The Wealth of Nature … Economics as if Survival Mattered

John Michael Greer, New Society Publishers, 2011
$18.95 from Powell’s Books (a unionized bookstore).

In this book, Greer illuminates the ongoing crisis of our failing economy with the idea that there are three economies. Economists, bankers and politicians are generally ignorant of the most important of these.

The primary economy is the wealth of nature which provides the title for the book. It includes all the resources used by the human economy, and much more. These resources are not a static quantity of stuff just waiting for our use. They are parts, sometimes very active parts, of what Greer describes as the economy of nature. This might be called all the local ecologies that collectively act as our life-support system. They might be called the environment. Whatever we call the wealth of nature, it would be grossly wrong to imagine we thoroughly understand it and that we should or could control it. We ought to respect it, and work within the limits it sets for us.

In the primary economy, people do not do the work to produce the primary goods that all humanity uses. We use topsoil, for instance. Topsoil was created over geologic time, in part by natural forces like wind, rain and weathering and in part by plants, smaller animals such as worms and insects, and larger animals such as birds, grazing animals and even predators. We use topsoil, and modify it (more by mining it and causing erosion than by improving it). We divide it up with claims of ownership and negotiate rules about who can use it and how. Basically, topsoil is a primary good that we did not create.

So it goes, from the simplest of primary goods to the exotic:  water, oil, coal, trees, uranium, fish, fowl, silver, gold, rare earths and so on. All these things are simply here, whether we know about them or not. They were here before there was a mankind to know about them or not.

Then, there are the things that we make and trade, which most economists call “the economy.” Goods or services, all these depend entirely on the primary economy. To remind ourselves of this dependence, Greer calls this the secondary economy. Most schools of economics do not remember this dependence, and this particular ignorance leads to a lot of errors in economic theory. Errors, in this context, mean outright failures of economists of various stripes to accurately predict or control important developments in the economy.

This secondary economy is sometimes called the “real” economy. That’s not a terrible name for it, because all the goods and services of the secondary economy are undoubtedly real. When these goods and services are taken to be the only reality that we need to notice, then economists come to believe in such absurdities as the ability of “the market” to create substitutes for fossil fuels when these become scarce and expensive.

The third, or tertiary, economy that Greer describes is the economy of money and finance. This tertiary economy is justified by the idea that it both facilitates and keeps track of the secondary economy. As it has been developed historically, the tertiary economy is far removed from the limits of nature and the real economy. To increase the quantity of a real commodity, it takes real resources, real labor and real tools. In other words, there is a real cost.

There is no cost to increasing the quantity of money. Whether a central bank creates a million new dollars, or a billion, or a trillion, the cost is small and it is the same for each of these quantities. This fact is so simple and so at odds with our ordinary experience with money it is difficult for those of us who are not bankers to accept, but grasping this fact is central to understanding how finance functions.

If a central bank creates a trillion dollars when it might under sensible rules have created only a million, then there might be tremendous inflation as a consequence. We might loosely speaking refer to this inflation as the “cost” of creating money. This is simply a loose and inaccurate use of the word “cost.” Strictly speaking, it does not cost the central bank any more to create a trillion than to create a million new dollars.

Since money is supposed to be a claim on goods and services, it is easy for banks to get carried away, creating far more claims than there are goods and services to claim. It is to the advantage of bankers to create as many claims to wealth as regulators will allow. When regulations are withdrawn, bankers go wild. This is exactly what happened, most recently, with collateralized debt obligations, credit default swaps, and other financial creations that blew up the bubble which burst in 2008. There are effects. There are consequences in the real world. But the cost of these financial creations was miniscule in comparison to the wealth they were supposed to claim.

Today, there are issues with food, water, energy, pollution and population that are no closer to solution than they were forty years ago. In addition, we are now seeing equally critical issues with climate-changing emissions, wars and the failure of a globalized economy to deliver prosperity.

None of these problems will be solved by raising or lowering taxes. They certainly will not be solved by cutting essential government programs. Yet politicians in power in Washington, and those who hope to be in power, seem to have no ideas except blaming each other on taxes and arguing over which programs to cut.

Most of us are perplexed as to why our society has been unable to cope with the whole range of critical issues. This is the subject Mr. Greer takes on in The Wealth of Nature. He has at the very least some helpful insights on this question. They are explained with clear reasoning in just 244 pages of readable type. (As I get older, I find that readable type is increasingly important to me, so it is probably important to other people, too.)

The industrial economy has expanded spectacularly since The Wealth of Nations was published by Adam Smith in 1776. Greer’s idea is this growth has a lot to do with the fact that Europe and America were able to tap into huge stores of fossil fuels; first coal, then oil and natural gas. This is not exclusively his idea. He gives credit to others who have expressed it.

Regardless of who originated the idea, it clearly explains both how economic growth has been possible for several centuries, and why it is not possible to continue for another century, or perhaps even for another decade. I’m not going to try explaining that in a book review. You’ll just have to read the book, to see if Greer’s explanation makes sense to you.

You probably will not agree with every golden sentence that Greer has written. I particularly do not like his terminology (“energy follows its bliss”) when he tries explaining thermodynamics to an audience that is presumably allergic to physics. It’s an explanation that reinforces confusion on the subject, in my opinion.

Regardless, I strongly recommend the book. Greer sets out useful ideas coherently (with a few lapses). For the most part, he succeeds in explaining why we should respond to the failures of our modern economy as a predicament rather than as a set of problems to be solved. We had better work at creating a sustainable economy instead of expecting a revival of the old industrial economy.

Art Myatt