Herman Daly (1938-2022): The Economist for Our Time

By KLG, who has held research and academic positions in three US medical schools since 1995 and is currently Professor of Biochemistry and Associate Dean. He has performed and directed research on protein structure, function, and evolution; cell adhesion and motility; the mechanism of viral fusion proteins; and assembly of the vertebrate heart. He has served on national review panels of both public and private funding agencies, and his research and that of his students has been funded by the American Heart Association, American Cancer Society, and National Institutes of Health.

To mangle Graham Nash’s lyric somewhat, it is important for each of us to choose our teachers well.  And in this I have been very fortunate, often by accident.  My freshman Sociology 105 teacher so many years ago, for example, was a revelation.  Horowitz’s First Rule is “Never generalize from your own necessarily limited personal experience.”  Good advice.  Horowitz also told his wide-eyed, and sometimes scandalized freshmen (Those were the days! Alas, perhaps never to return) that his practice is to get out in the world and to always read three books at the same time so that his generalizations were informed.  He led me to other teachers-at-a-distance, including Wendell Berry, Christopher Lasch, Michael Harrington, Stuart Hall, Stephen Jay Gould, Salvador Luria, Adolph Reed, Jr., and many others, one of whom is Herman Daly.

Herman Daly was a founder of Ecological Economics (Daly is #7 in the photograph) and in my view the essential economist of the past 50 years.  Nevertheless, he is not particularly well known, much to our disbenefit.  I first came upon him after publication of For the Common Good: Redirecting the Economy Toward Community, the Environment, and a Sustainable Future, which he wrote with the theologian John B. Cobb, Jr. (1989, 1994).  And somewhat later when I was deeply immersed in the late stage of my long apprenticeship as an independent academic scientist, Daly published Beyond Growth: The Economics of Sustainable Development (1996).  I have returned to these books often, both in argument and in advocacy.

Alas, Herman Daly died late last year after a long and productive career teaching much that will be needed if we (meaning all of humanity, whatever our individual circumstance) are to confront the coming inconvenient apocalypse with anything approaching wisdom.  While I was catching up on Daly’s final essays and comments I came across the sympathetic but critical biography of Herman Daly published in 2021 by Peter A. Victor, who is Professor Emeritus at York University (Ontario): Herman Daly’s Economics for a Full World: His Life and Ideas (2021; see note [1]).

Herman Daly’s own words in the Foreword are the best place to begin with this review-essay that highlights some of his work:

Economic growth is the number one goal of nearly all economists, politicians, and governments.  To argue against it on the grounds that so-called ‘economic’ growth has now become uneconomic, because it increases environmental and social costs by more than production benefits, is to poke a big hornets’ nest with a short stick.  It rudely upsets a very large and comfortable consensus.  Without growth, how do we reduce poverty? By redistribution and sharing.  Without growth and the consequent automatic demographic transition what will limit population expansion?  Consciously reasoned demographic policy.  Without growth how will be pay the huge, accumulated costs of environmental repair? By reducing current resource depletion to allow natural systems to recover, and by stopping the mining and burning of climate-ruining carbon-based fuels.  Redistribution, population policy, and reduced resource consumption – each by itself is considered a political anathema.  Of course, the growthists were furious to be challenged by all three at once!  They defensively doubled down on the call for more GDP growth, failing to recognize that growth in GDP at the current margin no longer makes us richer.  Growth within our finite and entropic world now makes ups poorer by adding more to illth than wealth – very bad economics! (emphasis added)

What follows here comes directly from this statement.  The double question implied throughout Daly’s work as an economist is this: “Is the economy for the people, or are the people for the economy?”  The answer in the affirmative given by Neoliberalism is obviously the latter.  Herman Daly disagrees, as should all of us:

The world cannot stand another decade of narrow economists, who have never thought about ultimate means or the Ultimate End, who are unable to define either entropy or a sacrament, yet behave as if there is no such thing as entropy and as if nothing were sacred except economic growth.

