Wednesday, May 27, 2009

A Guide for the Perplexed

An irony endured, and occasionally relished, by those of us whose concerns about peak oil have found their way into print is the awkward fact that it’s difficult to talk publicly about using less fossil fuel energy without using more of it. The networks of transportation and communication left to us by the collective decisions of the recent past demand a great deal of energy input, and social habits evolved during the heyday of cheap energy amplify that, making long-distance trips a practical necessity for the working writer. These days, that usually means air travel.

A passage in Theodore Roszak’s Where the Wasteland Ends explores the chasm between the old romantic dreams of human flight and the utterly unromantic reality that replaced them. More than once, after a few hours packed like sardines in a metal can breathing the same stale air a hundred times over, it’s occurred to me that the crabby oldsters who insisted that humanity was not meant to fly may have had more of a point than most of us suspect. The one consolation I’ve found is that the hours of enforced inactivity on planes and in airports provide some of the few chances an increasingly busy schedule allows me for sustained reading. And that, dear reader, is how I ended up sitting in a tacky restaurant in the even more tacky Dallas-Fort Worth airport a few weeks back, killing time between one flight and the next, with a copy of E.F. Schumacher’s book Small Is Beautiful in my hands.

This was by no means my first encounter with Schumacher. Back in the 1970s, when I first began studying the ways that energy, ecology, and history were weaving our future, his name was one to conjure with throughout the environmental and appropriate-tech movements; you could expect to see Small is Beautiful on any bookshelf that also held The Whole Earth Catalog, say, or The Book of the New Alchemists. Still, by the time I stuffed a copy in my carry-on bag and headed to the airport, close to thirty years had passed since the last time I’d opened it. I suspect many other people have neglected it to at least the same degree.

This is unfortunate, because Schumacher’s insights have not lost any of their force with the passing years. Quite the contrary; he was decades ahead of his time in recognizing the imminence of peak oil and sketching the outlines of an economics that could make sense of a world facing the twilight of the age of cheap abundant energy. It’s fair to say that in many ways, the peak oil scene has not yet caught up with him. For this reason among others, a review of the man and his ideas may be timely just now.

Ernst Friedrich Schumacher was born in Bonn in 1911 and attended universities there and in Berlin before going to Oxford in 1930 as a Rhodes Scholar, and then to Columbia University in New York, where he graduated with a doctorate in economics. When the Second World War broke out he was living in Britain, and was interned for a time as an enemy alien, until fellow economist John Maynard Keynes arranged for his release. After the war, he worked for the British Control Commission, helping to rebuild the West German economy, and then began a twenty-year stint as chief economist and head of planning for the British National Coal Board, at the time one of the world’s largest energy firms.

He also served as an economic adviser to the governments of India, Burma, and Zambia, and these experiences turned his attention to the economic challenges of development in the Third World. Recognizing that attempts to import the industrial model into nonindustrial countries usually failed due to shortages of infrastructure and resources, he pioneered the concept of intermediate technology – an approach to development that focuses on finding and using the technology best suited to the resources available – and founded the Intermediate Technology Development Group in 1966. His interest in resource issues also led to an involvement in the organic agriculture movement, and he served for many years as a director of the Soil Association, Britain’s largest organic farming group.

I suspect it was precisely these practical involvements that predisposed him to see past the haze of unrecognized ideology that makes so much contemporary economic thought so useless when applied to the real world. Economics as an academic field is notoriously forgiving of even the most embarrassingly inaccurate predictions, and a professor of economics can still count on being taken seriously even when every public statement he has made about future economic conditions has been flatly disconfirmed by events. This is much less true in the business world, where predictions can have results measured in quarterly profits or losses. Working in a setting where consistently failed predictions would have cost him his job, Schumacher was not at liberty to put ideology ahead of evidence, and the conflict between what standard economic theory said, then as now, and the realities Schumacher observed all around him must have had a role in making him the foremost economic heretic of his time.

His economic ideas cover a great deal of ground, not all of it relevant to the project of this blog; readers interested in the overall shape of his ideas should certainly pick up a copy of Small Is Beautiful and find them there. Four of his propositions, however, struck me as core assets in any attempt to make sense of the economic dimensions of the end of the industrial age.

