Review: The National System of Political Economy, by Friedrich List

Originally published on RARITANIA, MAY 21, 2018.

Friedrich List's The National System of Political Economy, like Alexander Hamilton's "Report on Manufactures," is both a classic of heterodox and development economics, and a piece of economic history in its having been penned not merely by a theorist but a practitioner playing a part in one of the great economic success stories of modern times. Just as Hamilton's essay called for the United States to develop a manufacturing base behind a screen of protection from English industrial supremacy, so did List's book call for an emerging Germany to do the same. Along with the fact that List's later book was inspired by Hamilton's ideas, and perhaps more powerfully by its practical legacy (National System does not even mention Hamilton by name, but makes numerous references to American developments), it seems worth contrasting as well as comparing the two works. The most obvious difference is length, List penning a large book in place of a brief essay, and the way in which List uses that larger space, providing a much broader and deeper grounding for his ideas. His book, in fact, opens with a systematic and critical survey of Western economic history—the rise and fall of the great economic powers of the past. Later it proceeds to a survey of the corpus of orthodox economic theory (the work of the Physiocrats, Adam Smith, Jean-Baptiste Say) in similarly critical fashion.

In the process List identifies numerous weaknesses in the case for free trade—among them the theory's failure to recognize the possibility of differences between what is good for an individual and what is good for society; between what is good in the short term and in the long; between different kinds of goods (agriculture and manufactures), to which the theory might not be equally applicable; between the complex inequalities of economic activity. In particular he takes the free-traders to task for overlooking the fact that wealth is not simply a matter of "value" but of "productive power"; that while the world is in an important sense a single productive unit, day-to-day behavior has to take into account the reality that humanity remains politically divided into nations separated by borders and with differing interests; that the benefits of the "division of labor" accrue not only among individuals or between countries but within countries as well. Indeed, List points out time and again that writers like Adam Smith time and again ignore or distort contradictions in their arguments, and problematic historical facts, in their insistence on their orthodoxy, with their insistence that government can never be helpful, or their dismissal of such concepts as the "balance of trade," tying them up in absurdities.

However, List was not simply a surveyor and debunker, but advancing a positive program. In his view manufacturing has a special role to play within the development of a country. This is not simply the matter of developing a sector directly generating a given quantity of income above and beyond what existed without it, but the way in which it can contribute to its broader economic life. Successful manufacturing requires a changed attitude toward economic life—a premium on enterprise, efficiency and innovation, which can also make other sectors more efficient, turning a stagnant, static rural life toward commercially-oriented, scientific farming and commensurately higher agricultural yields. Manufactured goods, because of their reliance on trade, are a significant boost to and justification for the development of national infrastructure and shipping, while also generating a demand for raw materials that might otherwise be without value, from all of which sectors like farming or mining might benefit. The same goes for its spur to foreign trade, long-distance as well as short (because it has something to trade), while enabling it to pay its way in the world (the balance of trade does matter), and stabilize credit and prices in a way impossible for countries that are mere (he had the concept but not the term) "commodity exporters," again, benefiting not just a few factory owners, but everyone. Indeed, at the end of all this the manufacturer, the shipper apart, a landowner might find the value of his property multiplied ten, even twenty-fold in the process, while his purchasing power rose still more markedly because of how much more cheaply he can acquire manufactured goods (List contrasting England with Poland in this respect). And besides raising incomes and living standards, this more dynamic economic life with its educational and other demands, and this enlarged communication within the country and with other countries, have a host of beneficial cultural and political effects—urban life and new forms of consumption softening barbaric ways and elevating the intellect and the spirit; and enlarging the appetite for liberty, personal and national, while making them more attainable.

Achieving a solid manufacturing sector, and all the benefits that it brings, in List's view justified and required government intervention within a nation's economic life, extending beyond such relatively inoffensive measures as the establishment of modern infrastructure (like railroads) to the more controversial activity of "picking winners" and backing them up with outright protectionism. Where the most undeveloped countries are concerned, he firmly advocates free trade—virtually any trade with more advanced countries beneficial at this stage. Only in the case of countries fitted by geography and other conditions to undertake a program of deep industrial development does he advocate protectionist measures, and even then within clear bounds. He opposes any restriction on the import of raw materials or food, and even where manufactures are concerned, anything so extreme as outright prohibition. Indeed, tariffs are to be restricted to the level necessary to protect an infant industry, with that duty relaxed as the infant industry plausibly becomes competitive within the international market—which competition is essential to keep it from getting stagnant.

Still, if this intervention is selective, it is not a minor task. List is emphatic about how much a strong manufacturing sector is an intricately interconnected system of different kinds of manufacturing business, some of which are particularly foundational (the machinery/capital goods sector he refers to as the "manufactories of manufactories"), all of which are apt to rise and fall together. He is emphatic, too, about how temporary disruptions of business can erase the good accomplished by a lengthy effort to build up such a sector, and how long it might take an industry to become genuinely competitive—English textiles requiring centuries to accomplish the feat, and even in his more rapidly moving age an "infant industry" phase apt to last decades rather than years. Moreover, even where the advanced industrial country is concerned, government can never afford to be passive—that way lying the decline of many of the once-triumphant industrial powers of yesteryear.1 In expounding this idea List was arguing not for the desirability of such programs in general, but for a specific, practical program to be implemented in Germany—what was to become the Zollverein that did so much for German unification and industrialization.

As might be expected in a work not only penned two centuries ago, but so strongly devoted to addressing the immediate situation, there is much that has become dated, not only rhetoric but substantively. Certainly List was a man of the nineteenth century, and even by its standards, far from radical, with all this might be expected to imply for his prejudices. In hindsight, at least, it is surprising that he could more easily imagine that one day a technology based on new energy sources might enable such cheap and easy generation of heat as to free cold countries from the weather's constraint on their agriculture, than the industrial development of the tropical regions, and sees in Asia only Oriental decadence, ripe for the "uplift" of Western colonization, when scarcely a generation later Japan began its ambitious program of industrialization.

Still, the more basic of his arguments about industrialization have withstood the test of time. More recent writers like Ha-Joon Chang and James K. Galbraith present them in more refined form, on the basis of a larger body of observation more exactingly conducted and studied with the aid of new tools and concepts—but the essential argument recognizable the same nonetheless. It is noteworthy, too, that while List was a nationalist selling a "National System," taking imperial competition and "cultural racism" rather for granted, and even inclined toward a line of geopolitical thinking that had some very unhappy consequences in the following century, List saw nations and nationalism as a station along the road toward a genuinely unified world economy and polity.2 Two centuries on we have ample cause to think very hard about that road he took equally for granted, and where we stand on it.

1. Then as now the case of Switzerland as a model of industrial development under free trade was touted by orthodoxy's defenders, and List debunked it lengthily, citing the numerous special circumstances of the case, and the limits of the Swiss achievement.
2. In his casual Pan-Germanism (taking for granted that the Low Countries and Switzerland ought to be part of a unified Germany), his portrait of a united Germany organizing a continental European bloc against Britain, and that bloc's later drawing in Britain for a geopolitical face-off with America, one can see a foreshadowing of thinking that led to two world wars.

