Integral and Thermodynamic Critique of Neoclassical Economics
Excerpted from Peter Pogany:
"Consciousness is no longer insensitive to the “limits to growth.” Transition to a new diaphaneity is unmistakably germinating. Early 20th century philosopher Henri Bergson memorably expressed just how subtle the process of collective awakening is. Referring to the vast grey area that separates strongly held views, he said that the inchoation of a new standpoint begins with “less of a thing thought than a moment of thinking, less a moment of thinking than a sensing of direction.”
Abandoning the dogma of eternal economic growth may well be our generation’s “inward thought” (to use Alfred North Whitehead’s expression).
Illusion of exaggerated grandeur shadows industrial civilization
... humanity misleads itself by imputing omnipotence to innovation.
Without disparaging or wanting to live without the amenities of consumer capitalism, Gebser had been extremely skeptical to label the advent of the industrial age and attendant “technologization” an unadulterated progress. Modernity for Gebser represented entry into the deficient phase of the mental structure, a relatively short period of universal history during which the world proceeds toward inadvertent self-destruction.
One-sidedly praised gains, which he abstracts into a big push to the intensification of consciousness in the wrong direction under the banner of “rationality,” are balanced by losses through increasing our distance from the “origin.” The threat comported by the general lack of comprehension concerning human existence, inclusive of realistic notions about what technology might do for humankind, is on the ascent.11 This view approximates the contention of ecological economists, namely that economic activities are not free from negative effects associated with the second law of thermodynamics (the entropy law). That every time we add something that benefits humanity, we also subtract something from the potential of realizing further benefits -- i.e., that aggregation is shadowed by an equal or greater measure of disaggregation -- is a blind spot of contemporary economic thinking. An attestation to the validity of the observed law of cultural evolution, namely that the prevalent diaphaneity dictates what is “right and true,” is that even first water economists continue to insist that “innovation” is the ultimate source of wealth.
The physical environment has been abstracted into a nondiminishing standing reserve to serve the satisfaction of human requirements through developing and applying “science and technology” which, by its putative independence from the state of nature, is presumed to have a limitless horizon.
If run-of-the-mill economics recognizes “entropy” as worthy of consideration at all, it either declares its import for economic sciences null and void or intends to kill the subject by using two patently wrong arguments.
The first one is based on the mistaken notion that the terrestrial sphere constitutes an open thermodynamic system and the second on the ill-considered claim that the equivalence of energy and mass (per Einsteinian physics) means that shortages in material substances can always be eliminated by deploying more energy which, courtesy of our Sun, is abundant and practically inexhaustible. The terrestrial sphere is thermodynamically closed.
Modern thermodynamics distinguishes among three kinds of systems: open, closed, and isolated. The open system exchanges both energy and matter with the exterior; the isolated exchanges neither. Obviously, the terrestrial sphere is a closed system. Whatever we do with matter, incorporating it into our bodies, using it as raw material, discarding the bodies, throwing away or reusing matter again and again -- our virtually permanent weight and composition of atoms remain constant.
The terrestrial sphere’s substance contains a lump sum of free energy and, for all economic intents and purposes our inventory of atoms is fixed. Combining this simple fact with the entropy law implies a diminishing availability of free energy contained in matter, a lessening ecological order, and a growing confusion about the sphere’s true state (per “information entropy”).
Matter and energy may be equivalent in theory but they lack mutual convertibility. Despite their quantitative equivalence, matter and energy have an important asymmetry. While we can produce energy from matter, we lack the technology to do the reverse in economically significant quantities. Nor can the readying of energy for worldly applications take a detour around matter: The manufacture of solar panels, hydroelectric and wind turbines, geothermal stations, and nuclear reactors must draw from the fixed number and structural distribution of atoms.
Further, not only energy but matter is also subject to the second law. Deployment of matter always entails some irreversible loss of usable molecular structures. All technological processes, whether in the generation of energy or production of material goods, reduce the ratio of economically accessible to total energy (where total energy is the sum of accessible or “free” plus inaccessible or “latent” energy). The consequences of irrevocable degradation (i.e., the transformation of low entropy structures into high entropy ones) remain with us forever. Ultimately, the increasing billions of metric tons of matter that the world annually ingests, digests, then extrudes back into the very same space whence they come do not leave the ecological status quo unchanged.
