justice, and Anthony Atkinson, who has revisited the empirical measurement of inequality, both lines of work putting back distributional issues at the center of economics, where they were in the eighteenth and nineteenth centuries before their recent eclipse.
But neo-classical economics’ turn away from distributional issues and justice concerns was not the only blind spot in twentieth-century economics. Keynesian economics, while arguing for justice, largely forgot about the long run. In his General Theory (1936), a book that laid the foundations of modern macroeconomic analysis, Keynes made no mystery of his commitment to equality: “The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.” But, in an earlier text, A Tract on Monetary Reform (1923), he was equally clear about his focus on short-term economic analysis: “The long run is a misleading
