At the time I graduated from high school, I honestly didn’t know what I was going to do next. I had talked with my high school teachers about going to college, but if I went, I would have to “work my way through.” So, college wasn’t an easy choice. The summer after I graduated, I worked a few weeks in a pea cannery doing a machine-like job in intense heat and steam and deafening noise. I had only enough money for one semester’s fees, books, and room and board, but I decided to give college a try.
I had no idea of what I was going to study, other than something related to agriculture. I had grown up on a farm, had taken vocational agriculture in high school, and had been an active member of the Future Farmers of America. I knew I didn’t want to be a vocational agriculture teacher but didn’t know much about any other agricultural occupation that required a college degree. So, I enrolled at the University of Missouri as a general agricultural student. Most of my first semester courses were general arts and science requirements—including, English, chemistry, and algebra. I wasn’t prepared for college-level courses in any of these areas, but they were required so I took them. For reasons I can’t recall, the one agricultural course I signed up for was the beginning course in agricultural economics. I didn’t register for classes until the last day of pre-registration, and I suspect there hadn’t been a lot of students signed up for Ag Econ.
I had only a vague idea of what economics is about. I knew that prices are somehow determined by supply and demand, but didn’t understand the process. I knew that farmers didn’t have any control over the prices they paid for things like feed, fertilizers, or machinery, or the prices they got for their crops and livestock. Farm management, as I saw it, was pretty much just doing the best you could in economic situations that are beyond your control. There wasn’t much incentive to spend a lot of time learning about things you couldn’t do anything about.
That being said, I suspect I knew as much about economics at that time as most people know today. People may hear and read about inflation, interest rates, employment and unemployment, the stock markets, the GDP, or how fast the economy is growing. However, they probably don’t feel they can do much to influence any of these things. So, they just do the best they can in economic situations that are beyond their control. Like farmers, they complain when they feel their economic situation is bad and tend to give themselves credit when they are doing well. Most people have very little understanding of how the economy is supposed to work and thus have no way of knowing whether it is working as it should, or how they have been told it is working.
What differences does it make whether people are or aren’t economically literate? Even if we individually can’t influence how the economy works, we can and do influence it collectively—whether we realize it or not. If we don’t understand how economies work, who they are supposed to work for, how they are supposed to work, and when they aren’t working, then we have no idea what we can do to make the economy work better. As economic illiterates, we are vulnerable to all sorts of economic misinformation that causes us to make bad choices. We risk wasting our time and money believing and supporting economic quick-fixes that have no chance of working for anyone other than the person who writes quick-fix books or sells quick-fix videos. We don’t know which economic policies make sense and which are empty promises.
Even with the negative comments I often hear about economists, mostly deserved, I am glad that I became one. By living frugally, I was able to pay for four years of college by working in the university cafeteria system and received a BS degree in Agricultural Economics. After a three-year stint in the corporate world, I returned to the University of Missouri on a research assistantship that allowed me to complete my Ph.D. degree in Agricultural Economics.
I have spent my entire professional career as an “itinerant economics teacher”—in classrooms, on farms, and since retiring, on the internet and speaking at conferences and educational events scattered across the continent and around the globe. Over the years, I have concluded that extractive, exploitative, dysfunctional economies are the root causes of virtually every major ecological and social problem facing humanity today. One of the biggest challenges in solving these problems will be for societies to achieve economic literacy.
Economies
I have written two books about the economic dimensions of sustainability, Sustainable Capitalism and The Essentials of Economic Sustainability. I won’t attempt to repeat or summarize the content of those books in this chapter. Instead, this chapter will focus on what I feel are some of the misconceptions about economics, and thus obstacles to economic literacy, that are of relevance to economic sustainability.
One of these obstacles is confusion about what economies are and what they are supposed to do. Merriam-Webster defines “economy” as the “structure or conditions of economic life in a country, area, or period; also, an economic system.”[i] “Economic,” as in “economic life,” is defined as “relating to, or based on the production, distribution, and consumption of goods and services.”[ii] In other words, an economy is the system of production, distribution, and consumption of a country, geographic area, or period of time: simple and accurate, but not very informative. So if we rely on Merriam-Webster, the economy remains some abstract “system” that determines how much we can earn and how much we have to pay for things, which we can’t do anything about.
So, let’s start at the beginning. The root word for “economy” is the ancient Greek word oikonomia, which was used in the 4th century BC by philosophers like Socrates to refer to management or stewardship. Oikonomia referred to the rules (nomia) of the household (oiko). However, the early Greek household referred to an estate rather than the typical family household of today. The estate owners relied on slaves and hardworking matrons (or oikonomos) to meet most of the estates’ needs, freeing the master or head of the household to participate in philosophy and politics.[iii] Surpluses over household needs were used to help meet the needs of others who were less fortunate, as well as increase the size of the estate. Economics then referred to the rules or principles by which Greek households or estates were managed to fulfill their various material, societal, and philanthropic purposes.
The societal and charitable ends or goals of oikonomia were ethical, even though the means of slavery and misogyny were egregiously immoral by today’s standards. The resources available for production were considered “abundant,” meaning nature provided more than enough means to meet the needs of all. While standards of living were far below today’s standards and some people were considered poor, the objects of the household’s charity, nature provided more than enough to meet the needs of “the estate.” Production of surpluses beyond what was needed by the estate and shared with others was intentionally limited, not externally but by self-control, to avoid the temptations of overindulgence in luxuries, which was considered unethical.
Over time, households began to use specialized production methods that allowed them to produce surpluses of specific products well beyond their own needs. Even Greek households of the 5th and 4th centuries BC participated in trade with other households and benefited from foreign trade with Greek colonies. By trading surpluses among households that specialized in different products, the trading households, both domestic and foreign, could benefit from access to a wider variety of products and efficiency in domestic production.
The Greeks and Romans dominated trade and economic development in the Western World from 400 BC to AD 500, which relied heavily on agricultural products and slave labor. The fall of the Roman Empire led to a long period of economic decline and devolution toward community-based economies and self-sufficient households. By the 11th to 13th centuries, the merchant economies were expanding again, and workers were being drawn back into urban economies. The plague of the mid-1300s led to severe labor shortages. This increased the bargaining power of urban workers and surviving peasants and hastened the end of feudalism.