Mistaken notions about thermodynamics (the physics of the human condition) fuel techno-fetish, the belief that nature is infinitely manipulable. The grand illusion that helps vulgar (nonecological) economic thinking to remove the red herring of entropy from discourse resides in a quasi-religious faith in “science and technology.” It is a rather naive myth.
The usage of conflating “science” and “technology” into a single meme wrongly equates theory with practice. Science refers to solutions on paper, on the computer screen, or in labs, while technology means the profitable physical incorporation of “R & D” results. The second does not necessarily follow from advancement in the first. Scientific information is neither free in terms of matter and energy nor is automatically translatable into profitable enterprise. Moreover, technological possibilities are not independent from the state of matter in the terrestrial sphere and that state changes with the growth of human presence and the size of the planet’s economy. Thinking that free (accessible) energy can be maintained by increasing knowledge is tantamount to the claim of having discovered a perpetual motion machine -- the source of boisterous merriment in patent offices around the world.
Referring to technological progress, as his generation understood it and as ours continues to pursue it, Gebser said “If the destructive might of such progress is not weakened, these developments, according to their degree of autonomy will automatically fulfill the law of the Earth.” (Gebser, 1984, p. 96.)
Expansion of a species, which in the case of homo sapiens comes with unlimited material demands for economic purposes, eventually exhausts the ecological niche that facilitated its existence in the first place. The connection ought to be made by now. The preoccupation with the environment and natural resource issues that began to grow in the early 1970s is a sign that nature, in which we are embedded in an exponentially expanding pace, has abandoned its relaxed, permissive stance in favor of an increasingly constraining mode.
The species and its sphere
Shortly after World War II, Gebser voiced the danger that the relentless stampede along the “more, more, now” path would lead mankind to a self-engineered abyss. He was ahead of his time, considering that the environmental and conservation movement with international scope could be dated to the 1968 founding of the Club of Rome. Its declaration that material resources and the environment represent a life or death challenge for humanity is similar in essence to the alarm Gebser sounded two decades earlier.
That he had arrived at the indicated conclusion through an “integral” process (systasis) is a lesson in humility for those who restrict the possibility of discovering reality to the analysis of quantitative information.
The successful application of systasis to the “limits to growth” problem required the recognition that
(a) external circumstances, in which the majority of individuals are embedded, correspond to their inner world, schematically; to the prevalent structure of consciousness (point 1);
(b) a formal equivalence and numerical exchangeability exist among space, time, and energy, and
(c) the rational/mental structure is obsessed with (Kuhn, 1962) -- or from “falsification” in Popperian terms (Popper, 1959) -- by developing “auxiliary hypotheses” (Lakatos, 1980) and flexibly deploying them through “research programs” (Lakatos, 1980).
If ideation in economics is a response to changes in the socioeconomic environment and if “normal science” or the “hard core” succeeds in defending itself through absorbing, shunting off, or discrediting competing theories, which aspire for the status of a new “main paradigm” or “hard core,” received wisdom survives by adaptation to the basic components of the socioeconomic environment.
These remain intact until the next seminal gyration or chaotic transition creates a new basin of fundamental structural components (i.e., a new global system) in which only relatively insignificant socioeconomic changes occur.
Introduction of the concept “ecological footprint,” for which we may thank William E. Rees, University of British Columbia, validates Gebser’s assertion by making point (c) accessible, transparent, and convincing.
The “ecological footprint” is the land and water surface required to maintain the living standard of a given population. It is obtained by converting material flows into surface. That is, the resources used through consuming goods, and services, housing, and transportation as well as the environmental capacity required to absorb the waste generated have been translated into space.
The bio-productive “global hectare” is the unit of “ecological footprint.” It is composed of crop-, pasture-, and forest land as well as marine fisheries. A comparison can be made between a nation’s actual administrative territory and the area it claims (i.e., its ecological footprint). Computer routines are available on the Internet for estimating individualspecific ecological footprints.