What are our means and ends and how are they related?  Herman Daly was a Christian but recognized that views of Creation are multifarious.  The concept of “ecospheric grace,” introduced by Wes Jackson and Robert Jensen, subsumes several legitimate perspectives and includes both religious and secular views without denigrating one or the other.  How do our means and ends determine “what is the economy is for.”  Our ultimate means lie in “low-entropy matter-energy.”  Our technics, political economy, and ethics should lead to intermediate ends such as health, education, comfort, and peace.  The ultimate end will follow as the summum bonum, or highest and ultimate good for the greatest number, including the entirety of Creation.

And this leads to Herman Daly’s conception of “Economics as a Life Science”:

Biologists, in studying the circulatory system, have not forgotten the digestive tract.  Economists, in focusing on the circular flow of exchange value, have entirely ignored the metabolic throughput.

It is interesting that the “founding father of classical economics” Alfred Marshall noted in his Principles of Economics, 8^th Edition, that “The Mecca of the economist lies in economic biology rather than economic dynamics.”  This has been largely forgotten by a discipline that suffers from chronic “physics envy,” a syndrome that is certainly not limited to economics.  And the physics is largely 19^th-century mechanics.  Thus, noted by the pioneering economist Irving Fisher: particle = individual, space = commodity, force = marginal utility/disutility, work = disutility, energy = utility.  And from these poor analogies arose modern neoclassical economics in which variables can be plugged into equations decorated with well-chosen constants to produce a desired outcome.  To Herman Daly the deracinated and alienated “individual particle” of the economy was not the utility-maximizing, brand-building Homo economicus, but instead was a “person in community.” And only in that community is it possible to be truly human.

As might be imagined, the concept of “economics as a life science” engendered lively debates between Daly and well-known economists such as Robert Solow, Joseph Stiglitz, and Kenneth Arrow.  There is not enough space here to go into the details, but these arguments are instructive when they are not diagnostic, particularly in Daly’s comments about Gary Becker, a most prominent member of the Chicago School of Economics [2].  Herman Daly is not opposed to the use of mathematics in economics.  Although his work is not overburdened with mathematical models, simple equations are common.  He believed that what can be expressed in equation form should be, as long as the variables and constants represent underlying physical reality.  What is the joke about the engineer and the economist who fall into a deep hole?  First, assume a ladder.  In the work leading up to his A Treatise on the Family [3], Becker (with Nigel Tomes, 1979 and later) assumed that “children have the same utility function and their parents.”  Yes, this assertion can be expressed mathematically in scary equations, or equations made to look so.  But no, the assumption that children have the same “utility” as their parents has absolutely nothing to do with underlying reality of parents and their the children as persons in community.

In the words of Herman Daly, this “reveals just how far some members of the Chicago School will go in amputating those limbs of human society that do not fit the Procrustean bed of individualistic utility maximization.”  That imaginary species Homo economicus [4] does not impress Herman Daly, and in this lies the value of his work.  Economics is a discipline contingent upon biology, evolution, geology, geography, history, anthropology, and sociology and should be treated as such.  The mathematical relationships that animate economics as a scholarly discipline are valid only when they reflect this.

Which leads us to what is perhaps Herman Daly’s most important observation.  During the development of the “science” of economics, the world has gone from empty to full as illustrated in Figure 1. In the former comparatively empty world, the Ecosystem arrow contributes more to human welfare than the Economic arrow.  The question today is whether “human welfare has gained more from the growth of the Economy than it has lost in the Ecosystem’s (carrying) capacity to provide ecosystem services.” (p. 71)  Related to the concept of the empty versus full world, is how thermodynamics influences the economy and the welfare of Creation, including the welfare of humans.

This relationships are complex but intuitive.  The First Law of Thermodynamics states that the total energy in a system remains constant, although it may be converted from one form to another, with the corollary that energy can neither be created nor destroyed.  Along with the fundamental law of chemistry that mass can neither be created nor destroyed (Conservation of Mass), when it comes to the economy there is no escaping these fundamentals of physics.