First, Schumacher drew a hard distinction between primary goods and secondary goods. The latter of these includes everything dealt with by conventional economics: the goods and services produced by human labor and exchanged among human beings. The former includes all those things necessary for human life and economic activity that are produced not by human beings, but by nature. Schumacher pointed out that primary goods, as the phrase implies, need to come first in any economic analysis because they supply the preconditions for the production of secondary goods. Renewable resources, he proposed, form the equivalent of income in the primary economy, while nonrenewable resources are the equivalent of capital; to insist that an economic system is sound when it is burning through nonrenewable resources at a rate that will lead to rapid depletion is thus as silly as claiming that a business is breaking even if it’s covering up huge losses by drawing down its bank accounts.

Second, Schumacher stressed the central role of energy among primary goods. He argued that energy cannot be treated as one commodity among many; rather, it is the gateway resource that allows all other resources to be accessed. Given enough energy, shortages of any other resource can be made good one way or another; if energy runs short, though, abundant supplies of other resources won’t make up the difference, because energy is needed to bring those resources into the realm of secondary goods and make them available for human needs. Thus the amount of energy available per person puts an upper limit on the level of economic development possible in a society, though other forms of development – social, intellectual, spiritual – can still be pursued in a setting where hard limits on energy restrict economic life.

Third, Schumacher stressed the importance of a variable left out of most economic analyses – the cost per worker of establishing and maintaining a workplace. Only the abundant capital, ample energy supplies, and established infrastructure of the world’s industrial nations, he argued, made it functional for businesses in those nations to concentrate on replacing human labor with technology. In the nonindustrial world, where the most urgent economic task was not the production of specialty goods for global markets but the provision of paid employment and basic necessities to the local population, attempts at industrialization far more often than not proved to be costly mistakes. Schumacher’s involvement in intermediate technology unfolded from this realization; he pointed out that in a great many situations, a relatively simple technology that relied on human hands and minds to meet local needs with local resources was the most viable response to the economic needs of nonindustrial nations. Since the end of the age of cheap abundant energy bids fair to place the world’s industrial nations on something like a par with today’s Third World, struggling to feed large populations with sharply limited resources and disintegrating infrastructures, the same logic will much more likely than not apply to our own future as well.

Finally, and most centrally, Schumacher pointed out that the failures of contemporary economics could not be solved by improved mathematical models or more detailed statistics, because they were hardwired into the assumptions underlying economics itself. Every way of thinking about the world rests ultimately on presuppositions that are, strictly speaking, metaphysical in nature: that is, they deal with fundamental questions about what exists and what has value. Trying to ignore the metaphysical dimension does not make it go away, but rather simply insures that those who make this attempt will be blindsided whenever the real world fails to behave according to their unexamined assumptions. Contemporary economics fails so consistently to predict the behavior of the economy because it has lost the capacity, or the willingness, to criticize its own underlying metaphysics, and thus a hard look at those basic assumptions is an unavoidable part of straightening out the mess into which current economic ideas have helped land us.

All of these four points deserve more development than Schumacher, in the course of a busy and active life, was able to give them. All four also can be applied constructively to the specific economic questions surrounding the end of the age of cheap energy and the coming of deindustrial society. Over the weeks and months to come, subject to the usual interruptions, I want to explore this latter task in some detail, and propose a few potential lines of approach toward the former. As last week’s post pointed out, the economic dimension is perhaps the least understood aspect of the crisis of industrial civilization, and a good part of that lack of understanding can be traced to the chasm that has opened up between current ideas and economic reality. Anything that can help bridge that gap could be crucial in navigating the challenging future ahead of us.


okieinbabylon said...

The idea of splitting goods into primary and secondary makes a lot of sense. That suggests to me that the current US "information" economy is primarily fueled by tertiary goods, which are meta-goods to secondary goods. Tertiary goods consist of information and organizational knowledge about how to produce secondary goods. These goods are our best chance at averting environmental and socio-economic catastrophe in the 21st century, as they may allow us to remain prosperous by producing similar goods with radically fewer inputs. (BTW, that isn't meant to shill for business as usual)

Tertiary goods will likely retain their importance in whatever future economic system we have. In the salvage economy you've outlined in the past, for instance, the knowledge generated by diverse tinkerers will be leveraged to increase society-wide improvements in the use of salvaged materials. If, that is, a communications system and/or large organization capable of disseminating the knowledge exists. I think something like this is already happening in the "maker" community, where people create all sorts of technologies using salvaged or readily available parts. Efforts at creating a low energy "internet" using ham radio that have been mentioned in recent weeks probably dovetail significantly with "makers".