According to the 2010 Living Planet Report (found at Business Green.com), the current level of global population and economic activities would demand 1.5 times the size of the Earth to leave a sustainable ecological footprint. Barring a clear break with fossil-fuel dependence and other harmful structural components of our growth-dependent economy, the overshoot in terms of space is likely to worsen during the next two decades. If “business as usual” expansion continues between now and 2030, humanity will pretend that it lives on twice the size of the planet it actually occupies. Clearly, global society is liquidating irreplaceable natural capital; it fills up more space than it should if its ecological niche is to be preserved. (For a recent complete and detailed survey of impending resource shortages, see Diederen, 2010).
The era of large-scale discontinuity is upon us.
A close reading of Gebser allows for the extrapolation that Weltanschauung, ethics, intentionality, and norms of average everyday conduct associated with integral consciousness mirror a stable, prosperous, and equitable world economy. However, since the existence of implied conditions presumes transition from the global system of mixed economy/weak multilateralism (GS2) to the one defined as two-level economy/strong multilateralism (GS3), the temporal taxonomy evident in Gebser and the one suggested by the thermodynamic comprehension of universal history may be regarded as theoretically equivalent. The orthogenesis of survival significance for homo sapiens may be summed up as GS2/rational consciousness GS3/integral consciousness.
Obviously, the mutation from rational to integral consciousness and the transition from today’s economy to one that provides material welfare and psychic wellbeing without the accelerated depletion of natural capital cannot be a simple switchover -- the result of suasion and clever reforms (Laszlo, 1994). Discontinuity darkens the horizon, a chasm on a scale that defies imagination, simply because the requisite institutional alterations and massive-scale behavioral microevolutions that occurred in the course of the last chaotic transition (i.e., during the movement from GS1 to GS2) are thwarted by those needed for GS2 - GS3.
The reason for invoking Gebser in this context (or, for that matter, any appropriate adventitious source) is that economics does not seem to be able to transcend itself, to adduce the evidence necessary for the recognition that the world faces a perhaps multigenerational macrohistoric tussle during which GS2 must leave the scene in order to make place for a new form of global self organization that limits economic expansion in a traditional sense.
Standard economic growth theory, a very busy, fast evolving research area, does not encompass the possibility of such limitation (Barro and Sala-I-Martin, 1995), and a cursory glance at research activities in nonlinear phenomena, the field from which such recognition could originate, confirms this opinion.
Tame chaos, ban catastrophe!
Most of the copious writing on chaos theory’s relevance to the economic sciences has circled around the central conviction that equilibrium growth and associated progress in material welfare are not in danger. Low-dimensional (read “nonrandom, hence deterministic”), self-sustained, endogenous, inter-temporal variations or fluctuations have been found to be nonthreatening to bona fide market economies. Chaos can be demonstrated either by analytical equations or by data in combination with some model.
The first approach is based on showing with algebraic methods that a nonlinear, dynamic system of functions, purportedly accurate in describing the economy, is potentially selfdisruptive. That is, it reveals initial-condition sensitivity and moves the system toward a “strange attractor.”
Although the mathematical methodology of the prevalent orthodoxy allows endogenously arising fluctuations with deterministic structures (without shying away from the identification of “unstable” time evolutions in phase diagrams), the boundary conditions inherent in standard theory always eliminate their significance. The argument between those who claim that automatic self-equilibration (i.e., convergence toward “Walrasian equilibrium”) is sufficient and those who maintain that Keynesian-style intervention is a “must” is internal to the teleology of everlasting expansion. The two sides of this political dialectic are united in the reassuring synthesis whereby the worst that can happen as a result of bifurcation is an unexpected steady state solution.
The second avenue entails the requirement to prove that the time series of a relevant economic phenomenon or quantity (e.g., real growth, investment, consumption, monetary aggregates, stock values) are nonlinear, then showing (usually through reliance on some nonparametric estimator such as “neural network” models where the data are allowed to define the functional form) that they contain a deterministic pattern.