A New Cold War?

Last year I argued that the risk of great power war was lower than at any time since the nineteenth century. So it remains, despite the elevation of tensions in the western Pacific these past couple of years, focused on Chinese territorial claims in the East and South China Seas which are causing disputes between that country and its neighbors, most prominent among them Japan, leading to a series of (thus far) non-violent incidents in the vicinity of Diaoyu/Senkaku/Tiaoyutai Islands. Given the U.S. presence in the region, and its alliance arrangements with various nations within it (particularly Japan and the Phillipines), bolstered by the highly publicized "reorientation" of the U.S.'s military posture toward the western Pacific, many have raised the risk of a larger conflict--hot or cold.

Nonetheless, the larger situation should be kept in perspective. The Soviet Union, in spite of its many weaknesses, at least appeared like a global military challenger. China has displayed no serious aspiration to be anything of the kind anytime soon, any dispassionate examination of its forces and posture making its regional orientation clear. China is also valued by the United States as trading partner and financier in a way that the Soviet Union never was, which has had a dampening influence on anti-China propaganda (as seen in the remake of Red Dawn, which lamely has North Korea invading the U.S.). And despite the difference in political systems between the U.S. and China, there is no real ideological clash, China not even pretending to be exporting an alternative, competing model. (Its statist capitalism is, in truth, just what every industrial power, the United States included, practiced in the past, and continue to practice today in varying ways, even as they advocate neoliberalism, and its pragmatism, not its ideology, prized in those developing countries into which its economic influence reaches.)

There is, in short, much more to bind the U.S. and China together, much less to push them apart than was the case with the U.S. and the Soviet Union in the Cold War, while the significance of the ongoing territorial contests ought not to be overstated. The status of Taiwan is, unlike the status of Germany in the 1940s, a regional issue rather than a plausibly global one. The suspected mineral resources to which ownership of a few uninhabited rocks in the East and South China Seas currently an object of dispute might be a prize for an oil company, but are not so vast as to be crucial to the economic life of either of those nations, the second and third largest economies, and first and third largest industrial powers, on the entire planet (by contrast with the value of Persian Gulf oil fields for states like Iraq and Kuwait).

Yet, it is in the nature of international politics for states to blow minor issues (like possession of the provinces of Alsace and Lorraine) up into matters of world-historical consequence. The justification of questionable procurement programs, the distraction of domestic audiences from bread-and-butter issues, the self-defeating obsession of political actors with maintaining their "credibility," and the sheer stupidity and irresponsibility of those who in a neverending refutation of leisure class, meritocratic and Social Darwinist pretensions, find their way to high office, have been more than enough to push the world over the edge of catastrophe.

All of these factors remain operative now, perhaps more than in most times. China faces the uncertainties surrounding a change of leadership in a political system which has long since lost its legitimacy (the name "Communist Party" increasingly seems an anachronism) amid slowing economic growth, a devastated ecosystem, feudal inequality and the unrest all this makes inevitable. Japan has had two decades of economic stagnation, and just witnessed the criminal irresponsibility which caused the Fukushima disaster. More recently, the unveiling of the AirSea doctrine has been such a public relations mess as to appall neoconservative fellow travelers like Jonathan Pollack and Thomas Barnett (Barnett pointedly calling it "The Military-Industrial Complex's Self-Serving Fantasy" in the title of an article he penned for Time magazine), making the questionable decision to "reorient" the U.S. armed forces toward the Pacific (when retrenchment seems called for) appear that much more provocative.

The result is that the repugnant jingoism of the political theater seen in the East China Sea during the past month ought not to be taken as a sign of the inevitability of World War III, or even a New Cold War, in that region--but it is a reminder that the dismissal of such a danger as phantasmic is dangerous.

Was War Impossible? Remembering Ivan Bloch
6/21/12
"Twenty Years After the Cold War: A Strategic Survey": A Short Version
10/23/11
New Review: The Power Elite, by C. Wright Mills
8/13/11
Century of War: Politics, Conflicts and Society Since 1914, by Gabriel Kolko
10/4/09

John Stuart Mill and The Limits to Growth

John Stuart Mill's The Principles of Political Economy, like the later books of Alfred Marshall and Paul Samuelson, taught a generation of economists the fundamentals of their subject and was the basis for what might be called a "classical moment" within the field.

Today the book is remembered less for its original theoretical contributions than for its summation of what came before. When cited for its own ideas, it is usually a matter of a libertarian in search of authoritative quotations to back up his position seizing on Mill's argument that

To tax the larger incomes at a higher percentage than the smaller is to lay a tax on industry and economy; to impose a penalty on people for having worked harder and saved more than their neighbours.

However, as people who love to throw around authoritative quotations commonly do, they tend to forget the sentence that immediately follows this: "It is not the fortunes which are earned, but those which are unearned, that it is for the public good to place under limitation"--and that Mill explicitly supported estate taxes as a means of preventing inheritance from creating wide inequalities.

This was far from being the only case where Mill took a position less than congenial to proponents of economic orthodoxy, Mill frequently doing so on matters such as labor laws and the government regulation of industry--and even the idea of the zero-growth economy.1 He discusses exactly this in a chapter (4.3) titled "Stationary state of wealth and population dreaded by some writers, but not in itself undesirable." In it he contended that the stationary state was not only inevitable, but rejected the claim that "the condition of the mass of the people . . . must be pinched and stinted in a stationary condition of wealth" to argue that he is "inclined to believe that it would be, on the whole, a very considerable improvement on our present condition."

His argument seems surprisingly contemporary, and indeed, not dissimilar from what The Limits to Growth had to say--namely that it is "in the backward countries of the world that increased production is still an important object."2 He also contended that

It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. Even the industrial arts might be as earnestly and as successfully cultivated, with this sole difference, that instead of serving no purpose but the increase of wealth, industrial improvements would produce their legitimate effect, that of abridging labor.

In short, there are goods in life besides the consumption of material product--the "graces of life"--which might be better cultivated in a more leisured, less money-driven society.

Of course, looking back few of us would regard the level of even the wealthiest nations circa 1850 as representing, or even approaching, a satisfactory stopping point. Clearly the possibilities for growth remained vast, expanding by a factor of fifty from his time to the 1980s, per-capita GWP by a factor of fifteen in that same time frame. And certainly it is difficult for us to imagine a universally decent standard of living at the level of Britain at the time (some $4,000 per capita in today's terms, about a tenth of the level the country now enjoys), even were really egalitarian and efficient distribution of the product practicable with the means to hand in that era.

Nonetheless, the fact does not deprive his argument of all its interest or relevance, what he said then perhaps more applicable at a later date. And even if that is not the case, the fact that it appeared in Mills' Principles is a reminder that the idea is not so new or so radical as it is often made to seem--and a reminder, too, of the narrowness of the range of ideas we seem to regard as acceptable within a public debate.