There is also no escaping the Second Law of Thermodynamics, which is also known as the Entropy Law: Low entropy states are energy and information rich, and we depend on low entropy energy sources for life, both for human life and the “life” of the economy.  Or as Wes Jackson and Robert Jensen described it in An Inconvenient Apocalypse, “Life is the scramble for energy-rich carbon.”  Yes.  The Entropy Law and the Economic Process by Nicholas Georgescu-Roegen is the locus classicus of this concept; Herman Daly, who was a student of Georgescu-Roegen; the book is readable but it takes persistence [5].  This is as obvious as it has been ignored, to use a contradiction in terms.  For example, as noted above, the circulation of blood described by William Harvey in 1628 has been used as an analogy to describe the virtuous cycle of circulation and exchange in the economy.  True enough, as long as it is remembered that the average life span of a red blood cell is 120 days, and that without “throughput” in the form of low entropy, i.e., nutritious food, this circulation will stop.  Sooner rather than later.

It is obvious that the “economy” cannot continue to grow forever on finite planet Earth (Figure 1).  The world is full, or nearly so, and the economy is probably already too large for planet Earth.  Natural capital is now the limiting factor.  How should we respond to this biophysical fact?  By reducing the scale of the economy relative to the ecosphere while altering distribution and allocation of the artifacts upon which our welfare depends.  Which brings us to measurement of the economy.  How is this done?  Neoclassical economists have seldom concerned themselves with the overall scale of the economy for two reasons: (a) their assumption of a virtually infinite environment with abundant fish in the oceans [6], endless forests, ample capacity of the environment to absorb human wastes, and (b) the belief that any shortage of materials, energy or absorptive capacity of the environment can (and will) be dealt with by new scientific discoveries and technologies (p. 117).

Although these assumptions have made it possible for growth economists to ignore the issue of scale, they are no longer tenable.  While it is commonly used to measure “output” and the relative “health” of the economy, GDP is an inexact measure of the scale of our economy.  Money is not necessarily equal to physical assets or essentials for life.  William Nordhaus and Thomas Shelling, along with Wilfred Beckerman, have shown us exactly why when commenting independently on the likely magnitude of climate change on the total value of output as measured by GDP or an equivalent statistic (p. 120): Nordhaus (2018 Nobel Memorial Prize “for integrating climate change into long-run macroeconomic analysis”) reasoned that “there is no way to get a very large effect on the USA economy” from climate change, while Beckerman noted that “even if net output of agriculture fell by 50 percent by the end of the 21^st century this is only a 1.5 percent cut in GDP.”  According to Schelling “the cost of living would rise by 1 or 2 percent, and at a time when per capita income has doubled.”  To which one can only reply, “Really?”  Perhaps these assertions are true given the assumptions of a growth economist, but they are irrelevant should they have little serious grounding in material reality.

As quoted in From Uneconomic Growth to a Steady-State Economy (full disclosure: ordered from the publisher but not read yet), Herman Daly replies “True, agriculture accounts for only 3% of GDP but it is precisely the specific 3% on which the other 97% is based…The foundation of a building may be only 3% of its height, but that does not mean that we can subtract the foundation if only we add 3% to the height of the flagpole on the top of the building.”  This is an old observation.  If I remember correctly, I read of an economist making the same argument at a conference when someone in the back of the room asked of everyone but no one in particular (paraphrase): “What does this guy think we will eat?  Information?”  As noted by Herman Daly, a recipe without ingredients that can be obtained with reasonable effort and at affordable cost is not all that useful.

Herman Daly’s overarching message is that the economy is a subset of the ecosphere [7], with one growing and the other not.  The importance of scale in Daly’s analysis of political economy leads to his concept of a steady-state economy, which would allow for qualitative improvement of human and ecospheric welfare without quantitative growth, with the corollary that “this reality raises questions of distributive justice that can no longer be ignored or shuffled aside on the assumption that everyone can gain from continued growth.”  But this is not “sustainable” if growth is ultimately “uneconomic,” i.e., past the point at which increasing production and consumption exceed their utility.

