When Red-Hot Economies Cool, Blame Entropy First
kmo delivered another great podcast the other day, interviewing economist Frank Rotering. Prof. Rotering has an interesting take on human progress and the limits the planet itself places on our expansion, part of which resonates well with what I accept.
For example, I whole heartedly agree that our biological imperative drives our expansion, the desire to eat the richest food (to give us strength and build our energy reserves as fat) and live in the best areas conducive to sating our desires to, well, eat and reproduce a lot. The number of simple behavioral studies that reveal this simple unconscious drive abound, each confirming that despite what we say, we are greedy little piggies that crave tasty (meaning energy-rich) foods and sex with the most reproductively viable candidates. Remember, folks, Darwin's "survival of the fittest" referred to reproductive winners, the organisms that most successfully got as many biological copies of themselves made before they croaked.
Where Frank went off the rails in the talk with kmo, though, was where he started talking about . . . capitalism. Wait, haven't I gone over this already?!?
But then the Professor did something very few who throw the C word about willy-nilly actually do: He explained what he meant. I'm not saying he got it right in my eyes, but I will say he at least had the courtesy to quote Marx's writings directly and explain the nitty-gritty details that might elude the less familiar. Someone who has obviously read Marx so carefully is rare to find even amongst Marxists. That was refreshing.
This explanation, though, confirmed something that has been nagging at me for quite some time: That Marx himself missed the most salient element of capitalism's expansionist tendencies, specifically by by conflating capitalism's necessity to expand with its ability to expand.
I'll open with fairness. It's hardly sporting of me to slam Prof. Rotering without giving him a chance to explain what he himself means. Poking around, I found he has posted some YouTube lectures expounding his ideas. The one below concerns what he finds the most damaging about capitalism, the need compelling capitalists to expand their economy as ongoing capital investments marginally displace profits.
I've been mulling a larger post about just this topic, but just haven't been able to fully form it enough for posting. The post in a nutshell: Think back on all the companies that proved the most profitable over the last century and consider what they did to earn those earnings. For example, consider that you are reading my words (most likely) on a computer screen. Think of all the computer companies of the past and present. The list is long and filled with both winners and losers. What did all these companies do? They improved on the status quo in some way. Perhaps they made some piece of software ubiquitous. Perhaps they pioneered the information delivery systems themselves. Whatever they did specifically, the players' cumulative efforts displaced the technology that had been previously dominant. Before the computers came along, we had to read words like these in other formats, formats involving the efforts of other companies.
It's unlikely I would ever be paid by a publisher to get these words out there. There's simply not that much commercial demand for musings like mine. Still, if I wanted others to read this post in the days before computers and the internets, I would probably have run off copies. Xerox made the big time with this technology, though there were many others. Before computers that was how very small-run printing was done, with hand-cranked mimeograph machines and later with motorized photostatic copiers.
A stenographic pool of document copiers from 1945.
And before Xerox made copying mostly automatic, companies like Smith Corona and Olympia introduced an improvement, seen above being banged on by secretaries in 1945 -- the typewriter. Before that, documents (again, like this post) would have been hand-copied by scriveners. (For an overview of how rewarding a process that must have been, do read Herman Melville's short story "Bartleby, the Scrivener: A Story of Wall Street," the tale of one lawyer's office full of copying help gone pretty much awry.) Of course, had I grander publication ambitions, I could have taken this hand-scrawled screed to a printer. He would have hand-arranged the movable type in his press and, depending on the model used, stamped or cranked out however many essays I desired to pay for. It would have been expensive, but would have still be preferable to endlessly exercising my chicken scratch that passes for handwriting. Before Gutenberg's moveable type, I would have had to pay a printer a princely sum to hand-carve individual plates filled with my words before any mass-production could ensue, raising the costs considerably.
So, to recap: My ability to share my printed words increased over the centuries as the technology for publication improved, sometimes in quantum leaps as new technologies were invented, sometimes incrementally as those technologies were gradually improved. In each step along the way from sharpened and ink-dipped feathers scratching away to today's intertubes, the cost for printing each page steadily declined -- for the consumer.
For the companies and individuals involved in the previous incarnations, each step toward increased mechanization must have been a disaster. Whole industries were wiped out as upstart concerns rendered their once-profitable efforts meaningless, even quaint. This is what economist Joseph Schumpeter called creative destruction. In the wake of each innovation, the working lives of real people were creatively destroyed.
Why "destroyed?" At each improvement, a new technology, technique or approach needed to produce the words per page reduced the number of workers formerly necessary. Since people need work to keep them from banding together and plotting revolution, from attacking the establishment classes and demanding work (as Chris Martenson in The Crash Course points out), increasing the economy's size beyond what population increases dictate absorbs the workforce displaced by technology and guarantees the continuation of profits Rotering points out would otherwise be reduced.