1. Indeed, he went so far as to say in Book 5, Chapter 11, that "Whatever, if left to spontaneous agency, can only be done by joint-stock associations, will often be as well, and sometimes better done, as far as the actual work is concerned, by the state"--a far cry from the claim that the private sector is intrinsically more efficient than the public, which has been at the root of much conservative economic policy in recent years.
2. The authors of Limits were, of course, aware of Mills' writing, and cited him on this point.

Review: The Baroque Arsenal, by Mary Kaldor

New York: Hill & Wang, 1981, pp. 294.

In 1981's The Baroque Arsenal, Mary Kaldor wrote of recent generations of high-tech weapons, like the M-1 main battle tank, the F-111 and Tornado fighters, and the Ohio-class ballistic missile submarine. She also wrote of the institutional arrangements that necessarily go with such weapons--the organization of armed forces around systems like these, and the military-industrial complexes that grow around their development, production and servicing.

Kaldor argued that the phenomenon emerged from the interaction between the conservatism of military establishments, and the dynamism of the industrial enterprises which today meet their needs. Military services, she argued, are prone to stick with established systems and established missions, but business is prone to continually offer the "new and improved" to win new customers, and keep old ones, in a competitive commercial environment.

The resulting pattern was, in Kaldor's view, a problematic one, driving military-industrial complexes to treat the "perfection" of such weapons as an end in itself, and in the process develop them past the point of diminishing returns--gains in performance, and the value of new features, coming at disproportionate cost. The increasingly complex and expensive systems produced in this way tend to be logistical nightmares, at once demanding and unreliable; increasingly vulnerable to newer, cheaper, simpler types of weapon; and irrelevant to the genuine security environment; while crowding other items out of defense budgets--weapons acquisition meaning less money to go around for personnel and training, for instance.

The great historical example of such weaponry is the combination of age-of-sail thinking and Industrial Age hardware in the battleship of the late nineteenth and twentieth centuries. These ships, Kaldor notes, rapidly grew larger, more heavily armed and armored, more complex and more costly, even as their usefulness became increasingly questionable in the era of the torpedo, the submarine, the aircraft--with these ships reaching the apex of technical sophistication and price, and at the same time, practical disutility, during the Second World War.

Kaldor also argued that spending on Baroque weapons not only represents an unwise use of finite defense funds, but has significant macroeconomic implications, because these weapons tend to be the products of "declining" sectors--steel and steam engines already in this state during the battleship's heyday. Government spending on them (which those industries, of course, will encourage) keeps a country overinvested in such sectors at the expense of the newer, "rising" industries that can maximize growth (oil, electricity, chemicals in the late nineteenth and early twentieth centuries), disadvantaging them in the competition for scarce resources like high-quality engineering skills. Making matters worse, a pattern of government support permits the firms in those older fields to remain profitable even while they are losing their edge, letting them avoid modernizations that would otherwise be forced on them by market competition. In short, a preoccupation with such systems is likely to mean a combination of bloated, obsolescent, uncompetitive declining sectors, and underdeveloped rising sectors, reflecting and reinforcing a formerly leading nation's economic decline--as, Kaldor notes, ultimately proved to be the case for Britain.

Looking at the world circa 1980, Kaldor contended that the course Britain followed as Baroque military superpower and declining economic power in the nineteenth and twentieth centuries was being repeated by the United States, and also the Soviet Union. Each remained committed to fielding large forces of increasingly large, sophisticated and costly tanks, aircraft and warships, even as precision-guided munitions made them all increasingly vulnerable--while the associated automotive, aerospace and maritime industries made their economies more reflective of the priorities of the World War II-era than the missile age. Additionally, each appeared economically stagnant in comparison with powers less invested in such forces and technologies (like Japan).

Making matters worse, the prestige of the superpowers, and the eagerness of their industries and governments for export revenues (e.g. lower post-Vietnam defense spending in the U.S. making these a needed substitute for diminished government funding), drove them to export the tendency to developing countries like Brazil and Iran via sales of modern weapons and the associated infrastructure. Those countries then went on to replicate the associated practices at home (like military-industrial complexes of their own), which weighed more heavily on their smaller, weaker and less developed economies, to the cost of international economic development.

Kaldor's argument is an intriguing one, and would seem to have since been validated by the industrial decline of the Soviet Union and the United States through the 1980s, and also by the frustrated developmental path of countries like Brazil, which invested heavily in a defense industry that never delivered anything close to what was hoped for from it. Still, her case is not without its weaknesses, particularly her discussion of the relationship between Baroque weapons and economic decline.

One such error is the mistake of overstressing the conservatism of military acquisitions policies, and in the process overlooking the conservatism of defense contractors. The reality is that defense contractors tend to be large, established businesses prone to prefer "sustaining" innovations to disruptive ones, and which also exercise considerable influence over military preferences through such mechanisms as the lobbying industry, and the revolving door between business and government. It is also a mistake to overlook the extent to which defense needs support rising sectors and new technologies. The battleship did represent yesteryear's technologies (steel, coal, steam, shipbuilding), but newer technologies as well during the years of its decadence (oil, electricity, even analog computing).1

Where the issue of national decline is concerned, it seems worthwhile to note that not only Britain, but its economically more vigorous competitors, the United States and Germany, also went in for large battleship construction programs at the end of the nineteenth century. Of course, the effect of those programs may have been negative in all three of their cases, each country forgoing a measure of growth because of that policy, but clearly it did not suffice to derail the development of Britain's rivals. This indicates that while such policies do play a role in national economic decline, they are only one part of the way in which a high defense burden tends to drag down leading economies--which also tend to be afflicted by other problems (like Britain's reorientation away from production toward finance in those same years).

Likewise, it is worth pointing out that while many countries which had appeared to be on promising development paths in the 1970s ultimately saw their progress collapse, and that a preoccupation with Baroque weapons may well have played into this (as in Brazil's case), the success stories have hardly been exempt from the "Baroque weapon" syndrome--such as South Korea, today the builder of the world's most Baroque tank (the Black Panther).

The end result is that the mentality of the Baroque weapon has been bad for a nation's economic health, for its effective defense planning, and for overall national well-being, but declining powers--and developing powers which fail to develop--are prone to be doing much else wrong. And that makes all the difference between the powers that suffer most from this policy, and their more vigorous competitors, who have generally not been immune to the fascination of the Baroque weapon.

1. In fairness, Kaldor acknowledges that defense spending does prop up new sectors, but leans toward a view that this support is limited rather than foundational--for instance, providing critical markets in the early stages of a product's life--and offers computers as an example. However, in discussing this subject she neglects to mention ENIAC and SAGE (Semi-Automatic Ground Environment), the NLS (oN-Line System) and the ARPANET (the precursor to today's Internet), all military initiatives that seem not only to have provided markets for computing technology, but directly driven important innovations.

