TOP 2014-09-09

An Exchange Economy Can Never Be An Ecological Economy

In my introduction to the concept, I define a natural economy as a system of production and distribution whose results are ends in themselves, rather than means to an end, and where ecological criteria are the only criteria that determine what gets produced and how it is produced. Ecology is defined so as to include both the human and non-human ecosystems, meaning that the underlying physiological, social, psychological and biological needs of the planet’s ecosystems are the defining motivators and parameters of all economic activity.

Now it’s time to examine existing studies of economics that have an ecological basis. Mainly I’ll be exploring the “new economy” movement, championed by organisations such as the New Economics Foundation and associated with ideas like degrowth, steady state economics as well as sustainability. My conclusion is that in failing to abolish the market economy, the economic models that are proposed by these movements not only fail to instantiate natural economies by my definition, but also fail on their own terms as systems which are supposed to be ecologically sustainable. Latterly I’ll look at the concept of the “resource-based economy” advanced by the Zeitgeist movement and the Venus Project, finding that this concept does fall into the category of a natural economy as I define it, albeit with a narrower scope.

Comparing Steady State and Natural Economy

The degrowth and new economy movements correctly identify the economic growth imperative as an obstacle both to the long-term sustainability of society and to our ability to respond adequately to ecological crises like climate change. Therefore they advocate an economic system that does not require growth to function properly. Initially they propose a period of ‘degrowth’, shrinking the economy to an appropriate and sustainable size, followed by a “steady state” economy that neither grows nor shrinks. The website for the Center for the Advancement of the Steady State Economy quotes Herman Daly’s definition of a steady-state economy as follows [1]:

“An economy with constant stocks of people and artifacts, maintained at some desired, sufficient levels by low rates of maintenance ‘throughput’, that is, by the lowest feasible flows of matter and energy from the first stage of production to the last stage of consumption.”

They go on to say:

“A steady state economy, therefore, aims for stable or mildly fluctuating levels in population and consumption of energy and materials. Birth rates equal death rates, and production rates equal depreciation rates.”

Something has been obscured here: Daly is talking about minimising the energy and materials used in production, not keeping them stable. What CASSE wants to say is that a steady state economy has a roughly stable average consumption per person as well as a stable population, but this isn’t necessarily proportional to the energy and material inputs used in production. As in Daly’s definition, the inputs can be minimised so long as the output (consumption) remains the same: what this means in practice is that less energy is wasted in production, more efficient techniques are introduced or labour-saving devices employed - in short, the technical efficiency of production is increased.

But does it make sense to keep consumption and population constant? An increase in people’s consumption is not necessarily a bad thing - for example, if it’s accompanied by an increase in technical efficiency that allows the material and energy inputs to remain roughly the same. And even a substantial decrease in people’s consumption is not necessarily a bad thing either - it might just mean that they’re using the same smartphones that were produced last year rather than getting new ones, or that enough houses have now been built for everyone, and so on. Similarly, an increase or decrease in population can hardly be considered a tragedy so long as the rate of change is not hurtling upwards towards the planet’s carrying capacity with no end in sight, nor downwards in terminal decline. And a population increase might seem perfectly desirable if the reason for it is an increase in life expectancy, i.e. a decrease in the death rate that’s not accompanied by a decrease in the birth rate. Keeping the population stable in that case would skew the age distribution, which could cause problems.

In short, it seems that what really matters is whether resource usage is heading towards the maximum carrying capacity, or, near-equivalently, being consumed faster than their natural rate of regeneration. But this says nothing about keeping things stable at all costs: so long as the sustainability criterion is met, both increases and decreases can be acceptable, as we have seen. Of course, it also matters that people’s overall health and happiness are above a certain level, but again, there’s no reason why they have to remain constant. It doesn’t make sense to oppose an increase in health and happiness, and a decrease in happiness is acceptable so long as it isn’t going to dip below the level that society has agreed as desirable. Moreover, people’s conception of happiness itself can change, so that making a comparison of two time periods isn’t necessarily possible.

