Entropy and Economics, continued

At the heart of Daly's book is his normative distinction between development and growth. Some economists might chide Daly for misreading the nature of development/ growth, but they fail to see that Daly's angle is to address how things should be viewed. He defines the terms in the following, thermodynamic manner:

Growth, as here used, refers to an increase in the physical scale of the matter/ energy throughput that sustains economic activities and the production and consumption of commodities...Qualitative improvement in the use made of a given scale of throughput, resulting either from improved technical knowledge or from a deeper understanding of purpose, is called "development." (p. 31)

In this light Daly calls for new definitions of development, along the lines of his, definitions "generalizable to all" (p. 196). The current definitions are not generalizable even slightly, and lead to little more than a newfangled Ponzi scheme, with decision makers being advised to try spinning circular flows of abstract exchange ever faster to grow out of poverty, rather than working for Keynesian independence and self-sufficiency in the necessaries of life. These latter aims entail adherence to local, physical, real constraints rather than expropriation of externalized costs.

More on GR

William Nichols said of The Entropy Law and the Economic Process that it "develops the revolutionary view that economic activity is an extension of man's biological evolution--an entropic process rather than the mechanical analogue traditional in mathematical economics" (qtd. in Tang et al, p. xi). This is a succinct summary, one that I would have been hard pressed to come up with immediately in the wake of my reading through GR's seminal book. Part of the reason I began with Daly's extrapolations is that The Entropy Law is quite overwhelming, touching on what seems like every imaginable topic. It is the sort of book for the reading of which one definitely needs to consult a dictionary regularly, especially if dictionaries of science and philosophy happen to be available.

This is to be expected considering the intellect the book derives from, and considering that it took even that mind some twenty years or more to filter the ideas down to comprehensible form. I couldn't help but imagining GR sitting attentively at his desk all night long, night after night, with an intellectual butterfly net at his side, just waiting for every last little trace of a notion to show itself; he held down each one, once apprehended, and examined it closely and respectfully before letting it loose into the body of his text. Because of this exhaustiveness I think GR's main points are somewhat obscured for typical, mostly generalist readers (in which group I count myself). I thought I would touch on a few of the less technical issues in the book, ideas I found to be most "generalizable to all."

The single most important issue I came across was this: in his discussion of general theories of value, in which he touches on the value theories of a number of prominent thinkers from history, GR sets up a conceptual model of the economy with two main parts: funds and flows. The funds include natural capital, economic capital, and labor. The flows include the flow of low entropy in (from the funds) and the flow of high entropy out. However:

Were we to set the balance sheet of value on the basis of these inputs and outputs , we would arrive at the absurd conclusion that the value of the low-entropy flow on which the maintenance of life itself depends is equal to the value of the flow of waste, that is, zero. The apparent paradox vanishes if we acknowledge the fact that the true "product" of the economic process is not of material flow, but of psychic flux--the enjoyment of life by every member of the population. It is this psychic flux which, as Frank Fetter and Irving Fisher insisted, constitutes the pertinent notion of income in economic analysis. (Georgescu-Roegen, 1971, p. 284)

This insight couldn't be more significant.

Logically, it is nearly unassailable. The first law tells us that the input must be equal to the net output. Implicit in GR's view is that man-made capital, while it may contribute somehow to life enjoyment, is not the embodiment of life enjoyment itself; and ultimately it must become waste. The material-product output is not the net output. If we can safely say that life enjoyment/psychic flux, however defined, is more valuable by far than the material output, then by extension the low-entropy input must be much more valuable than we now account for, considering that we don't count the life-enjoyment output as the primary output of the economy--goods and services are the focus, with economists explicitly avoiding non-arithmomorphic descriptions of utility.