Review: The Crisis of Vision in Modern Economic Thought, by Robert Heilbroner and William Milberg

New York: Cambridge University Press, 1995, pp. 131.

In The Crisis of Vision in Modern Economic Thought Robert Heilbroner and William Milberg take as their principal concern the intellectual history of the economics profession since the 1970s.

Key to their understanding of that history is Joseph Schumpeter's concept of a "classical situation"--which is to say, a period of broad consensus among economists on the issue of theory that also enjoyed wide credence among noneconomists, extending to their confidence in its guidance in "the redress of specific economic problems" (94). The authors identify four such situations in the history of economics in the English-speaking world, which have been founded on the work of David Ricardo, John Stuart Mill, Alfred Marshall and John Maynard Keynes, respectively.

Given their concern with the recent past, their main concern is with the Keynesian moment emergent in the 1930s, and they devote considerable attention to the ways in which it represented a break with earlier thinking. For them the crucial difference was the movement from the Marshallian emphasis on utility-maximizing rational actors, to the Keynesian emphasis on the propensities of individuals (like the "propensity to consume," or the role of "animal spirits" in investment decisions).

This shift in emphasis had two major consequences on the level of theory. One was that the move away from "rational-choice microfoundations" diminished the deterministic, "scientific," natural law-like quality to which many economists aspired in favor of a greater stress on uncertainty (and irrationality) in the behavior of economic actors.

The second was its impact on the way in which we perceive an economy as a whole. The Marshallian view of utility-maximizing actors lent itself to a "summative" view of the economy as simply the sum of all the markets contained inside it. However, the Keynesian emphasis on propensity meant attention to "interactions that take place in a market system but not in any individual market"--what we might term today a recognition of the economy as a complex system that is more than the sum of its parts. The result was that a great many things that simply did not exist in a Marshallian world, like the "underemployment equilibria, liquidity traps, multipliers and the like," along "with their cumulative or transmarket repercussions" (38), were not just apparent to Keynesians, but appeared central issues.

These theoretical changes, in their turn, had significant practical consequences. The natural law-like image of the older, Marshallian economics gave economists' pronouncements the authority of Science, while making the economic process seem "depoliticized" and above social constructs, rather than an arrangement grounded "in the contingent historical and political requirements of the prevailing social order" (105). And the summative view of the economy left little room for improvement on market outcomes, whatever one made of them. However, the understanding of the economy as a complex system, one which did not always perform optimally when left to its own devices (with the result that a market could be in equilibrium under conditions of excess capacity and unemployment) offered an intellectually rigorous basis for a much more interventionist policy. This new understanding was certainly not welcomed by all, but under the circumstances of the Great Depression it did succeed in laying the foundations for a new consensus, and the policies that followed from it.

Of course, the consensus was tottering by the 1970s. The theory's loss of its sway, the authors acknowledge, was a reflection of its demonstrated weaknesses at the time--particularly its treatment of money and inflation, its failure to anticipate the phenomenon of "stagflation," and the disparities between its micro- and macroeconomics. Nonetheless, it was possible to see Keynesianism as a theory that held up well in unanticipated circumstances (as Alan Blinder argued was the case with the Phillips Curve), and which could and should be refined and adapted in light of the new information.1

Instead what happened was a rush to dispense with Keynesianism--because, above all else, of "the resurgence of natural law conceptions of economic inquiry" (104) of the sort that had gone out with the Marshallian moment, with all its sociopolitical implications (e.g. that market outcomes could not be improved upon, and government should play a minimal role). Moreover, this turn in the field was not disconnected with the world of practical politics, the broader rightward movement in society enabling neoclassical economics and affiliated theories to come to widespread attention, while marginalizing economic thought coming from the left that offered an alternative.2

This connection between our broader intellectual context, and the conventional wisdom of the economics profession, is the problem to which the book's title refers--the "pre-analytical vision" that thinkers bring to the subject decisive, but generally unacknowledged. Capitalism, Heilbroner and Milberg note, is the foundation of that vision--indeed, so much so that economics as we know it would be inconceivable outside of a capitalist society.3 However, capitalism as such is virtually unmentioned within mainstream economics.4 This is problematic not only in its biasing economic thinking in particular ways (e.g. toward excessive faith in the market), but its impoverishing the field intellectually, the reversion to the outmoded "natural law" vision of economic life, and associated failure

to recognize the insistent presence of this underlying social order, with its class structure, its socially determined imperatives, its technologies and organizations, and its privileges and rights . . . [leaving it] devoid of all the elements that connect economic life to a social matrix . . . [and] generate the resonances necessary for a fruitful vision (113).

The resulting sterility is demonstrated by the failure of the would-be successors to Keynesianism to create a new classical moment, none of them winning wide adherence among economists, let alone the general public.5

In short, the revival of the Classical/Neoclassical idea of economics as scientific (through its building theory on the basis of rational micro-choice foundations) and apolitical (accomplished only by taking capitalism for granted) led not just to the abandonment of Keynesianism, but an inability to put anything up in its place. Since this failure, arguably manifest by the '80s, the field has turned inward, becoming preoccupied with debates that, in their irrelevance to real economic life, invite comparison with Medieval Scholasticism, while the profession fails in its duty to a global society in need of its advice as it struggles with problems ranging from ecology to automation to the implications of corporate power.

Heilbroner and Milberg contend that the field's rehabilitation requires its abandonment of the natural law conception of economic life--and the embrace of a "vision" which recognizes the sociopolitical character of economic arrangements. In other words, economics would have to set aside the "physics envy," the pretense to the apoliticism of economics and the market, and the hostility to the public sector generally part of the package, recognizing that the public sector does have an essential role in guiding society (120). Indeed, the authors of this book suggest "Political Economics" as a name for this successor to today's Economics.6

The case Heilbroner and Milberg make for the role of pre-analytic vision in the intellectual history of economics is compelling, as are many of their specific insights about that history. Particularly impressive is their discussion of the way in which deep-rooted intellectual differences about the proper character of the field (e.g. whether or not one sees it as a physics-like subject built on rational micro-choice foundations) translate to vast differences of educated opinion on practical issues like the performance of markets and the desirability of government intervention. They are also quite persuasive in connecting these differences with the collapse of Keynesianism, and at the same time, the failure of other theories to gain wider credence than they have. Yet, it also seemed to me that they spent less time than they could have explaining the connection between those views, and the broader trend of politics in society.

What, for instance, was the connection between the rightward turn of the '70s, and that resurgence in the natural law outlook? Was the latter simply a convenient instrument of the former, or was it the other way around, the conservative turn instead giving the natural law outlook its chance? Additionally, the authors do not have much to say about the reasons for either the broad political turn, or the intellectual shift within the field, which can seem oddly timed. During the '70s, Heilbroner had certainly predicted a movement away from markets, toward a more active and accepted public sphere in response to the problems so clearly apparent at the moment (and which have only worsened since). Why did he, and the others who thought as he did, turn out to be wrong about that? Additionally, the claims for economics-as-science ran counter to the postmodern tendency in philosophy and the increased doubts about social science and expertise in general during these years.7 Why did economics buck the trend? Such questions are not even addressed, let alone answered.