Anyway, another very interesting post Archdruid. I don't see why everyone is so down on economics though. While the macro side of the field has had trouble generating any predictive accuracy for decades, microeconomics is a pretty astute method of analyzing most social phenomena provided good data are available. Just my two cents. Keep 'em coming!

Draco TB said...

...the cost per worker of establishing and maintaining a workplace.This is most definitely missing from present economics. The recession has hit and wages are going down. Prices, though, are still going up*. It seems strange that all the politicians, economists and capitalists expect, when hard times roll around, that the workers take pay cuts. Effectively, that labour be supplied at less than cost.

* This is an observation from here in NZ and may not be universal.

Stephen Heyer said...

Hi John,
Best post yet. I shall certainly obtain “Small is Beautiful” by Ernst Friedrich Schumacher.

Now there is someone who actually did it, rebuilding and advising national economies (very successfully it seems) and even being involved in the organic agriculture movement. In comparison, most of us sadly, tend to be more full of theory and hot air.

John Greer: “Contemporary economics fails so consistently to predict the behavior of the economy because it has lost the capacity, or the willingness, to criticize its own underlying metaphysics, and thus a hard look at those basic assumptions is an unavoidable part of straightening out the mess into which current economic ideas have helped land us.”

Try my countryman Steve Keen at . He is an increasingly influential Australian economist who is one of a growing band drawing attention to just this problem.

Lance Michael Foster said...

As you state, "Finally, and most centrally, Schumacher pointed out that the failures of contemporary economics could not be solved by improved mathematical models or more detailed statistics, because they were hardwired into the assumptions underlying economics itself. Every way of thinking about the world rests ultimately on presuppositions that are, strictly speaking, metaphysical in nature: that is, they deal with fundamental questions about what exists and what has value. Trying to ignore the metaphysical dimension does not make it go away, but rather simply insures that those who make this attempt will be blindsided whenever the real world fails to behave according to their unexamined assumptions. "

This is exactly why the people just keep ignoring your point, or are even more profoundly, are really unable to see it, saying the internet must survive and therefore it will, or that some kind of technology will magically solve all our problems. Technology is not science; it is a only a product of science. Science is a way of seeing the world and the resulting methodology to act upon what is seen-- through developing technology. If science is missing a point it is hardwired to miss due to underlying assumptions and metaphysics, then technology, which relies on science, has no chance of addressing the point.

Science and its products are wonderful and amazing. One must state that nothing else humans have come up with in history has been able to manipulate material reality as successfully as science has been able to. But material reality has not definitively been proven to be all that exists. Science is not equipped to be able to ask that question, not in its present configuration as empirical materialism. It is a screwdriver, but there are also bolts and nails in the world for which a screwdriver has no utility.

But science really cannot examine its own underlying metaphysics, no matter how it tries. And there will of course be those who cannot see this either, just as they cannot grasp this point when it comes to economics. Just as science somehow believes it lies outside human assumptions, and can examine and critique indigenous thought. Science needs something outside itself to be able to critique and examine it as well. Indigenous thought can do this as effectively as science can, because its underlying metaphysics are entirely different.

Marty said...

I am a bit confused. You mention "Guide for the Perplexed", one of Fritz Schumacher's great books in the title then never mention it in the body of the post. I think it is as important as "Small is Beautiful" in its own way. Were you headed one way and never got back after starting off on another thought?

Otherwise, your post was right on target IMHO.

John Michael Greer said...

Okie, a lot of people in the peak oil community are down on economists because most academic economists claim, in effect, that if you have enough money, resources will magically appear out of thin air. Of course the total failure of macroeconomic forecasting may also have something to do with it.

Draco, here in the US some prices are plummeting but others are rising. Still, your broader point is as accurate here as elsewhere. Nobody's asking Congress to take a 20% pay cut.

Stephen, thanks for the link -- I'll check him out. Yes, Schumacher is quite a challenge to conventional ideas of how much impact one person can have!