This led Herman Daly and John B. Cobb, Jr. to introduce the Index of Sustainable Welfare (ISEW) as a replacement for GDP or GNP in For the Common Good.  Basically, costs of such externalities as air/ground/water pollution, loss of farmland, loss of wetlands, destruction of livelihoods by neoliberal “disruption,” and depletion of non-renewable natural resources are subtracted from the aggregate.  So far, ISEW has not been used often as the correct measure of the economy.  But it should be, and virtually everyone [8] appreciates that the costs, in health and resources, of remediating water and air pollution do not contribute to the general welfare.  The principles of steady-state economics go back to John Stuart Mill in his Principles of Political Economy (1848, surprisingly readable).  The subtitle of Mill’s book is “With Some of Their Applications to Social Philosophy.”  Thus, the concept that the economy should be for the people and not the other way around, and that a steady-state economy would be the best for humans and all of Creation, has an old and distinguished pedigree.  Naturally, the steady-state economy has been willfully misunderstood as a stationary state economy.  But it does not have to be so.  Economic development without quantitative growth is not the same thing as economic or societal stagnation.

Herman Daly also has an answer to the Globalists who are running our world, currently.  Unlike others who advocate s global “government” to govern a global system in the “name and interests of a single global community,” Daly is adamant that (p. 263):

Global community must be built up from below as a federated community of local and national communities.  It cannot be some single, integrated, top-down, ahistorical, abstract global club.  Free trade, free capital mobility, and free migration do not create a global community, they simply destroy national community.  Globalization is just neoclassical atomistic individualism writ large.  Such globalization destroys the local historical relations in community by which persons produce for and take care of each other, and from which we might step-by-step federate into a global community of communities…(emphasis added; quoted from From Uneconomic Growth to a Steady-State Economy, p. 160)

This is a restatement of the lesson in Beyond Growth about comparative advantage, which is the excuse often given for the “global economy.”  Yes, comparative advantage works, as first(?) described by David Ricardo (1772-1823).  In Ricardo’s time it made economic sense for Portugal to produce wine and Great Britain to produce cloth, because they each had the necessary advantages for production of these useful artifacts for themselves and for their trading partners.  For comparative advantage to work, however, it was required that capital remain immobile.  It was a given that labor was immobile.  Now?  Labor remains largely immobile when not required to emigrate because the neoliberal global economy has destroyed its livelihoods.  But capital has not been immobile for a long time and now moves essentially at the speed of light.  The consequences of this are plain for all to see, in both the so-called “developed” world of the Global North and in the “developing” Global South.

The past three years of global pandemic have also revealed much of the truth of the global economy.  Long supply chains are as fragile as they are uneconomic, when social and environmental costs are included in the calculation.  Those at the mercy of the global economy have given up control over their own local, regional, and national economies.  And one last point is particularly apt in March of 2023, just after the third largest bank failure in American history.  Herman Daly rehabilitated, such as is possible, the economic writings of Frederick Soddy, who was awarded the Nobel Prize in Chemistry in 1921 and later switched to economics.  Soddy was probably the first economist to connect entropy and economics, although Daly developed his ideas without having read Soddy; he found him in the open stacks of the LSU Library (Frederick Soddy, 1922):

Life derives the whole of its physical energy or power, not from anything self-contained in living matter, and still less from an external deity, but solely from the inanimate world.  It is dependent for all of its physical continuance primarily upon the [thermodynamic] principles of the steam engine.  The principles and ethics of human law and convention must not run counter to those of thermodynamics.

This was significant to Daly because Soddy flatly stated that the economy is not the perpetual motion machine of conventional economists’ imagination.  Soddy “traced many the ills of society to the tensions that arise from an economic system in which financial claims on current and future production in the form of debt rise exponentially, outpacing any conceivable increases in physical production.”  (p. 251).  Or, debt can endure forever, while true wealth cannot.  So, what to do?  Herman Daly did not ignore “money and banking” in his work of 50+ years.  He favored the “introduction of full reserve banking…(which) would require a legal requirement that commercial banks maintain 100% reserves preventing them from lending demand deposits and only allowing loans from time deposits.  This is in contrast to fractional reserve banking where commercial banks maintain only a small fraction of reserves as cash.”  Frederick Soddy proposed full reserve banking in 1926.  I will defer to the experts about why this is impossible in our modern world.  But it makes perfect logical, biophysical, social, economic, and ecospheric sense.  In a world with reserve banking, commercial banks would be the public utilities they should be.  And relatively few of us would have ever heard of Silicon Valley Bank.