Economies of the 14th through 16th centuries were dominated by global trade, including with the New World of North and South America. This led to the establishment of local craftsmen and merchants’ guilds to facilitate locally specialized production and increase local bargaining power in trade relations. Over time, specialization and trade became increasingly important means of meeting the needs of domestic societies. This eventually led to the emergence of merchants who specialized in the trade of surplus production among nations. “Mercantilism” was the origin of the concept of national economies, as governments began to influence and regulate international trade among merchants.
Economic scholars have a variety of opinions regarding the history of capitalism and the evolution of national economies.[iv] Some scholars link the birth of the capitalist economies of today to the emergence of the new class of merchants who prospered by trading rather than producing anything of real value themselves. Others link the origin to capitalism to the commodification of goods and services, which facilitated borrowing and dependence on debt.[v] Some link capitalism to colonialism, exploitation, and the quest for unending growth. The term “capitalism” was not used by economists until the mid-1800s, during the early stages of industrialization. Marx wrote of “capitalist” and “capitalist forms of production.”
I feel the most compelling explanations are those of Karl Polanyi and others that capitalist economies and nation-states were created simultaneously, and each is inseparable from the other. Polanyi calls the “nation-state/capitalism” combination the "Market Society.” He believed that the emergence of Market Societies not only changed human behavior but also changed the economic mentality and value systems of societies and humanity. Before the market society, people based their economic relationships on reciprocity and the redistribution of surpluses to meet the needs of their communities and for the philosophical betterment of humanity. After the market society, people based their relationships on the instrumental, impersonal, pursuit of individual self-interest, believing this somehow contributed to the good of society and humanity.
Polanyi saw the enclosures of common lands in England as a major cause of the rise of market societies. The enclosure began in the 1400s but accelerated in the 18th and 19th centuries. Before the enclosures, a substantial amount of land was owned by the nation-state of England and made freely available as common for people to use to meet their needs. The large estates were also farmed collectively by serfs who produced food for themselves and typically paid rent to the lord in the form of labor or products. The ability to increase productivity through specialized farming methods provided new incentives for nation-states to enclose their commons and rent or sell the land to those who were able to increase productivity.
The new farming methods also created opportunities for estate owners to make more money by charging higher land rents to individual tenants than they were collecting from their serfs. As lands in the commons were enclosed or converted to private property, people who had met their needs from the commons were forced to work for wages. They were also forced to rely on markets rather than self-sufficiency or communal relationships. Market economies led to increased production surpluses, allowing nation-states to collect more rents and taxes and thrive economically. The survival and success of nation-states depended on market societies, on capitalism.
With the increasing reliance on markets, relationships became not only less personal and social but also less altruistic. The popularity of Adam Smith’s landmark book, The Wealth of Nations, undoubtedly influenced changes in both economic and social relationships. Smith wrote, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”[vi] People were led to believe that they best served society and humanity by pursuing their individual self-interests. That belief has been reinforced over the centuries and persists today.
Thomas Malthus also had a major influence on economic thinking in the late 1700s. Malthus observed that increases in human well-being resulting from a nation's increased ability to produce food were only temporary.[vii] He concluded that humans tend to use increased food production to increase birth rates and population rather than maintain the initial higher standard of living. In other words, increasing food production eventually leads to larger populations, which brings per capita food supplies back to previous levels. Malthus believed that populations would increase exponentially while food production could increase only arithmetically. So, increases in food production would lead to overpopulation, lower living standards, and eventually hunger and starvation. This was the probable origin of economics as “the dismal science.
Before the emergence of capitalism, economic relationships reflected an assumption of abundance. The resources of nature were more than adequate to meet the needs of all. Production needed to be limited to avoid the temptation of overindulgence in unnecessary luxuries. The emergence of capitalism seems to have emerged with a shift in economic thinking from abundance to scarcity and the need for economic growth. There is no economic consensus regarding whether capitalism emerged in response to scarcity or scarcity in response to capitalism.[viii] I believe scarcity became a priority when economic thinking shifted from how best to meet “basic human needs” to how to meet “individual wants” or preferences. Whatever the cause, by the early 1800s, economists assumed that the resources of nature were scarce rather than abundant. They also believed the best way to use these resources for the benefit of society and humanity was to pursue their self-interest through market transactions rather than personal relationships.
The early economists failed to anticipate the negative social and ethical effects of relying on impersonal transactions to meet basic human needs, as well as individual wants. In his book, The Theory of Moral Sentiments, Adam Smith wrote: “The wise and virtuous man is at all times willing that his own private interest should be sacrificed to the public interest of his own particular order or society. He should, therefore, be equally willing that all those inferior interests should be sacrificed to the greater interest of the universe, to the interest of that great society of all sensible and intelligent beings, of which God himself is the immediate administrator and director.”[ix]
Economists continued to assume that people would temper their economic decisions with social and ethical values through much of the 19th century. In his 1890 book, Principles of Economics, economist Alfred Marshall, an icon of neoclassical economic thinking, conceded that economics no longer dealt directly with the whole of human well-being, his term for happiness, but rather with its “material requisites.”[x] Marshall acknowledged that market economics could not provide the social and ethical requisites for happiness, suggesting that economists should not mislead people into believing that the economy can provide anything more than the material requisites for human satisfaction or flourishing.
In 1938, however, Paul Samuelson pioneered a new “revealed preference theory,” which claims that economic value should be determined solely by choices of consumers among alternatives with no regard or consideration given to the social or ethical consequences.[xi] In addition, no priority is given to needs relative to wants. John Hicks, R. G. D. Allen, and other neoclassical economists eventually replaced classical consumer theory with a new theory of consumer behavior that relied solely on consumers’ preferences. This paved the way for a host of other quantitative economists, who have since completely replaced the once-subjective logic of economics with the languages of mathematics and statistics.
Economists today largely ignore the limits of contemporary economics identified by Marshall, Smith, Malthus, and others. In 1992, economist Gary Becker was awarded the Nobel Memorial Prize in Economic Science for his theories that all human behavior, even benevolence and altruism, could be rationalized as economic, self-seeking behavior. Social and ethical responsibilities were thus redefined and fused into the realm of economic self-interests. In mainstream economic thinking today, there is no difference between economic behavior and social or moral behavior. Individual and societal well-being are synonymous with income and wealth.