Lance, bingo. The irony is that it's been pointed out many times that metaphysics are useful rather than true -- and no metaphysical stance is useful for all purposes -- and yet practitioners of mainstream economics, science, and a great many other fields still insist that their own metaphysical assumptions are objective truths about the world.

John Michael Greer said...

Marty, no, the omission was deliberate; I was simply using the title in a punning way to refer to Schumacher himself as an excellent guide to those perplexed by our present situation. One of these days I'll do some posts addressing the supremely awkward issue of the metaphysics of peak oil, and when I do, Schumacher's A Guide for the Perplexed will be up for discussion; since this series of posts is meant to talk about economics, though, an introduction to Christian Scholastic philosophy -- even as clear, thoughtful, and readable an introduction as Schumacher's -- isn't directly relevant.

jan said...

God!, how it gripes me that Milton Friedman got out of here before his shiess hit he fan! This version of Economics makes much more sense, JMG.

Thank you once again.

disillusioned said...


...well this does ring some bells. A long-time friend (a management guru who specialised in the motivation of people) always insisted that there were 2 sorts of money and always lamented that the same coin was used for both, hiding the clear split between basic necessities and want-to-haves. He actually talked of money as a form of "condensed freedom", with the action of capitalism not just "pumping wealth" but "pumping freedom" from A to B.

Would it really be sensible to have different forms of money, split between function / use / purpose?

Madness in one economy could then be separated from the other, which (hopefully) would continue to function uninterrupted.

A modern variant would be the primary economy costed in "total energy units", with another currency for luxuries / want-to-haves.

This could even go so far as having a economic model split, with social model / Keynesian forms for the primary and laissez faire capitalism for the luxuries.

Not quite settled in my own mind on this; likely some practical gotchas! exist. Needs work but suspect there is a useful idea in there.

It's funny that the ideas from the ramp-up of the oil boom are becoming more relevant on the downside; clearly there have been some keen thinkers raking over these problems in past decades. Who else is there??

Great post!

spottedwolf said...

One graphic micro-cosmic example of these three points is experienced in places where infrastructure is actually separated by physical distances and demand is seen as less important due to area economy, population, etc.

In the early eighties there was a recession which affected many economic areas in BC. We saw a truck strike which reduced our store shelves considerably in a matter of days....3 to be to variety availability and commodities such as fresh vegetables, toiletries, etc. There was a lot of commentary from those who had experienced this before, to those who hadn't and flat didn't understand what it takes to operate a trucking business. Competition for fuel among priorities can easily cause problems.

Energy funds the law of supply and matter what level of necessity we're conversing about. When business (truck owners) are adversely affected by fuel source, operation ceases. When the power to produce and operate communication mediums interferes with primary goods....many things change.

British Columbia and other Canadian provinces have seen a steadily increasing demand for energy resources from US interests for many years and while this has a history touted as mutually also has one which is highly antagonistic. It makes us wonder what may come to the 'playing field' regarding self-protection in view of the times.

This post also is indicative of the expansionist view of three phases of economics,ie; resource based, manufacturing base, and service based. One must consider how well an enormous tertiary economy can reorganize to produce primary goods for its population....and it seems to me the US is enmeshed in its third stage which makes its primary goods economy extremely subjective to the global least currently.

Olwe said...

I never talk with capitalist mysticists (those who believe in Adam Smith's "Invisible Hand"). Still, I'd like to know how to set up a currency like you read about in the Austen and Dickens novels where, by golly, a pound is a pound, and the 20,000 pound prize for solving the longitude problem (early 18th century) meant some $12 million in today's dollars -- in a world where 12 mil would go very, very far.

hapibeli said...

In Richard Florida's article "How the Crash Will Reshape America",

he doesn't seem to spend much thought on the problem of easily obtained, cheap energy, or the lack thereof. I'm sure that this is due to the problem JMG writes about;

" Every way of thinking about the world rests ultimately on presuppositions that are, strictly speaking, metaphysical in nature: that is, they deal with fundamental questions about what exists and what has value."

and from L. M. Foster;

" If science is missing a point it is hardwired to miss due to underlying assumptions and metaphysics, then technology, which relies on science, has no chance of addressing the point."

We will have to rely on those of us who see through the current paradigm to a world using less energy, and getting it from alternative sources. Work, build, eat, and play as locally as possible.

ChristineStone said...