Finally, here are 11 of 28 of the Herman Daly’s principles of steady-state economics, some slightly modified, for a world that will get smaller if humanity is to survive the coming inconvenient apocalypse.  We would do well to listen, late as it may be:

• The economy is a subsystem of the biosphere, and the finite constraints of the biosphere must be included in economic reasoning.  The Laws of Thermodynamics are real.  Those of Economics tend in the other direction.

• The closer the economy approaches the scale of the whole Earth the more it will have to conform to the physical limits of the Earth.

• In a steady-state economy the person in community is real, while the utility-maximizing Homo economicus is not.

• Growth is quantitative, development is quantitative.  In a steady-state economy there is development without growth.  Since infinite growth is not possible, the steady-state economy is our only alternative.

• Renewable resources: Harvest rates should equal regeneration rates (sustained yield).

• Labor and income should be taxed less, and resource throughput should be taxed more.

• Counting the consumption of natural capital as income should end.

• Investment should favor technologies that increase resource productivity (development) maximizing the amount of value extracted per unit of resource, rather than technologies for increasing the resource throughput itself (growth).  Corollary: A Tesla is not a solution to the problem of excessive and unsustainable throughput.  Nor is it an admission-free vehicle in most of the world.

• Investment in the exploitation of a non-renewable resource should be paired with a compensating investment in a renewable resource.

• Internationalization is favored over globalization.

• On ‘making the transition to a steady state economy…build the ability to tighten constraints gradually and to begin from existing initial conditions rather than unrealistically assuming a clean slate.”  Yes, it is late, but start where we are rather than waiting for the perfect moment that will never come.

That about covers it.  For those who are interested in the work of Herman Daly and how he can help us navigate the Anthropocene, this biography by Peter Victor is a veritable study guide.  Enjoy!

Addendum: The pushback/denial never ends.  While writing this, my copy of the April Harper’s dropped through the mail chute.  The cover story is “The Incredible Disappearing Doomsday: How the Media Stopped Worrying about Climate Change.”  I have scanned but not read the text, and the usual suspects have shown up.   But it gets even better.  On the inside of the cover is an ad for Super Abundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet, by Marian L. Tupy and Gale L. Pooley.  Somehow, I missed this one from Cato Institute last year.  Foreword by George Gilder.  Blurb from George F. Will: “This book demonstrates that population growth is not a problem; it is a solution – the most important resource.”  I hate to tell them, but Julian Simon got there first with The Ultimate Resource (1981) and The Ultimate Resource 2 (1996).  He didn’t get it right, either.

Notes

[1] If you are in the market for a copy, the link to Blackwell’s (Oxford) is a good source at a better price than I could find anywhere else, including the behemoth that shall remain unnamed.  Otherwise, ask your local library to get it!  You will be rewarded.  The story of Herman Daly’s life and work is compelling.

[2] Solow, Stiglitz, and Becker were among Daly’s interlocutors awarded the The Nobel Memorial Prize in Economic Sciences, which is officially known as The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.  In a nice touch, the author refers to the “Nobel Prize in Economics” by its proper name throughout the book.

[3] From the publisher’s description: “Imagine each family as a kind of little factory—a multiperson unit producing meals, health, skills, children, and self-esteem from market goods and the time, skills, and knowledge of its members. This is only one of the remarkable concepts explored by Gary S. Becker in his landmark work on the family. Becker applies economic theory to the most sensitive and fateful personal decisions, such as choosing a spouse or having children. He uses the basic economic assumptions of maximizing behavior, stable preferences, arid equilibria in explicit or implicit markets to analyze the allocation of time to childcare as well as to careers, to marriage and divorce in polygynous as well as monogamous societies, to the increase and decrease of wealth from one generation to another.”  Or, assume a ladder… Nice use of “remarkable” whether intentional or not.  Nerd alert: This is reminiscent of nothing so much as Joseph Henry Woodger’s attempt to develop an “axiomatic biology” in the 1930s.  The exercise was modeled on Principia Mathematica (1910-1913) by Alfred North Whitehead and Bertrand Russell, and while interesting, Woodger’s axioms had no real basis in biological reality.  Physiology was in a golden age, but no one knew what constituted a gene in Woodger’s time, and this is still subject of legitimate debate.  Cells were considered to be “colloidal states of matter” enclosed by a membrane that was merely a hypothesis, if that.  Eugenics was legitimate science.