The conventional worldview of sustainability accepts the fusion of economy, society, and morality. People express their social and ethical values in their economic decisions. If people value the conservation and protection of nature, they will be willing to pay prices high enough to provide economic incentives to produce products that conserve and protect nature. Markets will respond to and reflect their altruism. If people value the personal relationships of local communities, they will be willing to pay prices high enough to allow local producers to compete with their national and global competitors. Markets will respond to and thus reflect their benevolence or citizenship. If people value sustainability, they will be willing to pay prices high enough to cover its costs, and markets will provide it.
Those with the worldview of shallow sustainability recognize that government intervention is sometimes necessary to protect nature and society from economic exploitation. They understand the differences between economic behavior and ethical and social behavior. Nonetheless, they advocate internalizing social and ecological externalities so that markets can determine how scarce natural and human resources are used and who benefits from their use. They fail to appreciate that internalizing externalities is analogous to “enclosing the commons” or privatizing nature. Once a cost price is placed on things of nature, the commons, they can be sold to the highest bidder, to extract, degrade, or destroy as they see fit, with no regard for the social or moral implications. We see this today in markets for oil and mineral reserves, water rights, and carbon credits. If the things of nature belong to anyone, they belong to everyone, including those of future generations, and everyone must have a say in how they are used.
Shallow sustainability also recognizes that different types of economic value are not equally “good” even if they have the same economic value. However, they promote reducing “bad economic growth” by replacing it with “good economic growth”—even if the “good” is only slightly less unsustainable than the “bad.” They attempt to rationalize sustainability as the most sustainable economic growth currently feasible, rather than fulfilling a social and ethical responsibility for authentic sustainability.
Deep sustainability is about reclaiming the economic ideals of oikonomia, but doing so within the context of 21st-century economic, social, and ecological reality. Deep sustainability is about recognizing that the abundance of nature is more than sufficient to meet the basic needs of everyone and everything on earth, without diminishing opportunities for those of the future. Once the basic material needs of all are met, there is no “need” for more income, wealth, or economic growth for human well-being, flourishing, or happiness. The priority then shifts to human relationships and a sense of purpose. The challenge today is to achieve an equitable and just distribution of what is produced to meet “human needs,” not the futile pursuit of economic growth to satisfy insatiable “human wants.”
The economic surpluses of some are more than adequate to meet the basic needs and provide the material requisites for societal well-being. The challenge today is not an inability but the unwillingness to share resources or pay taxes to fulfill our collective responsibilities. The economic surpluses produced today are more than sufficient to meet the needs of all and allow everyone to have enough luxuries that enhance their enjoyment of life. Today’s economic capabilities are also more than adequate to free everyone to participate in philosophical discussions and political debates regarding how best to restructure governments and regulate markets to meet these challenges—to rethink just about everything.
Markets
Barring a civilizational collapse, humanity will not return to hunting and gathering or even to self-sufficient households—regardless of what we might prefer. By necessity, there will be some degree of specialization and some form of trade or distribution of production. One economic option is central planning with government ownership and control of production and distribution, the basic characteristics of socialism. Another option is unrestrained market economies with private ownership and control of production and distribution, the basic characteristics of capitalism. However, all major economies of the world today are mixed economies, with some elements of both socialism and capitalism. In other words, markets play an important role in global, national, and local economies today and likely will play an important role in the sustainable economies of the future. The question is not whether there will be markets in the future, but instead how well markets will function and who will realize their benefits.
First, it’s important to understand that purely economic decisions are about the pursuit of impersonal, individual, self-interest. Even if decisions are not motivated solely by economic self-interest, it’s important to know how markets influence decisions in social and ethical economies.
The best way I have found to explain complex concepts, such as markets, is to start with simplicity and build toward complexity. The simplest form of market is a single exchange between two individuals. Assume that I value something you have more than I value something I have, and you value the thing I have more than the thing you have. Then, if I trade the thing I value less to you for the thing I value more, you also will get something you value more than the thing you traded to me. We both will have gained value from our trade and will be better off than before.
If I take some things to a swap meet, there may be several people there who value what I bring more than what they have. And, they may bring things I value more than the things I have. A swap meet is more complex than a simple exchange because there will be several who are both “sellers and buyers,” and may barter rather than use money. Regardless, each seller/buyer has several potential buyers/sellers to choose from and can choose among several alternatives to trade for the things they value more than things they trade away. In this case, there is competition among buyers and sellers. This gives each seller/buyer more choices and opportunities to gain from trading.
If I go to a farmers’ market, there will be several sellers and typically many more buyers than sellers, and the sellers will expect buyers to exchange money for their products. Money is called a “medium of exchange” because it serves as a temporary substitute or proxy for things of actual value. Money has value only insofar as it can be exchanged for something of tangible, material, or perhaps psychological value to people. At the farmers’ market, buyers may be able to choose among several sellers of an assortment of vegetables and other products that they value more than anything else they could buy or get in exchange for the money they spend.
There will be competition among the vendors not only in pricing their products but also in the quality of products they offer for sale, although there are sometimes informal agreements among sellers not to participate in price cutting. Under conditions of “perfect competition,” buyers will choose assortments of vegetables that have the greatest value to them relative to the value they place on the money they spend at the market. The farmer vendors will have sold their products to the customers who placed the highest value on their products, those willing to pay the highest prices for them. By pursuing their self-interest, farmers will have provided their customers with products of the greatest value and lowest cost available at the market.
With purely competitive markets, producers who offer products that satisfy more customers at the lowest prices will have the most customers. This will allow these producers to gain access to more land, labor, and capital than producers who satisfy fewer customers or charge higher prices. This is how purely competitive markets, if they existed, would ensure that productive resources were used as efficiently as possible to meet the needs and preferences of consumers. To the extent that markets fail to meet the conditions of perfect competition, producers are less responsive to consumers’ needs and preferences, and productive resources are used less efficiently.