None of this invalidates what Heilbroner and Milberg argue, but it does make clear that they present only part of the story, and that there is much still in need of explanation. Additionally what they do not account for points to the other area where one might regard this book as falling short--its consideration of the prospects for a redress of the situation. The note on which the study concludes, particularly the call for greater respect for the role the public sector has to play, put me in mind of John Kenneth Galbraith's The Affluent Society. Of course, they are rather less optimistic than Galbraith was about significant change in the course of policy at the time of that book's writing, conceding that "such a radical reorientation of our discipline is obviously unlikely today" (128). They are certainly less optimistic about the prospects of change coming from what Galbraith termed the "educational and scientific estate," which here seems to be part of the problem rather than the solution, especially when one considers the "rigid, hierarchical" organization of the economics profession.8

Nonetheless, they did hold out hope for tomorrow. Eighteen years on those hopes would not seem to have been validated, either at the level of the profession, or of political debate more broadly. Heilbroner and Milberg characterize capitalism in their time as "on the defensive before forces of its own making, but not under its immediate control" (128). In the view of many, it remains so today--but the mood of mid-century reformism that gave Galbraith some hope that the system would adapt seems the very inverse of the tone now prevailing.

1. The Phillips curve concerns the relationship between unemployment and inflation, with the decrease of the latter driving up the former. While the curve's usefulness was increasingly questioned in the '70s, Blinder wrote in his 1987 article "Keynes, Lucas and Scientific Progress" that contrary to the claims of anti-Keynesian Robert Lucas, "once modified to allow for supply shocks" the Phillips curve "has been one of the best-behaved empirical regularities in macroeconomics." Blinder, "Keynes, Lucas and Scientific Progess," The American Economic Review 77.2 (May 1987), p. 133. Heilbroner and Milberg do not take a side in this debate, but do reference Gregory Mankiw's interesting analogy with astronomy, noting that "Five centuries ago . . . a navigator who steered by the Ptolemaic system would have guided his ship more successfully than one who followed the still poorly understood Copernican one" (68)--with Keynesianism, of course, in the place of the Copernican system.
2. Indeed, in discussing the limited influence of Marxism, the authors note its close identification with the Soviet Union, and the hostility of most Western thinkers to Marxist analysis (99). However, they do note the role of other factors, such as the divisions among Marxist thinkers themselves, and the propensity of institutional economics to offer critique rather than positive statements.
3. According to Heilbroner and Milberg's definition, capitalism has three key characteristics, which are, respectively, sociopolitical organizational and administrative--namely the process of capital accumulation as the driving force of the system, the allocation of income by the market, and the existence of dual private/public realms permitting capitalist actors wide latitude to act. Interestingly, Heilbroner offered a slightly different standard in his earlier Business Civilization in Decline.
4. The exceptions have been most prominent on the left, but the authors also note that they have been conspicuous among the Austrian economists--von Mises, von Hayek and Schumpeter, and their adherents.
5. This is in many cases due to theoretical failings, but also their irreconcilability with the prevailing fashions. "Black-boxed" monetarism lacks the rational-choice microfoundations dear to the hearts of those who view economics in natural law terms. Rational expectations is not only tautological, but denies human agency. New Classical economics suffers the self-contradiction of using the "Robinson Crusoe concept of the individual as a basis for a social inquiry" (83), while like rational expectations, treating government as impotent--and therefore being of little policy use. And New Keynesianism is a "response to the New Classicals, not a research effort aimed at putting forth a new economic vision" (90).
6. This, of course, harkens back to the evolution of Political Economy (which was premised on class divisions) into Economics (which focuses on individuals rather than social classes).
7. One interesting possibility is that economists recast their field in this more "scientific" mold in the hopes of regaining their prestige and credibility with the broader public--ultimately, unsuccessfully.
8. As they note, position-holders at a handful of elite universities "carry a disproportionate amount of power over hiring, publishing and the granting of research funds," while these professors are themselves trained in "only a few select graduate programs," limiting the possibilities for change (100) from this avenue.

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Two Books: Dangerous Currents, by Lester Thurow, and The Crisis of Vision in Modern Economic Thought, by Robert Heilbroner and William Milberg

One of the clichès of that brief moment of critical reflection that followed the financial crisis of 2008 was criticism of the economics profession--for its adherence to questionable ideas like the "Efficient Markets Hypothesis" (EMH), and the passing off of dubious financial products as safe through superficially rigorous but actually quite meaningless exercises in econometrics.

Another clichè was that "no one" knew better.

The latter was patently false, as I am regularly reminding looking at older works. Certainly this was the case when I read Lester Thurow's 1983 Dangerous Currents: The State of Economics, and Robert Heilbroner and William Milberg's 1995 The Crisis of Vision in Modern Economic Thought. It was not the case that economists, even well-known, respected economists capable of reaching a broader audience did not cry that the "emperor has no clothes." Rather it was that the mainstream of their profession was determined to ignore those cries, which is ultimately unsurprising--for reasons these authors themselves explain.

Each of these books looks at the demise of the Keynesian consensus (in large part, due to their apparent failure to anticipate, and inability to cope with, '70s-era stagflation). They also look at the assorted schools of economic thought which endeavored to become the base of a new consensus, particularly monetarism and rational expectations theory, and the failings which prevented their doing so.1 Each is also highly critical of the situation that followed, characterizing it as an intellectual crisis which has left policy without effective guidance in a period of economic crisis--these authors not cheerleaders for the course of the American or world economies in the 1980s and later.

As one might expect, there are substantive differences between these works. The most important of these is that Thurow criticizes the prevailing wisdom within the field--its fundamental methodology, its major schools of thought (particularly monetarism, supply-side economics and rational expectations)--principally from his perspective as an economist. Heilbroner and Milberg devote much more of their attention to the broader intellectual context shaping that field, what economists bring to their subject matter from outside it, contending that the "pre-analytical vision" is crucial (e.g. their views about the extent to which the field is scientific or political), and that this has been deeply problematic for the field in key ways. However, in their differing emphases I found their books complementary rather than clashing (indeed, Thurow's endorsement of Heilbroner and Milberg's book as "essential reading" appears on the back cover of my edition), and while each book will strike the general reader as demanding, remains hugely relevant to our situation today.

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Review: Dangerous Currents: The State of Economics, by Lester Thurow

New York: Random House, 1983, pp. 247.

The title of Lester Thurow's Dangerous Currents refers to the intellectual situation of the economics profession as he saw it at the time of writing in the 1980s. By that point, the Keynesian consensus that had emerged in the United States and Britain in the 1930s and 1940s was in a state of collapse, done in by the increasing doubt about the ability of policymakers to manage the economy in the late 1960s, and the experience of stagflation in the 1970s. However, no new consensus had replaced it, or seemed likely to replace it.