[4] See Wendy Brown’s Undoing the Demos for a very clear presentation of the absurd notion that is Homo economicus.

[5] The laws of thermodynamics assume a “closed system” that admits no outside material or energy.  This has been used as an argument against entropy having anything important to do with economics because Earth is an open system, as long as the sun shines.  True enough.  But while the quantity of energy that falls upon the earth is large, it is diffuse and therefore difficult to use.  Nevertheless, we, as in humanity, are likely to return to that state, perhaps sooner than generally believed.  We are “mining” low-entropy carbon deposited over several hundred million years to keep the economy going and to grow the food that keeps our bodies going.  One good way to appreciate “downhill” entropic transformation is that the ashes in the fireplace cannot be burned again even if the First Law is followed throughout the process.  The other is to consider what enters and exits the alimentary canal.  There is only so much of this low-entropy carbon to be mined, and when it is gone, it is gone forever in human time.  Perhaps the magic fairy of technology will save us at the last minute, but that seems unlikely.  A related point is the general failure among growth economists to appreciate that liberation of carbon that was sequestered over hundreds of millions of years in only a few hundred years is unlikely to have benign effects on climate and the health of all Creation.

[6] In the 1970s and 1980s, shrimp trawlers were forced to add “turtle excluder devices” (TEDs) to their trawl nets to lessen the toll on loggerhead sea turtles along the southern coasts of the US.  They worked, and now one seldom sees a drowned turtle washed up on the beaches (personal observation).  Protection of nesting sites has also become mandatory and beach lighting has been modified so as not to confuse newly hatched turtles.  At the same time yields of shrimp per boat declined, so naturally TEDs were blamed.  I have not seen the latest figures, but it has been noted that the number of licensed shrimp boats increased by approximately 50% in the years after the sea turtles were protected.  Perhaps this is related to a particular part of the natural world becoming “too full” of shrimp boats?  Something worse seems to have happened to the North Atlantic cod fishery.  It is also clear now that the blue crab fishery along the same coast, which had at one time the largest primary productivity of any natural ecosystem measured, has been harmed severely by water pollution and (probably) overfishing.  The admittedly small commercial oyster fishery that existed until after World War II has disappeared too, due to the same causes.  Shrimp, salmon, catfish, and oysters are now “farmed” but these are fraught technical solutions to problems that should not exist.

[7] An argument between Herman Daly and one Lawrence Summers while both were at the World Bank about whether the economy is a subset of the ecosphere is recounted in Beyond Growth, but you have to study the endnotes in the book to understand it.  Summers naturally maintained an economy bounded by the ecosphere “is not the way to look at it.”

[8] “Everyone” except Lawrence Summers (p.43): “Summers gave three ‘economic’ arguments for moving environmentally dirty industries to the least developed countries.  He famously stated that ‘under-populated countries in Africa are vastly UNDER-polluted.’” (emphasis in the original). After the memo became public in February 1992, (José) Lutzenberger wrote to Summers: ‘Your reasoning is perfectly logical but totally insane…If the World Bank keeps you as vice-president it will lose all credibility.’  Lutzenberger was fired shortly after writing this letter.  He died in 2002 and was buried as he wished: naked, without a coffin, close to a tree in a farm he restored in the state of Rio Grande du Sul (Brazil).  Summers, on the other hand, continued his highly successful career in government and academia.”  As has been demonstrated by the historian Erik Loomis, Summers won the argument comprehensively.