It's important to understand how competitive markets work, even if not perfectly competitive, because it is virtually impossible for governments, or any form of central planning, to anticipate the preferences of millions, or even thousands, of consumers and to allocate the use of land, labor, and capital among producers, processors, manufacturers, and distributors with efficiency to maximize the value received by consumers. This is why many consumers in nations with planned economies rely on informal or formal markets to meet individual preferences.
Equally important, even competitive markets will not ensure that the basic needs of all are met, and thus the need for government planning or public sectors of capitalist economies. Markets respond to consumer “needs” only to the extent that those with needs can pay prices equal to or higher than prices paid by those who can afford more than they need, to satisfy their wants or preferences. If scarce productive resources—land, labor, and capital—are used to meet the wants and preferences of those with more money, they will be too costly or unavailable to meet the basic needs of those with less money. That’s why we have government programs for Social Security, Medicare, Medicaid, unemployment insurance, nutritional assistance, minimum wages, public transportation, and even public education in the U.S. Even perfectly competitive markets, if they existed, would not ensure that the basic human needs of all are met.
The next level of complexity is the impersonal mass markets in which most people unknowingly participate today. The complexity makes it more difficult to understand how markets are working, or not, in any given situation, but the fundamental relationships are the same. In complex societies, people earn money working for companies that produce the things people buy with money they have earned elsewhere. The workers typically buy few, if any, of the things the companies they work for produce. They spend most, if not all, of their money on things produced by people working for other companies.
People rarely, if ever, see the people who produce the things they buy, or those who buy what they produce. The transactions are typically made through markets that allow buyers to choose from a variety of products and provide sellers with various ways to offer their products for sale. Department stores, supermarkets, supercenters, outlet malls, discount stores, restaurants, fast food chains, and coffee shops are examples of markets that facilitate impersonal transactions among people who don’t know and will never see or communicate with each other.
Most people probably don’t think of retail stores as markets, because there is no opportunity for buyers and sellers to negotiate prices, and there is usually only one or two sellers or brands of any specific item at any given retail outlet. The customer either buys or doesn’t buy the products at the list price. For costly items where negotiations are customary, such as automobiles, there are typically only one seller and one potential buyer involved. Wholesale market transactions are generally negotiated face-to-face or directly between buyer and seller, much like big-ticket retail sales. Even in wholesale markets, the sellers are rarely the producers, and buyers are not the ultimate consumers.
Competition in most markets today takes place among different retail stores, eating establishments, dealers, or suppliers. If buyers have access to several retailers or sellers for the same basic item, they will have a variety of products to choose from. The producers who market through these outlets also have access to a variety of potential buyers of their products. If there aren’t many sales at the listed or asking price, producers will be forced to reduce prices or increase the quality of their products to keep their products in the retail outlets. Sellers who can’t compete lose access to customers.
The economic competitiveness of today’s markets depends largely on the number of retail outlets or dealers that are readily accessible to potential buyers or consumers. Internet marketing has increased competition among retailers, in that consumers can compare the online prices and product offerings of all the major retailers rather than being forced to go from store to store. This doesn’t ensure that retailers will offer the lowest possible prices or the highest quality products, unless there is enough competitive pressure to force them to do so, which is rarely, if ever, the case in today’s mass markets. Online marketplaces, such as Amazon.com, provide opportunities for smaller or lower-volume producers with access to consumers, which increases consumer choices and opportunities for innovation. However, Amazon had a near-monopoly on market access for producers or suppliers unable to gain access to consumers through other major retailers.
Today’s markets may not resemble the classic economic example of buyers and sellers coming together to establish market prices based on producer supply and consumer demand, but the principles that determine production, consumption, and prices are the same. The ability of today’s markets to provide economic incentives to use or allocate natural and human resources to their most economically efficient use still depends on competition among buyers and sellers.
The ability of competitive markets to allocate resources to meet consumer needs and wants is often referred to as the “invisible hand” of free markets. In The Theory of Moral Sentiment, Adam Smith wrote, “Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.[xii] Producers are led by the “invisible hand” of market incentives to produce the assortments of goods and services of greatest value to consumers at the lowest feasible cost of production. This is a very seductive concept. In the late 1700s, in Adam Smith’s time, this was probably a reasonable description of how the markets and economies worked.
However, most of today’s markets have few, if any, of the characteristics of “perfect competition” or “free markets” that are essential for the invisible hand to transform the pursuit of self-interest into societal good. To ensure economic competition, we would need to break up today’s large corporations so that no single supplier could have any significant impact on market prices for any product, consumers would need sufficient information to determine the performance or satisfaction gained from a product before buying it, suppliers with new or better products would need to have access to consumers, and consumers would need to be free to make decisions in the absence of persuasive advertising or manipulation of preferences.
In the absence of these conditions, we have no assurance that today’s markets are providing consumers with the things they would value most relative to the value of natural and human resources used to produce them. Equally important, there is no assurance that the assortments of things made available to them are of the greatest value relative to the prices they may feel forced by necessity to pay. The markets in sustainable societies must be “economically competitive” if they are to serve the economic interests of the societies that create and support them.
Economists generally agree that today’s markets lack the conditions of “perfect competition.” However, the typical argument is that markets in general are “sufficiently competitive” to ensure that consumers’ needs and wants are met better by today’s market economies than by any other feasible alternative. In those situations where companies commit egregious violations of the conditions essential for competition, they are subject to prosecution for violation of antitrust laws.
Economists argue that if further efforts are made to ensure competition, companies will not be allowed to realize the economic efficiencies of large-scale production, and consumers will be forced to pay higher prices for their products. However, without effective “economic competition,” there is no assurance that consumers are paying the minimum prices for the things they buy. In addition, it is virtually certain that they are not being offered the assortment of goods and services that would give them the greatest total value relative to the value of the natural and human resources used to produce them.
Most people associate competition with two or more people, teams, or other groups of people who are vying for the same goal or objective. This kind of competition is typically face-to-face and often personal. Economic competition is different from competition in academics, athletics, or politics. There are four basic characteristics of economically competitive markets. Economic competition need not be “perfect,” but it needs to be “effective,” to ensure that markets function to meet the economic needs and preferences of society rather than simply generate profits for capitalists.