As I understand it, economics is the study of how resources and goods are produced and distributed. For instance, classical market economics assumes that a 'rational person' spends his money/time/labour to maximise his 'utility' or personal pleasure and preferences, e.g. buying bacon versus buying eggs. This is just one of the hidden assumptions - who says people are rational, or that they are interested in maximising utility? What about a person who would rather be a hermit monk and grow his food - is that his 'utility'? It becomes a circular statement - whatever a person does is his preferred choice, so that must be his 'utility', and he will spend his time/money accordingly.

What is missing from the economic view is that politics must also be factored in - that is, power relations which put physical or mental constraints upon the 'rational person'. For example, the hermit has to be allowed land by the society in which he lives (or doesn't live, so to speak). To pick up from last week's discussion, the Easter Island statues were not built because it made economic sense, they were political (the politics of religion perhaps). As another example of politics trumping economics - I'm guessing here - I suspect that as Roman civilization crumbled, the local authorities put on more circuses, not less, as well as controlling the bread. Circuses would not have made economic sense (assuming they were subsidised), but they made perfect political sense, keeping the population entertained and compliant. I suggest there will be a powerful political drive from today's elites to keep the internet going long after it is economically not viable, to keep us all distracted and our energies diverted.

Returning to the current discussion, does Schumacher's analysis of the cost of the workplace per worker assume that the function of the workplace is to benefit the workers? I thought it was to benefit the owners. The cost of the workplace is flexible, apart from health and safety legislation, so it can be driven down, and wages driven down, as long as the workers have nowhere else to go and no choice (which is now the case in many places since the workers no longer have land and all employers are just as bad). The outcome over many decades and centuries is the ongoing polarisation of real wealth (living standards) that we see globally.

John Michael Greer said...

Jan, it's one of the perpetual ironies of history that the creators of ideas, be they good ones or the opposite, rarely hang around long enough to experience the full consequences of their thinking.

Disillusioned, my sense is that the ideas have been good ones all along; it's just that we've had enough cheap energy to ignore them. Now we don't.

Spotted Wolf, I've been wondering for years what's going to happen when people in Canada really come to grips with the extent to which their country has been turned into an economic colony of the US. It could get very, very complex.

Olwe, that was also a world in which deflation was a chronic economic problem and a lot of people in the industrial world faced the daily threat of starvation. Hard money has problems of its own.

Hapibeli, it's been my experience that most of today's media pundits will do anything, absolutely anything, to avoid noticing the fact that there are hard geological limits on the supply of cheap energy. It's always amazed me how something so obvious as the finite nature of concentrated energy resources can be so impossible for so many people to grasp.

Christine, excellent. The subject of political economy -- the interface between economics and power relationships -- got blacklisted in the western world in the days when Marxism was the most popular way of talking about that subject. It's high time that it be revisited.

Schumacher's discussion of the cost per worker of setting up a workplace doesn't assume that the benefit to the workers has any priority at all. It's a simple economic question: if you need cloth, is it more cost-effective to build an ultramodern factory, to provide workers with handlooms, or some point on the spectrum in between? His argument was simply that the factory is not always the best option. We'll be getting into that discussion a bit later on.

Ralph (offlist), many thanks. When I have a bit of free time I'll certainly check out your blog.

Danby said...

I don't know who said it, I've seen it attributed to everyone from Milton Friedman to General Marshall, but a it's good point to remember anyway:

"It is very difficult to teach a man something when his livelihood depends on his not learning it."

spottedwolf said...

It could go a number of ways as most things which are industrialized become relegated to the ability to produce, deliver, and ultimately pay for. There are many of us who've moved as best we could, considering legal ramifications, and the collective grows every year..but.. our majorities are still blindly surging forth in a 'lemming-like' parade. As Dirk mentioned,there is a paradigm which has to swing away from "consumptive ease" and as we all know...that ain't happnin'. I was listening to a remark made by our latest addition to asstronut stardom....wherein she stated something which included, " once we've established colonies on the moon"........and these are supposed to be the bright ones.

Kevin said...

As I've mentioned, I'm interested in the ideas of Buckminster Fuller. So I've been wondering about their applicability within the context of the sort of economy proposed by Schumaker, and in the post-oil situation generally.