Another of Rotering's videos pegs the start of capitalism at about AD 1500, very close in time to Gutenberg's 1439 first printing. Here human population starts to spike toward the limits of the planet's ability to keep us alive, what he calls "over-reach," driven (as Rotering explains) by our biological imperative to be fruitful and multiply (okay, that last phrasing was mine, not his). He calls this expansionist tendency "The Biological Economy," and gives capitalism sole credit for enabling it.
Here, though, I've got to ask: Is capitalism really to blame . . . or did something else happen at that time that both Marx and Rotering might have missed, or at least seriously undervalued? Put another way, what literally moved the economies those two describe?
Neil Stephenson's Baroque Cycle is a sprawling nine-volume romp through speculative history, following the life of a rogue and a scientist over a century before the word "scientist" was invented. Though I've complained about mistakes I noticed in the series before, the books are well worth the time it takes to tackle them.
Stephenson uses the books to note technologies and practices introduced to the reader with an emphasis on the changes they wrought both to characters within the story and familiar to history. One is modern capitalism. Daniel Waterhouse asks his brother for some money from the family funds. Instead of coin, though, his brother (appropriately named Sterling) gives him a piece of paper, a note promising the holder to a quantity of gold from their nephew's gold shop. Here we see the beginnings of paper currency. We are also introduced to more conservative characters that deride the "money scriveners" as frauds.
One later traditionalist, Mr. Threader, engages Daniel in a discussion of the difference between the economies in the country estates and the city, a discussion that notes the shift from feudal land as the core of most all value -- the basis for feudalism -- to the more nebulous form of currency valuation we use today based upon the extraction of resources untapped until sail technology had enabled greater and greater exploitation of far-away sources of wealth. As Daniel sums the situation to Mr. Threader, "For the country draws its revenue from a fixed stock: sheep eating grass. Whereas, the City (London) draws its wealth from foreign trade, which is ever-increasing and, I say, inexhaustible." (Neil Stephenson, The System of the World, HarperCollins, 2004, p. 35.)
Ever since the Spanish Conquistadors started raiding the New World of the material wealth (often using the natives as slave labor to do so, or later bringing in more traditional slaves from Africa), the amount of wealth must indeed have seemed inexhaustible to the people of that day. They were living from the mid-1400s in a time of massive sea exploration and enjoying the massive finds from distant lands unprecedented even today. That found and moved wealth, powered by taming the seas, enabled early capitalism's first hyper-expansion.
That foreign trade is sometimes in the Baroque Cycle backed by traditional means, by the wealthy aristocrats funding expeditions. More and more, though, by this time the ships anchored in the Thames Pool are funded by companies which are in turn capitalized by company stock, by debt. Debt as a basis for an economy is pretty much all we have today, something I covered in an earlier post. Sometimes these ventures proved wildly successful. Other times, memories of the wild successes fueled a drive to fund less worthy ventures. Those investors usually lost their investments, sometimes far more if they went into debt to invest. (Sound familiar?)
Dr. Waterhouse's chief scientific explorations involve mechanical devices that process information, something he at one point in the stories emigrated to the colonies to pursue at his fledgling Massachusetts Bay Colony Institute of Technologickal Arts. He finally managed to build mechanisms to punch cards that will be later used in his Logic Mill. These machines were powered by foot-powered bellows pumped by inmates at a women's prison in London. (Think of a Stairmaster.) Waterhouse is happy with the arrangement at first, but does some calculations and realizes a limiting factor. From the same book, he explains this limitation in a conversation with a potential investor:
"It will not work."
"The Logic Mill will not do logic?"
"Oh, yes, of course it will do that. Doing logic with a machine is not so very difficult. Leibniz took it up where Pascal dropped it, and I built upon Leibniz's work for fifteen years in Boston. . . .
(I love how Stephenson not only drops just about every historical name he can into the stories, but also weaves those historical characters into the fictional lives. Both Leibniz and Isaac Newton prove Waterhouse's close personal friends. But I digress. Back to the story.)
"Then what do you mean, when you say it will not work?"
"When I returned . . . two days ago I devoted some time to reviewing the (most recent designs). I am most pleased with the results. But then I discovered a grave difficulty: we want power. . . . (T)he Logic Mill shall require a source of Power, in the newfangled Mechanickal sense of that word, that is both mighty and steady. A very large water-wheel in a great river might serve; but much better would be -- "
"The Engine for Raising Water by Fire!"
(Neil Stephenson, ibid., p. 428, emphasis by the author.)
Dr. Waterhouse's investor here refers to a venture Waterhouse has undertaken with real history's Thomas Newcomen. Newcomen built probably the first practical steam engine, originally designed to pump mines clear of groundwater in places devoid of running water for mills. In the books Waterhouse helps fund Newcomen's fledgling steam-powered startup.