As suggested above, if any sellers or buyers of a specific good or service are large enough, or few enough, to influence prices, or collude to influence supplies and prices, there is no assurance that the market will allocate resources to meet the needs and wants of consumers. There is no assurance that any reductions in production costs will be passed on to consumers in the form of lower prices, rather than retained as excess profits by producers. There is no assurance that producers will be rewarded for producing the things that consumers value most. Instead, those with the power to manipulate market prices will be able to maximize profits without doing anything of real value, which is sometimes called economic “rent-taking” or “greedflation.”
Second, consumers will be denied the benefits of technological progress and innovation if it is difficult or impossible for those who come up with ideas for better products or services to connect with potential buyers, or for those with obsolete or inferior products or services to go out of business without disrupting the markets. The sheer size of investment required to be competitive in today’s markets prevents those with better products and better ideas from entering markets that would give them access to potential customers. Large corporations are also in better positions than smaller independent entrepreneurs to acquire patents, copyrights, and other intellectual property rights. Entrepreneurs with better ideas are often forced to sell their development rights to large corporations, which then decide whether or how to use the ideas to maximize profits for the firm.
Third, the benefits that consumers realize from buying goods or services may differ from their expectations at the time of purchase. Disappointed customers can sometimes return products for a refund, but most often must settle for less value than expected or find something else that meets their expectations. Returns, refunds, and replacements all add costs and introduce inefficiencies because consumers’ choices do not reflect their actual needs and preferences. The “invisible hand” of free markets doesn’t work.
Fourth, consumers often end up buying things that don’t meet their needs or wants because they are coerced, pressured, or persuaded to buy something they don’t need or want. The problem in this case is not a lack of information or even misinformation, but intentional deception. As in the case of inaccurate information, consumers end up with products that don’t meet their needs or wants. U.S. advertisers spend nearly $500 billion a year on advertising, the vast majority of which is designed to persuade rather than inform.[xiii] This type of deception not only misleads consumers but also allocates potentially productive economic resources to create misleading impulses or desires rather than to satisfy real needs or preferences. In this case, the “invisible hand” of free markets has been intentionally disabled.
None of the characteristics necessary for the efficient use of scarce resources exists in today’s capitalist economies. Less than a dozen large corporations now control virtually every major sector of the U.S. economy.[xiv] The U.S. Justice Department essentially quit enforcing antitrust laws to maintain competitive market structures in the early 1980s. The Justice Department only pursued antitrust cases against firms that either colluded with competitors or excluded competitors from markets to create monopolies. The basic argument was that consumers would benefit more from allowing corporations to consolidate and take advantage of “economies of scale.” Corporations were sometimes required to close stores in specific markets where consolidation would have created a monopoly, but the firms were still allowed to consolidate.
Defenders of unrestrained corporate consolidation have claimed consumers have benefited from access to cheaper products, even if their choices have been somewhat limited. However, numerous recent studies have shown that large corporations have been using their increased market power to retain profits rather than pass any cost savings on to consumers.[xv] By the time the failed antitrust policies became evident, corporate economic power had been transformed into corporate political power, leaving the government unwilling, at least thus far, to reverse course. In addition, large corporations can now take large risks to reap large profits, knowing that the government will bail them out financially, if necessary, to avoid disrupting markets. “Too big to fail” is no longer limited to financial markets but now characterizes most capitalist economies.
Defenders of corporate consolidation argue that large corporations have maximized innovations in products and production processes. However, there is no way of knowing what kinds of ideas and innovations might have emerged from markets with large numbers of small firms and the freedom of those with better ideas to offer their products to customers and those with obsolete products and services to fail.
Renewable energy, low-cost electric vehicles, and high-speed public transportation might have eliminated the need for the corporate-dominated fossil fuel industry decades ago. High-speed Internet access might have been made freely available to everyone as a public service, without advertising. All foods in the supermarkets might have been organically produced and available at prices competitive with or even lower than food prices today. Instead, people are buying foods that make them sick, clothes they only wear more than a few times, thousand-dollar cell phones, and big SUVs and pickup trucks that rarely haul anything heavier than groceries. They buy things based on advertising hype or endorsements of so-called experts that fail to live up to expectations. When they buy things that actually meet their need, they break down, wear out, become obsolete, or last half as long as whatever they replaced.
In the absence of economically competitive markets, there is no way of knowing whether consumers are getting the “right stuff” or even if they are getting “cheap stuff.” With the economic and political power of large corporations today, the stuff people are getting is becoming increasingly unaffordable. Markets must be economically competitive to allocate scarce resources to meet consumers’ needs and preferences. It is up to the people to temper their individual preferences to support collective investments in the social and ethical sustainability of society and the Earth.
Those with the conventional worldview of sustainability generally accept the economists’ claim that today’s markets are sufficiently competitive to guide the use of natural and human resources to their highest and best uses. They may support antitrust laws to prevent outright monopoly control of specific product sectors, such as computers, airlines, or automobiles, but three or four major providers are accepted as adequate. They may also oppose outright collusion among companies to fix prices at inflated levels, but ignore cases where companies charge exorbitant prices for patented products that are critical to public health, such as prescription drugs. Protecting the illusion of “free markets” is critical to the conventional worldview that market solutions are the only real solutions to ecological and social problems. This illusion allows the wealthy to become wealthy while the poor barely get by or do without.
Those with a shallow worldview of sustainability generally recognize the lack of competitiveness in today’s economy and advocate a return to strict enforcement of antitrust laws. They recognize corporate “greenwashing” as a means of enhancing corporate profits rather than addressing environmental issues. They also understand that continuous innovation and planned obsolescence, which waste resources and increase pollution, are more about profit maximization and consumer satisfaction. However, the shallow worldview accepts the proposition that significant improvements in resource conservation and environmental protection must ultimately be supported by the large corporations that account for most of the waste and pollution, as well as most of the production. They see a corporately dominated future in which sustainability will depend on economic incentives provided by governments and consumers or voluntary corporate acceptance of ecological and social responsibility. They believe government programs or consumers’ purchase decisions must make sustainable alternatives the most profitable, or that corporate managers and boards of directors must prioritize the well-being of society and nature over corporate profits and returns to shareholders.
