Economics as if Survival Mattered

Excerpts from The Wealth of Nature, 2011

The end of the Information Age

Very few people realize just how extravagant a supply of resources goes to maintain the information economy. The energy cost to run a home computer is modest enough that it’s rarely noticed, for example, that each one of the big server farms that keep today’s social websites up and running use as much electricity as a midsized city. Multiply that by the tens of thousands of server farms that keep today’s online economy going, and the hundreds of other energy-intensive activities that go into maintaining the Internet and manufacturing the equipment it uses, and it may start to become clear how much energy goes into putting pretty pictures and text onto your computer screen…

The gigawatts used by server farms are not the only unnoticed energy that goes into the Internet, though; putting those gigawatts to work requires an electrical grid spanning most of a continent, backed up by the immense inputs of coal and natural gas that put electricity into the wires, and a network of supply chains that stretches from coal mines to power plants to the oil wells that provide diesel fuel for trains and excavation machines…

It’s not accidental that the Internet came into existence during the last hurrah of the age of cheap energy, the quarter century between 1980 and 2005 when the price of energy hit the lowest levels in human history… Instead, as energy costs move unsteadily upward and resource needs increasingly get met — or not — on the basis of urgency, we can expect access costs to rise, government regulation to increase, Internet commerce to be subject to increasing taxation and rural regions and poor neighborhoods to lose Internet service altogether…

Remembering What Worked

Consider an example from the not-too-distant past: a large industrial nation with a capitalist economy that had remarkably tough regulations restricting the growth of private fortunes and the abuses to which capitalist economies are so often prone. The wealthiest people in that nation paid more than 90 percent of their annual income in tax, and monopolistic practices on the part of corporations faced harsh and frequently applied judicial penalties. The financial sector was particularly tightly leashed: interest rates on savings accounts were fixed by the government, usury laws put very low caps on interest rates for loans and legal barriers prevented banks from expanding out of local markets or crossing the firewall between consumer banking and the riskier world of corporate investment. Consumer credit was so difficult to get, as a result, that most people did without it most of the time using layaway plans and Christmas Club savings programs to afford large purchases.

According to the standard rhetoric of free market proponents these days, so rigidly controlled an economy ought by definition be hopelessly stagnant and unproductive. This shows once again the separation of rhetoric from reality, however, for the nation I have just described was the United States during the presidency of Dwight D. Eisenhower — that is, during one of the most sustained periods of prosperity, innovation, economic development and international influence this nation has ever seen… as the economic regulations of the 1950s have been dismantled — in every case, under the pretext of boosting American prosperity — the prosperity of most Americans has gone down, not up…

Back to the Future

[We need] to shift from centralized production of goods and services and continental or intercontinental supply and distribution chains to regional or local production of goods and services using locally available resources. Relocalization is a standard event in ages of contraction. When complex societies overshoot their resource bases and decline, centralized economic arrangements fall apart, long distance trade declines sharply and the vast majority of what we now call consumer goods gets made at home or very close to home. That violates much of the conventional wisdom that governs economic decisions these days: centralized economic arrangements are thought to yield economies of scale that make them more profitable than decentralized local arrangements.

When history conflicts with theory, though, it’s not history that’s wrong, so a second look at the conventional wisdom is in order. The economies of scale and the resulting profitability of centralized economic arrangements don’t happen by themselves. They depend, among other things, on transportation infrastructure. This doesn’t happen by itself, either; it happens because governments pay for it, for purposes of their own. The Roman roads that made the tightly integrated Roman economy possible, for example, and the interstate highway system that does the same thing for America, were not produced by entrepreneurs; they were created by central governments for military purposes. (The legislation that launched the interstate system in the US, for example, was pushed by the Department of Defense, which wrestled with transportation bottlenecks all through the Second World War.)

Government programs of this kind subsidize economic centralization. The same thing is true of other requirements for centralization — for example, the maintenance of public order, so that shipments of consumer goods can get from one side of the country to the other without being looted. Governments don’t establish police forces and defend their borders for the purpose of allowing businesses to ship goods safely over long distances, but businesses profit mightily from these indirect subsidies nonetheless.

When civilizations come unglued, in turn, all these indirect subsidies for economic centralization go away. Roads are no longer maintained, harbors silt up, bandits infest the countryside, migrant nations invade and carve out chunks of territory for their own and so on. Centralization stops being profitable, because the indirect subsidies that make it profitable aren’t there any more.

The decline and fall of the Roman Empire, a well-documented example, was a process of radical relocalization, and the result was the Middle Ages. The Roman Empire handled defense by putting huge linear fortifications along its frontiers; the Middle Ages replaced this with fortifications around every town and baronial hall. The Roman Empirt was a political unity where decisions affecting every person witin its borders were made by bureaucrats in Rome. Medieval Europe was the antithesis of this, a patchwork of independent feudal kingdoms the size of a Roman province, which were internally divided into self-governing fiefs, those into still smaller fiefs and so on. to the point that a village with a fortified manor house at its center could be an autonomous political unit with its own laws and the right to wage war on its neighbors.

The same process of radical decentralization affected the economy as well. The Roman economy was just as centralized as the Roman polity; in major industries such as pottery, mass production at huge regional factories was the order of the day, and the products were shipped out via sea dn land for anything up to a thousand miles to the end user. That came to halt when roads weren’t repaired any more, the Mediterranean became pirate heaven and too many of the end users were getting dispossessed and dismembered by invading Visigoths. The economic system that evolved to fill the void left by Romes implosion was thus every bit as relocalized as a feudal barony, and for exactly the same reasons.

That system was based on craft guilds, which worked in a distinctive and — to modern minds — highly counterintuitive way. Each city — and “city” in this context means anything down to a town of a few thousand people — was an independent economic center providing skilled trades to a fairly small region. The city might have a few industries of more than local fame, but most of its business consisted of manufacturing and selling things to its own citizens and the surrounding countryside. The manufacturing and selling was managed by guilds, which were cooperatives of master craftsmen. To get into a guild-run profession you had to serve an apprenticeship, usually seven years, during which you got room and board in exchange for learning the craft and working for your master. You then became a journeyman and worked for a master for wages, until you could produce your masterpiece — that’s where the word comes from — which was an example of craftwork fine enough to convince the other masters to accept you as an equal. Then you became a master, with voting rights in the guild.

The guild had the responsibility under feudal municipal laws to establish minimum standards for the quality of goods, to regulate working hours and conditions and to control prices. Economic theories of the time held that there was a “just price” for any good or service, usually the price that had been customary in the region since time out of mind, and municipal authorities could be counted on to crack down on attempts to charge more than the just price. Most forms of competition were off limits; if you made your apprentices and journeymen work evenings and weekends to out-produce your competitors, for example, or sold goods below the just price, you’d get in trouble with the guild and could be barred from doing business in the town. The only form of competition that was encouraged was to make and sell a superior product…

Advocates of relocalization in the age of peak oil may thus find it useful to keep the medieval example in mind while planning for the economics of the future. Relocalized communities must be economically viable or they will soon cease to exist, and while viable local communities will be possible in the future — just as they were in the Middle Ages — the steps that will be necessary to make them viable may require some serious rethinking of the habits that now shape our economic lives…

One Comment

This sounds like a sensible thinker. I might also recommend Demetri Orlov’s recent book Reinventing Collapse. The most parallel event to our current trip down the drain is the collapse of the Soviet Union, brought about, BTW, by the same neoconservative criminals that are doing us in. Really, exactly the same people, largely from Goldman Sucks. Naomi Klein also has a nice section in her book Shock Doctrine where you can find the names of the criminals that are doing this to us.