Thurow spends much of the book explaining why this is the case, devoting several chapters to the failings of Keynesianism's would-be successors--monetarism, supply-side economics, and rational expectations theory--debunking them on common sense and theoretical grounds.

Monetarism, which is generally opposed to government intervention in the marketplace, views government's principal function as exercising control over the money supply to keep inflation in check. Thurow argues that the theory's disregard of interest rates is a significant liability, and that the factors the theory does treat, it treats inadequately. He notes the economics profession's weak understanding of the velocity of money (as rendered in attempts to model it); that the mechanism through which the tightening of the money supply is supposed to reduce inflation is "black-boxed"; and that the theory is unclear on the length and severity of the application required to achieve its object--that is to say, how much and for how long the money supply would have to be tightened (and the side effects of this process, like economic recession, suffered) to bring inflation rates down.

Supply-side theory, like monetarism, favors minimal government (specifically emphasizing cuts in taxes, spending and regulation) and a tight monetary policy. Where it really differs is its comparative lack of theoretical rigor--its assumption that simply "getting government out of the way" will make an economy work as well as it possibly can. The result is that where monetarism might arguably be judged underdeveloped, supply-side theory looks like little more than an ideological statement (and was indeed a creation of right-wing political operatives like Arthur Laffer and Jude Wanniski, rather than conservative economists).

Rational expectations theory holds that economic actors' collective expectations, through their determination of those actors' behavior, do not merely create market outcomes, but accurately predict them. In the process they negate the effects of government intervention (actors' anticipation of this making them act in offsetting ways--for instance, altering their portfolios to avoid paying more in taxes in response to announced changes in the tax code), so that where monetarism and supply-side theories tend to see government action as pernicious, rational expectations holds it to simply be irrelevant. However, as Thurow notes, this reasoning assumes an accurate and unfailing rationality on the part of economic actors, taking no account of the role of habit in human behavior, or the tendency toward systematic mistake as human behavior adapts.

The intellectual limitations of these various theories aside, Thurow notes, the application of monetarism and supply-side theory in Britain and the U.S. in the late 1970s and early 1980s signally failed to achieve the promised results. Meanwhile, "rational expectations" flies in the face of the reality that governments can and do affect their economies--as the monetarist policies of the '80s cited above demonstrated by leading to recession, just as other economic theories predict.

Ultimately, however, Thurow contends that the problem is bigger than any one (or three) theories, pointing to the prevailing bias against macroeconomics, and complacency about the received microeconomics. He specifically holds that the problems of macroeconomics are actually an outgrowth of the flaws in our microeconomics--particularly the overly simplistic nature of the "equilibrium price-auction" view of human beings and society; and a disregard for anything not demonstrable through mathematical modeling and its "empirical analogue" econometrics (which has fallen far short of the hopes once held for it).

This leads Thurow to a wide-ranging examination of the methodological failings of contemporary economics. These problems range from its vagueness about many of its most basic terms (like "equilibrium"), to its silences on key issues (like what periods of disequilibrium in which markets adjust entail), to its disinterest in the findings of other social sciences (psychology, sociology) and the applicability of its models to the real world (like whether markets such as orthodox economics describes really exist, or actually clear in the manner it assumes), while the evidence economists generate tend to be "fuzzy" in nature, letting anyone "prove" anything.1 Moreover, he notes, the methodological problems have resulted in practical failure in the form of theories that fly in the face of the facts, as in their presumption of a "world of fixed tastes and static technology where the basic economic problem is one of exchange" (22), and their denial of the existence of genuine "involuntary" unemployment.

Thurow also goes some way to demonstrating an alternative approach, presenting elements of an alternative theory of the labor market in Chapter Seven, rooted in a recognition of the ways in which labor is not simply another "factor" of production. Unlike machinery, for instance, labor's performance is not "technically determined" (preference and motivation matters in a way it does not with a machine), and is not separable from its owner. As a practical matter this means that employers are highly reliant on the voluntary cooperation of employees (and therefore, their preferences and motivation), while human capital assets are illiquid and "risky" in a way that other assets are not. Moreover, the reality of on-the-job training means that potential employers do not bid on an independent supply of skills, but create those skills within their firm to an important degree (while job applicants are pursuing training opportunities as much as they are work); and the highly organized reality of modern economic life places the accent on team rather than individual productivity, and therefore the motivation of the team (among which interdependent preferences operate). All of this creates a labor market emphasizing team rather than individual output, and greatly reducing that wage flexibility that the equilibrium price-auction vision of the labor market so takes for granted.

Taken together all of this comprises an impressive round-up of the field's weaknesses, arguably validated in the years since by the failure of the economics profession to develop a new consensus--and indeed, the increasing divorce of the conservative economic policies that have continued to prevail from anything like a solid intellectual basis (as James K. Galbraith and Jonathan Chait have contended). Additionally, while Thurow's book falls short of presenting an alternative "school" of economic thought that would fill Keynesianism's old place (never a stated goal of his book, nor essential to validating his argument), he does demonstrate that there are other ways of approaching the field's questions with rigor--while, not incidentally, offering some intriguing arguments regarding the economics of the labor market.

However, Thurow's critique does have its limitations, the biggest of them its failure to satisfactorily address the issue of why Keynesianism's proponents failed to adapt their theory to the challenges of the '70s, and for that matter, why the ideas in the ascendant at this time all came from the political right.2 From the standpoint of three decades later, it offers little clue as to why these ideas have retained their influence through the economic doldrums of the 1980s, 1990s and 2000s, and even the crisis of 2008, which has seen laissez-faire remain the default mode of thinking in America, and right-wing prescriptions become even more aggressive in much of the world. For serious attempts at an explanation one has to turn elsewhere, to those economists most willing to venture beyond the narrow boundaries the orthodoxy imposes on the field, like John Galbraith and Robert Heilbroner, and writers from outside the world of economics, like Kevin Phillips, Thomas Frank and Chris Hedges.

1. Does the term "equilibrium" mean a situation in which one can make abnormal profits, or the existence of a situation in which a "non-equilibrium flow of factors . . . will alter the course of the economy" (14)?
2. Thurow notes that just as the U.S. went right politically, France went left with the election of Francois Mitterand, but does not develop this intriguing comparison.

Review: Business Civilization in Decline, by Robert Heilbroner

New York: Norton, 1976, pp. 127.

As has been the case with most large, loaded terms in our political vocabulary, "capitalism" has eluded tidy definition. In Business Civilization in Decline Robert Heilbroner offered as a minimum the existence of private ownership of economic assets; the use of market competition as the primary method of income distribution; and the "structure of privilege" that permits widely differing gains at the top.1

Robert Heilbroner expected that in the half century after the time at which he was writing (the mid-1970s), that system, and the "business civilization" founded upon it, would come to an end. This was not, however, a Cold War-era prediction of Soviet triumph in the realm of power politics such as some anticipated at the time. Nor was it a Marxist-style prediction about the radicalization of the working class. (Heilbroner contended instead that as workers increasingly became white collar, they also became bourgeois in attitude, even when they lacked bourgeois privileges.)