Studies following this avenue have underscored the presence of nonlinearities in aggregate time series but did not reveal anything dramatic. Within their reasonable range, parameters (e.g., labor’s share in a customary production function, capital/labor ratio, discount factor), the model of differential equations describing economic evolution reveals globally asymptotic behavior. The conclusion is again that there is no chaos in the data (even if they turn out to be nonlinear) or that the chaos found is harmless or that chaos as a methodology is not useful in the study of a well-functioning market economy.
All in all, innocuously small developments will never cascade into a naked singularity in the form of some generalized structural breakdown. Even if the time paths identified do not converge to a point or a stable periodic attractor, or to some limit cycle, they remain bounded. By what? Perhaps by ergodicity25 dyed into the pith of reality or because Natura non facit saltum; announcing the triumphant return of the poltergeist of an earlier diaphaneity, championed by Leibniz, Darwin, and Alfred Marshall. One may even venture to say that the study of chaos in the mainstream has systembolstering implications because it implies in toto that the determinism associated with it iodizes the time-reversal asymmetry of nonlinearity.
Recurrence, the indelible signature of determinism, trumps the ferment of disorder through unidirectional transformations (what time-reversal asymmetry actually means). It bootlegs reversibility in a broad sense, essentially underscoring intrinsic stability. As if nonlinearity posited the null-hypothesis that the prevailing institutions are transitory (i.e., drastically changing conditions may give birth to self-propagated structural instability, ending perhaps in a complete systems failure) that the deterministic pattern of chaos could safely reject. Once a pattern has been identified, economic agents and policymakers could take rational countermeasures to avoid disruptions, dampen boom/bust vacillations, and eliminate all harmful epiphenomena of chaotic dynamics. In contrast to the way chaos has been applied to examine the economic organization’s resilience, catastrophe theory offers a direct way to search for bifurcations that could result in comprehensive discontinuity.
Catastrophe enjoyed some vogue following the 1973 OPEC oil embargo but became a derided heresy by the late 70s (Rosser, 2007). 26 Indeed, it came as close to being excommunicated from the university as the economics-theology parallel (as introduced by Nelson, 2001) permits the metaphor.
In summary, deterministic nonlinear processes pose no danger to the global economy’s self-sustained, dynamic stochastic general equilibrium. The system has no inherent tendency toward eliminating itself.
The deterministic pattern, if it can be detected at all, is cyclical, moderate, could very well be positive (e.g., attributable to innovation) and is subject to control. This opinion has been found unassailably robust. It is considered a commonplace truth; questioning it is not comme il faux.
Experience and the ontological prejudice of rationality limit the range of predictions. The integral perception of conservative natural resource data, the second law, and GS2’s inability to ensure seamless substitution away from scarce natural resources suggests that clustering energy and material input scarcities and/or some environmental disaster will interrupt world economic growth within our generation’s time horizon. From this vantage point, mainstream tragically fails to come to grips with the whole truth. The answer to the obvious question “Why is this case?” is twofold: experience and ideology.
If we smooth out time series through moving averages and consider occasional downturns (“the business cycle”) par for the course, the world economy has exhibited a unique period of stability since World War II. Under these circumstances, there is no underlying, general reason why data or analytical equations rooted in observed stability ought to signal systems failure.
The global system-accompanying ideology lives in perfect harmony with this reassuring experience. It comes with axiomatic assumptions about human behavior, desires, and an unshakeable confidence in reality being moldable putty by appropriately focused rational minds.
The established creed impregnates presuppositions, which, in turn, give birth to an interminable flow of theses reflecting the father’s genes. As a consequence, the mental habits of transduction associated with ad infinitum output maximization (exponential growth) prevent creative induction to the effect that this fixed idea has an expiration date stamped on its back. Even radically alarming assessments see a way of skipping chaotic transition and moving to a much more sustainable, green economy.
The ancient Greeks were onto something by believing that order in the world arises from the chaotic struggle of Titans." (https://mpra.ub.uni-muenchen.de/27221/1/MPRA_paper_27221.pdf)
* Article: What’s wrong with the world? Rationality! A critique of economic anthropology in the spirit of Jean Gebser. By Peter Pogany. Shenandoah Valley Research Press, November 2010 (Munich Personal RePEc Archive)