Those with the worldview of deep sustainability understand that economies, even with perfectly competitive markets, are only capable of meeting our individual, instrumental, impersonal needs and wants as consumers—not as workers or citizens. Economic benefits accrue to collections of individuals, but not communities or societies as integral wholes. They know an economic transaction is a means to an end and has no value beyond whatever is received in return. Economic value is indifferent to the specific personas involved in transactions. Markets are also indifferent to the unsustainable extraction and pollution of nature and the exploitation of workers. Economic benefits to consumers are supposed to offset any costs of extraction and exploitation, but those who benefit most are rarely the same as those who bear the costs. And the social and ecological costs are largely ignored. Those with a deep sustainability worldview also understand that today’s markets aren’t even doing things they are meant to do or can do.
The governments of deep sustainability societies will restore the economic competitiveness of market sectors of their economies. Large corporations will be required to reorganize or be divided into enough smaller corporations to restore economic competitiveness to markets. In cases where the loss of economies of scale would be unacceptable, large corporations will be reorganized as “public utilities,” or nationalized if necessary. For those products and services acquired through impersonal transactions, there will be enough producers and providers to ensure that none can manipulate market prices and retain excess profits. Those with new ideas will be guaranteed access to markets where they may compete for customers. Patents and copyrights will be limited to periods required for the recovery of investments. Persuasive advertising will be replaced with objective product information—verified for accuracy by public agencies. With accurate information, superficial differentiation and planned obsolescence will be revealed.
Most importantly, however, in deep sustainability societies, people will meet most of their basic needs collectively, through their social economies and ethical economies. Local and regional economies will dominate deep sustainability societies, as will be emphasized in Chapter 9. Individual economic wants and preferences will be tempered by concerns for people they know or feel some connection to—friends, relatives, neighbors—and with concerns for the other things of nature—particularly the nature in the places where people live. The basic human needs of everyone in communities—food, clothing, shelter, health care, education, etc.—will be ensured collectively, through locally owned and governed public utilities or other public institutions.
A priority will be given to securing essential goods and services from local and regional providers to strengthen local economies and communities by meeting local needs. State and federal funds for such purposes will be administered and augmented at local and regional levels.
Purely economic transactions will be limited primarily to meeting individual wants and preferences rather than basic human needs. Thus, markets will be less important to individual well-being and will be a far lesser threat to societal and ecological well-being. In essence, deep sustainability communities will return the economies to oikonomia. Local and regional economies will meet most local and regional needs and produce enough surpluses to support governments that ensure that the basic needs of all are met. They will maintain competitive markets to meet individual wants and preferences and work together through government to protect nature and society from economic extraction and exploitation. Luxuries and extravagances will be limited voluntarily to avoid the temptations of unnecessary, unethical, and unsustainable consumption.
Money
Admittedly, the transition from today’s economy to the economy essential for deep sustainability may seem insurmountable. However, the challenge is no greater than the corporate world faced in transforming competitive economies of earlier times into the corporately dominated economies of today. The only power greater than today’s corporate power is the power of the people. In fact, corporate power is granted by the people’s governments. If people awaken to the need for fundamental change, people working together through government have the power to create sustainable economies.
However, many who hold conventional and shallow worldviews of sustainability keep looking for and suggesting quick and easy fixes. One of the most popular and persistent of these simple solutions is that today’s problems are simply about money. If we could do away with money, change how we create or coin money, eliminate interest on money, or change the basic nature of money, today’s ecological and social problems would be easy to solve. These and other illusions of simple solutions only delay acceptance of the necessity of deeper, fundamental changes.
The problem isn’t money. The problem with money is how people use money. If we did away with money, people would simply come up with something else that served the same basic purposes. Money is simply an impersonal means of facilitating economic transactions. For example, I can earn money and buy things I need, rather than having to find someone who has what I need and is willing to trade it for what I have. Money also provides a generally accepted measure of the economic value of goods and services. I can exchange a dollar’s worth of my time for a dollar’s worth of food, housing, or transportation. And, money allows the value of an economic transaction to be delayed in anticipation of greater future value. I can save money to pay for a college education or retirement rather than try to earn it when I need it.
Throughout human history, people have created various kinds of currency to expand their trading opportunities beyond exchanging or bartering physical goods or services. One reason people in earlier times created money was to facilitate the payment of taxes or rents by the peasants or tenants on large estates. By collecting money rather than labor or products as taxes or rent, a landlord was free to use the revenue from tenants for a wide range of alternative purposes. Money today is necessary for governments to collect taxes that can be used to provide a wide variety of public services that taxpayers could not provide for themselves.
In simple terms, all forms of money are loans. I want something you have, but I don’t have anything you want in return. So, I ask you to loan me the thing I want and accept money as my promise of repayment when you find something acceptable to you in return. U.S. dollars are “legal tender for repayment of all debts public and private,” as is stated on the face of each piece of paper currency. You can redeem your loan to me, or realize the value of our transaction, by spending the currency for anything at any time you choose in the future. Money is more accurately described as a “promissory note,” or a promise to repay a loan. When someone works for wages or a salary, they are essentially loaning their employer their labor in return for money, which is a legally enforceable promise to be repaid for their labor. The obvious advantage of money is the opportunity to select the form, time, and place of repayment.
A loan typically refers to the transfer of a promise of repayment, or promissory note, from the lender to the borrower. The borrower promises to repay or return the promissory note over a specific time or at some time in the future. Interest, in one form or another, has always been associated with borrowing and lending. Interest compensates the lender for delaying the realization of value from a trade or transaction and charges the borrower for acquiring something before anything has been traded or exchanged. In the case of borrowing, there is also a risk of default or depreciation in currency value before the loan is repaid. So, lenders expect to be compensated for the risk of depreciation. Borrowers are willing to pay the compensation or interest because they can use what they borrow to increase its value before they repay the loan. Money depersonalizes and facilitates the processes of lending, borrowing, and paying interest. Most earning, spending, lending, borrowing, and paying interest today is nothing more than digital records of transactions.
Admittedly, money makes it easier to cheat, defraud, and accumulate wealth for nefarious purposes. Some people also become addicted to money instead of valuing what money can buy. But if we did away with all forms of currency or money today, people would create some other means of facilitating impersonal transactions that would have the same basic positive and negative characteristics as today’s money.
