Small Is Beautiful: Economics as if People Mattered

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Chapter One

The Problem of Production

One of the most fateful errors of our age is the belief that "the problem of production" has been solved. Not only is this belief firmly held by people remote from production and therefore professionally unacquainted with the facts -it is held by virtually all the experts, the captains of industry, the economic managers in the governments of the world, the academic and not-so-academic economists, not to mention the economic journalists. They may disagree on many things but they all agree that the problem of production has been solved; that mankind has at last come of age. For the rich countries, they say, the most important task now is "education for leisure" and, for the poor countries, the "transfer of technology."

That things are not going as well as they ought to be going must be due to human wickedness. We must therefore construct a political system so perfect that human wickedness disappears and everybody behaves well, no matter how much wickedness there may be in him or her. In fact, it is widely held that everybody is born good; if one turns into a criminal or an exploiter, this is the fault of "the system." No doubt "the system" is in many ways bad and must be changed. One of the main reasons why it is bad and why it can still survive in spite of its badness, is this erroneous view that the "problem of production" has been solved. As this error pervades all present-day systems there is at present not much to choose between them.

The arising of this error, so egregious and so firmly rooted, is closely connected with the philosophical, not to say religious, changes during the last threeor four centuries in man's attitude to nature. I should perhaps say: Western man's attitude to nature, but since the whole world is now in a process of westernisation, the more generalised statement appears to be justified. Modern man does not experience himself as a part of nature but as anoutside force destined to dominate and conquer it. He even talks of a battle with nature, forgetting that, if he won the battle, he would find himself on the losing side.Until quite recently, the battle seemed to go well enoughto give him the illusion of unlimited powers, but not so well, as to bring the possibility of total victory into view.This has now come into view, and many people, albeit only a minority, are beginning to realise what this meansfor the continued existence of humanity.

The illusion of unlimited powers, nourished by astonishing scientific and technological achievements, has produced the concurrent illusion of having solved the problem of production. The latter illusion is based on the failure to distinguish between income and capital where this distinction matters most. Every economist and businessman is familiar with the distinction, and applies it conscientiously and with considerable subtlety to all economic affairs-except where it really matters: namely, the irreplaceable capital which man has not made, but simply found, and without which he can do nothing.

A businessman would not consider a firm to have solved its problems of production and to have achieved viability if he saw that it was rapidly consuming its capital. How, then, could we overlook this vital fact when it comes to that very big firm, the economy of Spaceship Earth and, in particular, the economies of its rich passengers?

One reason for overlooking this vital fact is that we are estranged from reality and inclined to treat as valueless everything that we have not made ourselves. Even the great Dr. Marx fell into this devastating error when he formulated the so-called "labour theory of value." Now we have indeed laboured to make some of the capital which today helps us to produce--a large fund of scientific, technological, and other knowledge; an elaborate physical infrastructure; innumerable types of sophisticated capital equipment, etc.--but all this is but a small part of the total capital we are using. Far larger is the capital provided by nature and not by man-and we do not even recognize it as such. This larger part is now being used up at an alarming rate, and that is why it is an absurd and suicidal error to believe, and act on the belief, that the problem of production has been solved.

Let us take a closer look at this "natural capital." First of all, and most obviously, there are the fossil fuels. No one, I am sure, will deny that we are treating them as income items although they are undeniably capital items. If we treated them as capital items, we should be concerned with conservation; we should do everything in our power to try and minimize their current rate of use; we might be saying, for instance, that the money obtained from the realisation of these assets-these irreplaceable assetsmust be placed into a special fund to be devoted exclusively to the evolution of production methods and patterns of living which do not depend on fossil fuels at all or depend on them only to a very slight extent. These and many other things we should be doing if we treated fossil fuels as capital and not as income. And we do not do any of them, but the exact contrary of every one of them: we are not in the least concerned with conservation; we are maximising, instead of minimising, the current rates of use; and, far from being interested in studying the possibilities of alternative methods of production and patterns of living-so as to get off the collision course on which we are moving with ever-increasing speed-we happily talk of unlimited progress along the beaten track, of "education for leisure" in the rich countries, and of "the transfer of technology" to the poor countries.

The liquidation of these capital assets is proceeding so rapidly that even in the allegedly richest country in the world, the United States of America, there are many worried men, right up to the White House, calling for the massive...