On the one hand, Fuller was passionate about the need to develop what Schumaker calls secondary goods which optimally conserve primary goods. He wrote of fossil fuels as depletable "energy capital" in contradistinction to renewable "energy interest income." One of his themes was the finite nature of planet earth (a sphere being a closed system) and hence of its resources, so he clearly recognized inherent limits to growth. He advocated recycling materials for perpetual reuse, and proposed that the global energy grid be unified for significant savings in power consumed worldwide.

On the other hand, much of Fuller's thinking is predicated on assumptions of the industrial world whose demise we now anticipate. He believed in scientific progress, systematically anticipating technological advances. He designed dwellings to be mass produced for economies of scale, so as to drive the cost far below that of conventional housing. Such mass production and global deployment don't seem much in keeping with the relatively low-tech fuel-conserving notions popular among green builders today. Also, Fuller often stated that the resources of earth were amply adequate for the needs of even a much greater population than existed in his lifetime.

However you've made it clear that Schumaker wasn't doctrinaire about everyone going low-tech and building their houses with hay bales to be delivered by horse-drawn wagon. So maybe some of Fuller's designs might be produced within such an economy as Schumaker proposes, presumably to the alleviation of our incipient problems. I'm curious as to what you think on this score.

I think it significant that Fuller and Schumaker were active during the same period, achieving their greatest popularity and influence at about the same time, the 1970s. It seems as though both their bodies of ideas are needed at this time, and may intersect at several points. Your remark about the originators of ideas seldom living to see their full consequences seems germane.

I mean to get my hands on a copy of Schumaker's book this week at my local public free library.

dexev said...

Kevin -- I've learned that if I want to get my hands on JMG's reading suggestions, I have to sign in to my library *right away* to reserve my copy. This week, I had the good fortune to be the first of three dedicated Archdruid readers trying to get my hands on Small is Beautiful.

(BTW, you want to use straw bales to build your house. Hay is dried grass and good food for animals. Straw is the stalks of wheat or oats leftover from grain production.)

bryant said...


I believe it was Upton Sinclair who said:

It is difficult to get a man to understand something when his job depends on not understanding it.

Frankly, Upton Sinclair is another ignored author people would do well to read again.

das monde said...

I do not agree that the disastrous dominant economic paradigm is a “scientific” problem. Practical science is indeed conservative a good deal, but other known practices of public knowledge would make it even more conservative. Skepticism towards most used methodologies might become an impending dogma as well. One way or other, the science we have appreciates creative attempts to see through “hardwired” methodologies. Even teleological types of metaphysics are addressed - as long as we can formulate, what we are talking about. Paradigm change in serious science is usually an unthankful job, but that shouldn’t be otherwise.

The prevailing economic paradigm is not a scientific but a political preference. That’s how certain “convenient” economic aspects are stressed while others omitted. The big media (remarkably consolidated in the US) is aligned to political-economic power interests no less than it was in the USSR.

Academically, Chicago school economic theories had a low profile up till the 1970s, at least according to Naomi Klein’s “Shock Doctrine”. But that doctrine filled the niche attractive to aggressive wealth holders, so it became well-financed and especially active in “third world” countries (like in Chile, even before the Pinochet coup) and eventually in leading economies (see Reagan, Thatcher). By the 1990s, all economic help and advice to “emerging” economies was transformed along the neo-iberal line of Washington Consensus. What we see now is probably the end phase of the (largely financial) process of insider funds capturing most of valuable assets (not just in Latin America or South East Asia, but in Iceland and Eastern Europe).

Kevin said...

Thanks dexev. It seems I've lucked out.

(BTW, you want to use straw bales to build your house...)

No, I don't. I want to build a geodesic using something else. Among other things, the fact that domestic animals might enjoy munching my domicile just isn't a selling point for me.

I've only dipped into Chapter 2 so far, and I'm already most impressed with how prescient Schumaker was. He actually seems to have anticipated global warming back in the early 70s, using the phrase "thermal pollution" with respect to the excessive use of fossil fuels.

I also appreciate the clarity and relative simplicity of his prose, which so far as I can tell completely eschews obfuscatory jargon.

Kevin said...

Your pardon dexev. It has become clear to me upon rereading that you meant to distinguish between straw and hay, rather than using the terms interchangeably, a misunderstanding which tells you how much time I've spent on farms.

A geodesic made with straw might still be rather odd, but hey, why not give it a shot?