logo

Get the best of Commons Magazine — FREE!

Posted
October 3, 2005

Herman Daly on the Commonwealth of Nature and Knowledge

The father of eco-economics wonders why information is considered scarce and natural resources limitless. Just the opposite is true.

Why do economists insist on treating information and creative works as scarce – while making the opposite mistake with respect to the depletable services of nature, which they treat as limitless by pricing at zero? Last week, in the inaugural presentation of the new Forum on Society Wealth lecture series at UMass, Amherst, economist Herman Daly tried to shed some light on these paradoxes. His goal was not just to dissect the illogical mindset of mainstream economics, but to help explain why we fail to see and protect our social wealth. Much of the problem, he suggested, lies with the market’s skewed metrics for seeing and understanding.

Daly is the celebrated ecological economist who once pondered these questions for an unlikely employer, the World Bank. He has explored the collision of economics and environmental protection in such classic books as Steady-State Economics, Beyond Growth and For the Common Good. Daly is currently professor at the University of Maryland’s School of Public Affairs. It was refreshing to hear Daly unpack the economics of social wealth so lucidly – and to have such a large crowd (100+) show up on a Thursday evening to hear him.

Our current economic system treats natural resources as essentially limitless, said Daly, but of course, after a sufficient period of use, most fruits of nature (oil, timber, clean water, air) can be used up. It therefore makes sense to impose “a regime of excludability” on certain natural resources before they become scarce. One tool for doing this is a cap and trade system, which allows governments to prevent the tragedy of an open access regime (often confused with the commons). A cap on usage prevents over-exploitation of a resource, while trading allows people to maximize its efficient use.

In the information commons, by contrast, intellectual property law is used to make an essentially limitless resource – knowledge – scarce. The over-propertization of knowledge can have lots of unfortunate effects, from preventing universal access and benefit to inhibiting the development of new knowledge. Economists see the imposition of artificial scarcity on knowledge (via copyright and trademark law) as a necessary condition for enabling market exchange. But the upshot, said Daly, is that “we mistakenly think that scarcity increases public wealth.” In fact, its chief result is the creation of private wealth.

Daly lamented the fact that economics deals mostly with the allocation of a resource among competing users, but fails to deal with issues of scale and just distribution. Economists don’t really address the appropriate physical size of the economy relative to the ecosystem – and thus they ignore the environmental sustainability of the economy. Similarly, economists don’t trouble themselves with the issue of who gets property rights in the first place – and therefore, whether the distribution of market results are legitimate and just. Neither of these problems – sustainability and just distribution – can be solved from within the market paradigm, Daly warned. They require pressure from outside of the market, from civil society and governments.

Daly broached an area of social wealth that is rarely explored – the private privilege of issuing money, called seigniorage. Historically, this was the king’s prerogative that was later passed to the commercial banking sector. Some 95 percent of the US’s money supply exists in the form of demand deposits and loans made by banks. Under our system of fractional reserve banking, which allows banks to retain only a small fraction of money on hand as a reserve against money lent out, banks are able to reap enormous private profits through their seignorage privileges. Why not gradually raise the reserve requirement to 100 percent, asked Daly, and reap some public gain from the ability to create money?

Daly conceded he might be regarded as a “monetary crank” in making this proposal, but cited some illustrious economists of the 1920s who agreed with him. (Note: James Robertson, a progressive-minded economist in Great Britain, has also proposed reforms along these same lines. See his speech, “ The Alternative Mansion House Speech,” by James Robertson of the New Economics Foundation, London, and his report, with Joseph Huber, “ Creating New Money.”)

One reason that the fallacies of mainstream economics go unaddressed, said Daly, is because few colleges and universities even teach the history of economic thought any more. Exploring this history just might expose the frailties and fallacies of economic assumptions that the profession likes to regard as universal and timeless.

Daly’s remarks are entitled, “Sustaining Our Commonwealth of Nature and Knowledge.??? The text – as well as a video version – will be posted soon on the Political Economy Research Institute at UMass (I’ll post a link). In the meantime, more information about the Forum on Social Wealth can be found here.

The next lecture will be by Manuel Pastor, professor of Latin American and Latino studies and director of the Center for Justice, Tolerance, and Community at the University of California, Santa Cruz, on October 27. He will speak about “Reframing Sustainability: Environmental Justice and Social Wealth.???