Rather his position was that efforts to save capitalism from its vulnerabilities, rather than destroy or replace it, would bring about its end. Three such vulnerabilities seemed crucial to him, namely the capitalist system's tendency toward developing generalized disorders (like depression and inflation); the threat to the system as a whole from localized disorders, such as the failure of a large bank (increasing as the "economic mechanism became more tightly knit"); and the looming collision between the expansionary tendency of capitalism, and ecological constraints.2

All of this would make the sustenance of economic growth not only more difficult, but put an end to growth itself. This would, he argued, eliminate a crucial safety valve for the social tensions capitalism generated. Heilbroner pointed, too, to the "hollowness" of commercial culture, in the attitudes it fosters toward such matters as work and consumption, and the cynicism-inducing character of advertising, which he linked with the problem of continuing dissatisfaction in a world of rising affluence, and which make business civilization that much more vulnerable to challenge. At the same time, "social fatalism" - the traditional passive acceptance of misery - was becoming a thing of the past, a change "characterized by the assertion of political mastery," while political institutions and imperatives were gaining ascendancy over private economic interests, the long-running trend an extension of "public responsibility for the working of the system."3

Heilbroner predicted that these stresses would be exacerbated in the "middle range" of twenty-five to fifty years by still other problems, like the increasing difficulty of procuring labor for certain tasks ("jobs people just won't do") in conditions of rising affluence; the struggle between the owners of capital and the "technostructures" controlling the dominant firms, and the problem of private bureaucratization more broadly; and the regulatory challenges emerging out of new developments in science and technology (like genetic engineering and new possibilities of behavioral control).

All of these things taken individually, and certainly taken together, suggested increasing public planning of the economy, which he predicted would extend beyond prices and wages to incomes and profits, though he also predicted broader and deeper cultural changes. He specifically anticipated a more "statist" culture, more "religious" in the sense of its "elevation of the collective and communal destiny of man to the forefront of public consciousness, and the absolute subordination of private interests to public requirements." Heilbroner also thought it plausible that the private prerogatives regarding property and enterprise would come to "appear as archaic as the claims of royalty or nobility in the face of a democratic revolution," and that business would thus be transformed into "the civil service of the nation-state."4

This was, of course, a bold prediction at the time, and today it seems downright astonishing that such a noted economist could possibly have made it within the last half-century. This was, after all, exactly the moment at which economic thought and practice started a dramatic rightward shift - with private profit and the claims of property and privilege ascendant over claims about the public good, and government's hands increasingly perceived as tied by footloose business.

How did Heilbroner get things so wrong? One reason, it seems, is that he overestimated the extent to which government acted independently of business's influence, and the extent to which it would maintain its credibility to do so. Certainly he did not anticipate the extent to which the Keynesian consensus of the middle part of the century would be displaced by conservative ideas, despite their failure to establish a new consensus (a situation Heilbroner himself analyzed in his later The Crisis of Vision in Modern Economic Thought). Nor did he anticipate other events that reinforced the process, like the collapse of the Soviet Union, the stagnation of Japan, and the disappointing economic performance of major European states like France and Germany in the 1990s and 2000s, which appeared to discredit statist economic approaches. He also underestimated the intensity of neoliberal globalization.5

Nonetheless, as the combination of recession/depression, ecologically-driven shocks to the prices of food and energy, and financial instability seen in the last several years demonstrates, there has been little progress toward ameliorating the problems central to his thesis, which continue to plague us today. The response Heilbroner anticipated from society to those problems may be far from ideal, or even unattractive (Heilbroner himself was ambivalent about it, worrying about the fate of individual freedom in such a world), but the sort of boldness and imagination he brought to these issues is a reminder of just how much poorer this dialogue has become since his time.

1. This definition, notably, does not require the kind of business environment seen in the "classical" capitalism of the early nineteenth century, in which the prevalent form of organization was the small, owner-managed firm powerless over the larger market; and certainly does not exclude a substantial role for government inside a capitalist economy, which as he points out has historically been substantial in even the United States, from the country's earliest beginnings.
2. Heilbroner was writing in the wake of the publication of The Limits to Growth, which is discussed here.
3. In the earliest phase of U.S. history, government acted as a stimulus to growth (as with Federal investments in infrastructure, like canal-building); to regulating markets in the Progressive Era (when anti-trust action appeared on the agenda); to the use of Federal powers to achieve acceptable levels of growth, employment and welfare (as happened with the New Deal). Moreover, Heilbroner is quite clear on the point that this expansion of government's role was motivated by the support of business, rather than social reform, citing Gabriel Kolko's The Triumph of Conservatism (discussed here) - though he does take the position that government has functioned as an independent force rather than the mere servant of business.
4. Of course, the increasing profile and power of multinational corporations was a hot topic at the time, raising concerns that found pop cultural expression in films like Rollerball and novels like The Matarese Circle. However, Heilbroner pointedly dismissed this as an "ancient condition" unlikely to change the essential direction. Heilbroner was equally unpersuaded by claims that a "post-industrial" outlook would present obstacles to this vision. Given its connection with that "end of social fatalism," he thought it might actually be a contributing factor to the transformation he described.
5. Heilbroner did, however, expect that many of the changes he described would pose problems for Soviet-style socialist states, these being issues of industrial society rather than just capitalist society (as with ecological "limits to growth"). He also suggested that Western capitalist and Eastern socialist states would bring different combinations of strength and weakness to those challenges, with the West having the benefit of greater economic development, and the socialist states already further along the road to that "assertion of political mastery" over economic life.

Looking Back at the FS-X

Reading about Japan's fifth-generation fighter program I found myself thinking of the country's last effort to build an indigenous fighter plane, the FS-X.

The United States, variously described as concerned at the prospect of losing a major customer and gaining a competitor in the fighter market (with all that spelled for the trade balance); hostile reactions from Korea and China; and even Japan's diminishing its capacity to act as an ally (by sinking its limited defense funds in a costly and unnecessary project, and diminishing the interoperability of American and Japanese forces); responded negatively.1 In fact, it pressed Japan to settle for cooperative development of a modified F-16 instead. The resulting negotiations, and the agreement to which they led, were highly publicized and deeply controversial on both sides of the Pacific, many in each country claiming that their nation got the worst of the deal. Shintaro Ishihara fulminated quite a bit about the arrangement in The Japan That Can Say No (discussed here), while many in the United States saw the program as a technological giveaway to the country's chief economic rival.

Of course, interest in the whole issue subsided along with American anxieties about Japanese competition, with the entry into service of ninety-four F-2 fighters in 2007 barely noticed in the press. And nothing like the old controversy has arisen in response to the announcement of Japan's "F-3" program.