Although it should be obvious, it’s worth noting that monodimensional indicators such as ‘consumption’ or ‘ecological footprint’ do not necessarily tell us about all the potentially destructive activities going on in the production system. If these harmful processes seem unavoidable, then it might still be desirable to reduce resource usage even if society was already sustainable, so that these practices have less of a harmful impact. But eliminating such practices - such as a switch to organic agriculture even if the non-organic version was technically sustainable - does not necessarily mean decreasing the average consumption per person, and conversely, an increase in the average consumption might be deemed more tolerable if it uses a less harmful process, even if the overall resource usage increases as well. This might apply, for example, to the expansion of an electric rail network, compared to the expansion of transport systems that use fossil fuels. Overall resource usage and consumption increase in both cases, but there are still qualitative differences between the proposals that an ecological society has to consider.

My definition of a natural economy takes account of all these things. A natural economy so-defined is allowed to grow, so long as it does so within ecological parameters. Since I explicitly refer to “ecological criteria” rather than fixating on quantitative indicators like footprint or consumption, I also include the requirement that society has to weigh up all aspects of the production process based on their actual, qualitative effects on ecosystems, including the human element. A natural economy is also allowed to shrink, but not so much that it fails to meet people’s physiological or social needs, since these are part of the ecology. Likewise, populations can rise and fall within the same conditions. Interestingly, a natural economy is not obliged to maximise technical efficiency and thereby minimise resource inputs. If a more efficient process is discovered, then people are not forced to switch to it if they have a genuine preference for the existing method. Of course, if sustainability were in jeopardy, then this would put strict ecological parameters on society’s choice, and could force a switch to the new process. A natural economy is likely to adopt new processes that reduce human labour and material inputs, but there is no imperative.

In contrast, a steady-state economy by Daly’s definition requires that technical efficiency be maximised and that overall consumption be kept constant, even though neither of these factors correlate with sustainability or ecological criteria. The new economics movement, of course, stresses the importance of sustainability and ecological criteria as additional requirements - so now we should look to see how they intend to achieve these things and whether they succeed, at least at this theoretical stage.

Removing the Growth Imperative

The new economics movement is avowedly reformist, seeking to ‘fix’ the economic system using policy, rather than replacing the system entirely. Their most important goal, therefore, is to remove our society’s imperative of economic growth [2]. While a temporarily growing economy is not a bad thing in itself, an economic system like ours where growth is always a requirement just for the system to function is clearly not compatible with ecological sutainability, is totally ill-suited for reducing destructive practices over and above the need to be sustainable, and is also seriously incapable of responding effectively to global crises like anthropogenic climate change. The growth imperative takes over, forcing a continual increase in resource usage and consumption.

The underlying cause of the growth imperative is subject to some debate. Even though growth frequently dominates public and political discourse and the media, this discourse rarely stops to consider why the system depends on growth. Andreas Exner [3] builds on the argument developed in volume I of Marx’s Capital and proposes that there are two fundamental growth dynamics in capitalist society, which he calls the compulsion to grow and the urge to grow. The former is essentially survival anxiety: loss of money is associated with bankruptcy, job losses and ultimately death. The urge to grow is more about status competition being based on money: since money has no inherent maximum, the only way to acquire status in capitalism is to continuously outgrow the competition by accumulating capital. Importantly, Exner concludes that the growth imperative so conceived is written into the nature of money, and is not attributable to interest charged on credit nor to greed, as is often claimed in the degrowth discourse and in local currency initiatives.