The exchange value of money must be guaranteed, or at least assured by some reputable authority, if money is to be accepted in exchange for tangible goods and services. In addition, the value of money must remain stable and predictable over time if it is to be an acceptable means of saving or the deferring realization of value. The U.S. Constitution gives the U.S. Congress responsibility for “coining money and maintaining the value thereof.” Regulating the amount of money in circulation is essential to maintain its exchange value and credibility. Alternative currencies, such as Bitcoin, have gained popularity in recent years but are too risky to be used as money because of a lack of commitment to stabilizing their values.
There is considerable skepticism about how the U.S. government “creates and destroys” money to regulate the money supply. The U.S. Congress has delegated its constitutional responsibility for creating and maintaining the value of the U.S. dollar to the Federal Reserve System, or the FED. The FED is a network of 12 large banks that function as the nation’s central bank. The Federal Reserve Banks are not government-owned, but the FED’s Board of Governors is an agency of the federal government that reports to and is directly accountable to the US Congress. So, Congress is still ultimately responsible for the actions taken by the FED.
The FED typically increases the US money supply by loaning money to member banks. It does this by creating new deposits in the member banks’ accounts at the FED. Member banks can use these new deposits as reserves or security for new loans they can then make to their commercial customers. Proceeds from new commercial loans are deposited in commercial borrowers’ commercial bank accounts. The commercial borrowers’ bank deposits are in US dollars and can be used as “legal tender for all debts, public and private.” The money on deposit in the bank accounts is new money.
Because of something called “fractional reserve banking,” each new deposit created by the FED can serve as security or reserves to back up a series of additional commercial bank loans, and subsequent deposits, totaling ten times the initial deposit, or more.[xvi] Fractional banking is as old as banking itself, having begun when bankers realized that only a small fraction of their depositors would ever need to withdraw money from their deposits at the same time. So, bankers only kept enough on deposit to cover the maximum they might expect to be withdrawn over some period. New loans backed by new reserves resulted in new deposits, providing additional new money to spend, deposit, and serve as reserves for more loans and more new money.
In the past, the FED has imposed “reserve requirements” on commercial banks to protect against the possibility of “runs on banks,” such as those experienced during the Great Depression of the 1930s. If depositors lose confidence in their bank’s financial integrity, they may attempt to convert their bank deposits to cash or government securities with direct backing of the U.S. Treasury. If the bank is unable to borrow from other banks or call in or collect outstanding loans to meet its obligations, it fails, and its depositors lose their money, as happened to many banks during the Great Depression. After the depression, the Federal Deposit Insurance Corporation was established to insure commercial depositors’ bank deposits against bank failures. Since the 2008-2009 recession, the FED has relied on regulations that address the overall financial integrity of banks rather than imposing universal reserve requirements.
The FED attempts to regulate the total amount of money in circulation through the interest rates it charges member banks for money they borrow from and deposit with the FED. If the FED wants to decrease the money supply, it raises interest rates on FED deposits. These higher interest rates spread throughout the banking system, discouraging would-be borrowers, reducing the total amount of bank loans and deposits, and thus reducing the money supply. If the FED wants to increase the money supply, it decreases interest rates, which encourages borrowers and increases the amount of loans and deposits. However, the FED can’t force private investors or consumers to borrow or spend money to stimulate a faltering economy.
However, the U.S. Government can increase the money supply directly, rather than working through the FED, by spending more than it collects in taxes or deficit spending. The government typically finances its deficit spending by selling US Treasury Securities. A government security, such as a U.S. Government Bond or Treasury Bill, constitutes a loan made to the U.S. Government by an investor, saver, or purchaser of the security. The money paid for securities is deposited in US Treasury accounts at the FED to cover the government’s deficit spending. These deposits represent new money because no money was borrowed or taken out of circulation by taxes or otherwise to create the deposits. This new money is an increase in the nation’s money supply. The government could also reduce the money supply by taxing more than it spends, by buying rather than selling government securities.
The only significant difference between new money created by government spending and created by commercial bank lending is that the government puts new money into circulation in the public sector of the economy, while commercial banks put new money into circulation in the private sector. Once the money is spent in either sector of the economy, it is deposited in commercial banks in the private sector. After the initial round of government spending, additional lending and spending take place in the private sector, regardless of where it’s created.
So, what does all this have to do with economic sustainability? First, banking and money creation are not limited to privately or corporately owned commercial banks. Credit Unions, which are member/depositor-owned, are regulated somewhat differently but can also create money. Unlike commercial banks, credit unions are nonprofit organizations that function for the benefit of their members and the communities in which they are located.[xvii] Banks can also be owned and operated by state governments, such as the highly successful Bank of North Dakota.[xviii] States can also charter locally owned “state banks” to serve the public interests of their local communities, rather than maximize profits for their owners. Local governments can also own and operate their own banks to finance their public service agendas. These lending institutions can all create money.
Local governments could not create money in the same sense as the U.S. government, but they could borrow and spend money for public projects that benefit the community, as is currently done with local bond issues. However, the development loans would be made by local banks or credit unions, whereas bonds are sold to investors seeking maximum returns on their investments. People within the communities or bioregions would need to accept responsibilities to repay sustainable development loans or to pay off bonds. In cases where funds are used to provide services currently subsidized by federal and state governments, the government funds could be used to pay off the loans. Shortfalls would need to be made up by local tax revenues. Regardless of the specific means, access to money should not be an obstacle to any community or bioregion in pursuing sustainable development initiatives.
Local and regional banking systems could be established to finance the provision of universal basic services or to meet the basic human needs of everyone in the community or bioregion. Money could be made available to support the construction of affordable, energy-efficient housing, infrastructure for local sustainable food systems, basic healthcare and assisted living, quality education, and other essential services. Federal, state, funds are already being spend to those with insufficient income to meet these and other basic needs. However, the basic human needs of all are not being met, as attested by persistently high levels of poverty, homelessness, chronic illness, and food insecurity. The ability of local communities to use state and federal funds more efficiently and finance the relocalization production and construction to meet local needs would create new opportunities to ensure that the basic economic needs of all are met.