I suppose this reflects, in part, the unsatisfactory nature of the compromise. While Ishihara was angry that Japan was getting a modified F-16 instead of its own aircraft, a RAND Corporation study of the affair--Mark Lorell's Troubled Partnership--made the case that the F-2 actually ended up much more than a mere variant of the American plane, and indeed, a "virtually all-new world-class fighter aircraft developed largely by the Japanese."2 Additionally, at least as far as the writers of Troubled Partnership were concerned, the U.S. got the worse end of the technology sharing aspect of the deal. (In fact, one of the main lessons that Lorell draws from the affair is that codevelopment should be genuinely voluntary.)

However, this also reflects the changed relations between the two countries. The U.S. is much less anxious about Japanese competition--and far more interested in containing China, to which end a cooperative Japan is indispensable. And with China, Russia--and even South Korea--building fifth-generation fighters, and the U.S. clearly not exporting the F-22, it can hardly expect the country to not pursue such a program. Still another factor may be the program's schedule: Japan's fifth-generation fighter is not expected to enter service until the 2030s. The U.S. Air Force has its sights set on a sixth-generation fighter by then.

1. Mark Lorell, Troubled Partnership: An Assessment of U.S.-Japan Collaboration on the FS-X Fighter (Santa Monica, CA: RAND, 1995), p. 2.
2. Lorell, p. 2. Lorell points to the F-2's being a longer and heavier aircraft than the F-16, with substantially enlarged wings of a new design and a larger tail; an enlarged radome housing a phased array radar, while the aircraft also contains numerous other, Japanese-built avionics (like the inertial navigation system, mission computer and electronic warfare suite); the incorporation of stealth technology; and its configuration to launch ASM-1 and ASM-2 anti-ship missiles (actually the plane's primary mission). Lorell, p. 2.

Reassessing 1972's The Limits to Growth

Over four decades ago the Club of Rome authorized a team of scientists headed by Dennis and Donella Meadows and Jorgen Randers to revisit the old problem pointed out by Thomas Malthus in his classic Essay on the Principle of Population: the interaction between exponential growth and finite resources. Using the then-new techniques of systems dynamics theory and computer modeling, they examined long-run trends in the growth of the world's population and material production and consumption (e.g. industrialization, pollution, food production, resource depletion), and published their findings in 1972's famous The Limits to Growth.

Last year of course marked the fortieth anniversary of that study's publication, and saw the release of an update, which did get some attention in the press – much of it negative (like Timothy Worstall's assessment in Forbes), just as was the case with most of the attention the original study received.1 As Ugo Bardi has noted,

In the 1980s and 1990s, the study was attacked, demonized, and ridiculed in all possible ways. With the apparent end of the oil crisis, in the late 1980s, the ensuing general wave of optimism consigned the Limits study to the dustbin of "wrong" scientific ideas; together with the dinosaurs of Venus and the evolution of the giraffes' necks according to Lamarck. Urban legends on the "mistakes" of the Limits study are still common today, despite being just that: legends.

Those legends all remain alive and well, and not only in online forum debates between the ill-informed, but the pages of prestigious mainstream publications (including many which offered comment on the 40 year update). Indeed, it is hard to think of a book of recent decades that has suffered more intense or prolonged attack based on sheer misinformation or disinformation than 1972's The Limits to Growth.

The authors of the first edition of Limits are quite clear in their book about its not being "intended as a piece of futurology," but "an analysis of current trends" and the implications of their continuation.2 In keeping with this assertion the authors not only avoid actual forecasting (a fact that has not stopped apparently erroneous forecasts from being attributed to them), but repeatedly express a leeriness about the idea, instead discussing multiple projections (about such things as the GNP of selected nations) and explicitly making it clear that they do not actually expect to see real-life figures match their numbers.

Rather their multiplicity of models demonstrated the obvious, intuitive and logically irrefutable point that the exponential growth of population and "capital" cannot continue indefinitely within a finite system, such as they take the Earth to be. The exhaustion of key natural resources, and the toll taken by pollution, would become increasingly heavy burdens on economic growth and human well-being, ultimately precipitating the system's collapse – and with it a sharp rise in mortality, and a sharp drop in consumption and living standards. They also contended that the population and capital growth rates of their time, if continued through the twenty-first century, would bring on collapse before 2100 at the latest – an assessment that still appears quite plausible, and perhaps even the common expectation among those attentive to such issues.

None of this seems particularly controversial, and in fact a considerable body of analysis by other researchers has since substantiated many of the study's claims. A 2008 study by Graham M. Turner found that the observed trends reflected the anticipations of the authors, while in a broader sense, so do such findings as the Global Footprint Network's argument that "overshoot" of the planet's ability to replenish the resources being consumed by humanity had occurred by the 1970s, and that we are today consuming the equivalent of 1.5 Earths' worth of resources (in 2012, using up a full year's supplies by August 22). Indeed, in the book's early sounding of the alarm about carbon emissions and their connection with anthropogenic climate change Limits was actually ahead of its time (ironically, a point rarely acknowledged even by those most attentive to environmental issues).

What proved more problematic was the solution the authors prescribed, namely the limiting of material output to specified "sustainable" levels (that particular term was not yet in use) to be met within the coming years.3 The sacrifice of that part of economic growth coming from the consumption of ever-growing quantities of natural resources, especially through the kind of central control required to implement such a project at a global level, was simply unacceptable to the conventional wisdom of the time.

Such ideas were to become even less acceptable as mainstream thought on such matters moved rightward – so much so that it can seem a surprise that this was ever proposed at all.4 One might argue over whether the solution the study's authors prescribed was desirable or realistic, but it is a reminder that today we are far less likely to imagine our social, political and economic arrangements as being so adaptable, let alone adaptable in the name of enlightened, long-term, collective self-interest. The imagination – and the political flexibility – which would even permit this to be envisioned in principle, let alone a workable program, has proved to be yet another resource in too-short supply.

1. This was the third such update, previous updates having appeared in 1992 and 2002, at the 20 and 30 year marks.
2. It should be noted that The Limits to Growth is not a dense scholarly text but very clearly and simply written, making it unlikely that the "intelligent lay reader" (scarce as these may be) will get seriously confused about what it is trying to convey at any point. Instead, as is the case with most Important Books, even ones as short and easy to read as this one, most of those discussing them have only secondhand knowledge of them gleaned from questionable sources – and are motivated by an enthusiasm for dubious ideology.
3. Sustainable economic activity is defined in the 30-year update as activity which does not consume renewable resources more quickly than they can renew themselves; does not consume nonrenewable resources more quickly than substitutes can be found for them; and does not produce more pollution than the Earth system can absorb.
4. The Limits to Growth did not call for "zero growth." One reason was that material output represented only part of economic production and consumption, with services like education and health, for instance, materially "lighter" and so still expandable. Another was that the recommendations allowed for continued increases in material output where technological advance permitted more to be done with a given stock of resources.