Indeed, I believe that the growth imperative is not just inherent in the money form, but in any economic system based on exchange. In an exchange system, regardless of whether it uses money or barter, it’s imperative that people always have something to exchange, since this is the only way they can obtain what they need. Therefore the processes of production, exchange and consumption have to keep on going forever. If people stop consuming what you’re producing, you will lose your livelihood because you no longer have anything to exchange, even if other people are still producing the things you need. We can already see the origin of the survival anxiety that Exner identifies as the “compulsion to grow”. This manifests itself on an individual level, but there is also a systemic level to the growth imperative too. Imagine an exchange system where everyone is producing something and therefore has something to exchange. If a need is extinguished and a producer therefore stops producing, they are out of a job, but there are no other jobs available because all the other positions are filled. The only way they will get another job is if the economy itself is growing.[4]

Now I would argue that it surely makes more sense if everyone in a particular industry just works slightly less and therefore “makes room” for another job, so that our recently unemployed person will have something to do, without needing to grow the economy. However, if they did this, and if they are paid by the hour, then their income will go down; this reduces their spending activity and causes production in other industries to decrease as well. Ultimately, someone else further down the line will lose their job, and the cycle repeats. Either the economy goes into terminal decline, or it will be forced to grow. And what if we try to make sure that people’s income remains the same, even if the output has decreased? The industry would have to raise its prices to cover the cost, but no extra money or exchange-able material has entered the system, so people won’t be able to afford the new prices. Again, this could lead to a fatal spiral of decreasing demand, production and employment.

Even if a citizen’s basic income were introduced - something which many new economy institutions fall short of proposing - this might alleviate survival anxiety but it wouldn’t alter the general character of the exchange system. Getting anything done at all in an exchange system requires the use of exchange, so people will still have to work and will be forced to use the logic of exchange for the sake of the survival of the business, even if their own personal survival is never under threat. Furthermore, it’s unlikely that a state would be able to afford a citizen’s basic income in the long-term unless it is following a policy of economic growth at the national level.

Market competition, the logical extension of individualised survival anxiety, introduces its own growth imperative to the system. In order to compete, businesses have to make a big enough profit so that they can reinvest in the business and keep it competitive. Failure to do so would ultimately result in the closure of the business. It’s interesting to note that this is the first time we have mentioned profit: an exchange system has an inherent growth imperative which is simply made worse by capital accumulation in the form of profit-making. Competition will always exist in a market system unless it is forcibly eliminated by state planning (but this is not recommended by the new economy movements, strangely enough).

The new economics movement proposes to eliminate the imperative of economic growth, yet it does not advocate the elimination of competition, nor the abolition of the exchange system. Various policies are proposed, including: tax reform that focuses on taxing destructive practices; price-fixing that aims to ‘re-internalise externalities’; replacing or supplementing GDP with other indicators based on sustainability, health and happiness; reducing the length of the working week; regulating the banking sector and speculative markets; abolishing interest on loans; investing in renewable energy and other green technology; as well as normal policies of social democracy that aim to reduce inequality and policies of protectionism to stop other countries from forcing the degrowth economy out of the global market. That’s just a small sample of the proposals, however. They are generally presented as a whole, in reports like the nef’s “great transition”, indicating that a few of these policies on their own would not be good enough. Unfortunately, since market competition is still assumed to be operational, capital accumulation is not abolished and the exchange system remains intact, the approach will never be good enough.

Even if we ignored these objections, it certainly seems as though the scale and scope of the intervention that is necessary to force a market economy to “behave” is considerable, and it therefore seems quite justifiable to ask the question - why go to so much effort to fix a broken system? Given the sheer scale of the political will that this would demand of our fickle politicians, and the skilfulness that would be required of policy-makers to get it all right, might it not actually be easier to replace the system with a completely different system, designed from the ground up to be based on ecological criteria - a natural economy, in other words?