Admittedly, the abstract nature of money, particularly now that most money is nothing more than digits in the databases of financial institutions, makes it easier for some people to deceive and defraud others and for a few capitalists to accumulate more wealth than half of the global population combined. But the benefits of money outweigh the increased risk of fraud. Money didn’t plant the intent to deceive or defraud. Motivations and intentions are formed in the hearts and minds of people and are executed by people, not by money. There is probably a useful role for local currencies and alternative forms of money in sustainable economies. However, eliminating money or changing its form won’t change the hearts and minds of people, including those who are motivated to deceive and defraud or extract and exploit.
More importantly, the ability to buy, sell, borrow, and lend money can greatly facilitate sustainable development initiatives, particularly at local and bioregional levels. Communities and bioregions could essentially create their own economies, providing sustainable investment opportunities for those with money to loan and economic opportunities, as well as a sense of dignity and respect, for those currently unable to meet their basic human needs. Sustainable investments will pay off economically, over time. The primary return on investment, however, is an opportunity to work and live in a caring community, where people care about each other and care for the other things of the Earth. The greatest benefits accrue to those willing to make a common commitment to a better future or their communities, the people and places where they plan to spend their lives.
Those with the conventional worldview of sustainability seem to have a blind faith that market economies provide adequate economic incentives to ensure the sustainable use of productive resources. As they become sufficiently scarce or less abundant to threaten sustainability, the resources of nature and society will become more economically valuable and thus will be worth conserving and protecting. Money is simply a means of facilitating economic transactions and the investments necessary for continual economic growth.
Those who have a shallow worldview of sustainability seem to believe there must be some way to fix today’s unsustainable economy without fundamentally changing their individual way of life or contemporary culture of economic prosperity and growth. Quick fixes, particularly related to money, are popular themes of books, podcasts, and social media posts addressing sustainability. Or they seem to think that federal and state policymakers could and should enact laws and regulations to force those in global corporations and billionaire investors to address the ecological or social threats to sustainability, such as climate change and economic inequity. They seem reluctant to abandon prioritizing short-run economic success over long-run sustainable prosperity.
Deep sustainability is not about searching for quick fixes. Deep sustainability is not about eliminating money, finding alternatives to money, or prohibiting interest rates on money. Deep sustainability is about doing more things for ourselves and through personal relationships with others. But deep sustainability is also about creating money to use for things that need to be done but can only be done, or done better, with money than without. Deep sustainability is not about expecting markets to do things they are incapable of doing, but is about expecting markets to do the things they can and should do.
Deep sustainability is not about expecting today’s economies to function like the economies of ancient Greece. However, deep sustainability is about creating economies of the future that perform the basic functions and have the same basic characteristics of eudemonia. Deep sustainability is about ensuring that the basic human needs or material requisites of all are met, leaving only enough luxuries to add to the enjoyment of life. Deep sustainability is also about leaving enough time for participation in politics and philosophy—to rethink just about everything. Deep sustainability is about the deep, spiritual change in the hearts and minds of people.
Endnotes:
[i] Merriam-Webster, “economy,” https://www.merriam-webster.com/dictionary/economy
[ii] Merriam-Webster, ”economic,” https://www.merriam-webster.com/dictionary/economic
[iii] Dotan Leshem, Retrospectives What Did the Ancient Greeks Mean by Oikonomia? Journal of Economic Perspectives—Volume 30, Number 1—Winter 2016—Pages 225 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.30.1.225
[iv] Wikipedia contributors, "History of capitalism," Wikipedia, The Free Encyclopedia, https://en.wikipedia.org/w/index.php?title=History_of_capitalism&oldid=1186966204 (accessed December 31, 2023).
[v] Joseph Kay, Thoughts on David Graeber’s ‘Debt: the first 5,000 years. 2012. https://theanarchistlibrary.org/library/joseph-kay-thoughts-on-david-graeber-s-debt-the-first-5-000-years
[vi] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations: Book I, Chapter 2 of https://www.adamsmithworks.org/speakings/madden-comic-not-from-benevolence.
[vii] Wikipedia contributors, "Thomas Robert Malthus," Wikipedia, The Free Encyclopedia, https://en.wikipedia.org/w/index.php?title=Thomas_Robert_Malthus&oldid=1186617191 (accessed January 1, 2024).
[viii] Oleg Zinam, The Myth of Absolute Abundance: Economic Development as a Shift in Relative Scarcities. The American Journal of Economics and Sociology. Jan., 1982, Vol. 41, No. 1 (Jan., 1982), pp. 61-76. https://www.jstor.org/stable/3486622
[ix] Adam Smith, The Theory of Moral Sentiments. (Middletown, DE: Economic Classics, 1759, 2013) paragraph VI.II.46, 206).
[x] Alfred Marshall, Principles of Economics. London: Macmillan. (1890, 1946), 27.
[xi] Wikipedia contributors, "Revealed preference," Wikipedia, The Free Encyclopedia, https://en.wikipedia.org/w/index.php?title=Revealed_preference&oldid=1183952665 (accessed January 2, 2024).
[xii] Adam Smith, The Theory of Moral Sentiments, (Middletown, DE: Economic Classics, 1759, 2013) Part IV, Chapter I, pp.184-5, para. 10.
[xiii] Statistica, Advertising- U.S. https://www.statista.com/outlook/amo/advertising/united-states
[xiv] Kate Taylor, A handful of companies control almost everything we buy — and beer is the latest victim, Business Insider, Aug 24, 2017. https://www.businessinsider.com/companies-control-everything-we-buy-2017-8 .
[xv] Heather Boushey and Helen Knudsen, The Importance of Competition for the American Economy, The White House, JULY 09, 2021. https://www.whitehouse.gov/cea/written-materials/2021/07/09/the-importance-of-competition-for-the-american-economy/ .
[xvi] Scott Nevil, Fractional Reserve Banking: What It Is and How It Works, Investopedia, (March 28, 2023)
https://www.investopedia.com/terms/f/fractionalreservebanking.asp
[xvii] What is a Credit Union? https://mycreditunion.gov/about/what-credit-union
[xviii] Bank of North Dakota, https://bnd.nd.gov/