I certainly think so, because ultimately it is very clear that any exchange system, even if it is supplemented by this cornucopia of additional policy instruments and band-aid patches, does not count as a natural economy. An exchange system depends on people always having something to exchange, and therefore requies that the circulation of commodities be ceaseless. Therefore, production, consumption and exchange themselves take on an importance of their own, necessitating that everything else be subordinated to the need for the cycle to continue, even if growth itself is somehow avoided. As such, an exchange economy is normally unable to reduce human labour by introducing automated technology, because this robs people of something that they could otherwise be exchanging in the market. Similarly, an exchange economy is at pains to produce things that are durable and which minimise resource usage - if your product lasts forever, you rob yourself of your ability to exchange something in the future. And if resource usage is minimised, you rob other industries of their ability to exchange those resources. An exchange economy doesn’t even want people to be healthy or happy, because then you rob people of their ability to exchange services that are aimed at ‘fixing’ their health and happiness problems. Everything becomes subordinated to the need to exchange. But a natural economy is defined as an economy where producing something is an end in itself, while in an exchange economy it is just a means to an end - you scarcely need to care what you’re producing so long as you have something you can exchange. A natural economy is subordinated totally to ecology; an exchange economy forces ecology to be subordinated to the economy. A natural economy cannot have its own rules in terms of prices, competition, GDP or a growth imperative; rather, its rules are the rules of ecology, in terms of needs, carrying capacity, technical efficiency, the health of ecosystems and so on.

A market economy by default requires economic growth and its modus operandi, by default, is inimical both to ecological health and sustainability and to social equality. The new economy movement might well have hit upon a number of policies which would smooth out the worst offences, but if capitalism itself remains intact then there will always be a systemic resistance to these policies, because they go against the very nature of the system. This resistance will express itself in the form of lobbying from big corporations, the risk of capital flight and hostile advances from corporations in other countries that don’t have such strict regulations, as well as political challenges from the right wing who still believe in free market principles. This means that even if new economy policies were successfully introduced, they would be under constant threat from the opposition and from the capitalist class in general. More than likely, compromises would be struck which would dilute the effect of the policies to the point of ineffectiveness. And if the policies aren’t implemented properly and holistically, it could easily cause economic turmoil and problems, which might see the people voting the hypothetical “nice party” out of power. A party espousing free market principles would then be able to restore the semblance of economic prosperity at the expense of progress towards ecological goals.

The true solution is to replace the market economy with a natural economy by completely abolishing capitalism, the state, the party political framework and the exchange system itself. This might sound more difficult in the short-term, but it is far more sensible in the long-term, and when considering ecological sustainability, it’s the long-term that counts. I believe that libertarian municipalism, anarcho-syndicalism and commons-based peer production are all examples of natural economic systems.

Finally, there is the concept of the resource-based economy (RBE) that is advocated by the Zeitgeist Movement. This is another example of a natural economy, but one with a slightly narrower scope. The term RBE, as it is generally used in this movement, refers to a society that intentionally designs all of its social and economic systems as an integrated whole, with the direct application of science and technology to concrete material and social problems including the goal of ecological sustainability and health. In practice this means that the highest possible level of clean technology is used with the ultimate goal of eliminating human labour completely and automating every aspect of production. Money is explicitly rejected, and the Zeitgeist Movement correctly identifies the money system as a significant impediment to a rational and scientific application of technology to society - both an obstacle to ‘progress’ and an obstacle to ecological and human health. It’s clear that resource-based economies are a subset of natural economies. A natural economy does not need to automate everything nor maximise technical efficiency, as I already explained, but unlike an exchange economy, it is capable of doing so.

Since an exchange economy and therefore money itself are incompatible with a natural economy, movements and discourse against money have a particular importance. The Zeitgeist Movement and Venus Project have been advancing an anti-money campaign with some success. There is also the platform known as demonetisation, which tries to counter the exchange logic in society. Anarchist, communist and socialist literature also has a long history of opposition to money. For an ecological society, this is the way we have to go.


  1. CASSE definition  ↩

  2. See reports by the nef - for example “Growth Isn’t Possible”.  ↩

  3. Degrowth and Demonetization: On the Limits of a Non-Capitalist Market Economy in Capitalism, Nature, Socialism 25:3. See here.  ↩

  4. A similar argumentation is developed by Friederike Habermann in relation to degrowth.  ↩