So here in the Baroque Cycle we find two technologies, wind travel and steam power, that dramatically increase economic production, allowing companies to expand their productivity without employing more people. The centuries following Rotering's AD 1500 mark starting the advent of capitalism also began with steadily improving ocean transport and trade and the later explosion of fossil fuel energy consumption that marked the Industrial Revolution. I don't think that's a coincidence, not at all.
In thinking that, I'm not alone.
Here I'd like to re-introduce another C-Realm guest, John Greer of The Archdruid Report. In his post "The Economics of Entropy", he notes terms for elements of the economy seldom acknowledged by economists:
. . . (T)here is no such thing as “the” economy in any human society; there are, rather, three economies, each of which follows distinctive rules.
The primary economy, in this way of looking at things, is the natural world itself, which produces something like three-quarters of the goods and services on which human beings rely for survival. The secondary economy, which depends on the primary one, is the collocation of labor, capital plant, and resources extracted from the primary economy that produces the other quarter or so of the goods and services human beings use. The tertiary economy, finally, is the system of social processes by which the products of the first two economies are allocated to people. This can take many different forms, of which the one most familiar to us is money.
Wind and fossil carbons are both products in a primary economy, just like timber, quarry extracts, crops and livestock. They also, as I suggest with my citations from Stephenson, drove our population expansion and continue to support it even centuries later. Without the products of the primary economies, there are no secondaries, let alone tertiaries. Sadly, this is a lost lesson.
In another post, Greer further notes that the tertiary economy has (in his words) ". . . metastasized so deeply into our economic life that it’s nearly impossible to do much of anything without it." He continues:
For most people in the modern industrial world, the only way to get access to any kind of wealth - that is, any good or service - is to get access to money first, and exchange the money for the wealth. This makes it all too easy to confuse money with wealth, and it also fosters the habit of thought that treats money as the driving force in economic life, and thinks of wealth as a product of money, rather than seeing money as an arbitrary measure of wealth.
The thought experiment of placing a hundred economists on a desert island with $1 million each but no food or water is a good corrective to this delusion. Unfortunately this same experiment is being tried on a much vaster scale by the world’s industrial economies right now. We have seven billion people on a planet with a finite and dwindling supply of the concentrated energy resources that are keeping most of them alive, and governments and businesses alike are acting as though the only possible difficulty in this situation is coming up with enough money to pay for investments in the energy industry.
Sadly, the age of hyper-expansion fueled by fossil liquids may have come to an end just a few years ago. Newcomen's fuel may have done exactly the same thing even earlier. Chris Martenson concurs on coal, noting in his Crash Course that the energy extracted from coal peaked in the '90s. We continue to burn coal of lesser and lesser energy content, meaning that we need to dig up and burn more and more black rocks to get the same amount of energy we made from rocks in the '90s.
And so we arrive at today's situation. With this post, I hope to maintain that the expansion Rotering accused capitalism of fueling, his Biological Economy, was only mostly guided by capitalism. It was literally fueled by wind and fossil carbons. Now that those fuels are in decline, its time to look beyond the economics presented in textbooks and consider rules from other disciplines, like physics:
The comment of Sir Arthur Eddington, one of the twentieth century’s greatest physicists, is typical: “If your theory is found to be against the second law of thermodynamics, there is nothing for it but to collapse in deepest humiliation. . . .”
For example, I whole heartedly agree that our biological imperative drives our expansion, the desire to eat the richest food (to give us strength and build our energy reserves as fat) and live in the best areas conducive to sating our desires to, well, eat and reproduce a lot. The number of simple behavioral studies that reveal this simple unconscious drive abound, each confirming that despite what we say, we are greedy little piggies that crave tasty (meaning energy-rich) foods and sex with the most reproductively viable candidates. Remember, folks, Darwin's "survival of the fittest" referred to reproductive winners, the organisms that most successfully got as many biological copies of themselves made before they croaked.
Where Frank went off the rails in the talk with kmo, though, was where he started talking about . . . capitalism. Wait, haven't I gone over this already?!?
But then the Professor did something very few who throw the C word about willy-nilly actually do: He explained what he meant. I'm not saying he got it right in my eyes, but I will say he at least had the courtesy to quote Marx's writings directly and explain the nitty-gritty details that might elude the less familiar. Someone who has obviously read Marx so carefully is rare to find even amongst Marxists. That was refreshing.
This explanation, though, confirmed something that has been nagging at me for quite some time: That Marx himself missed the most salient element of capitalism's expansionist tendencies, specifically by by conflating capitalism's necessity to expand with its ability to expand.
I'll open with fairness. It's hardly sporting of me to slam Prof. Rotering without giving him a chance to explain what he himself means. Poking around, I found he has posted some YouTube lectures expounding his ideas. The one below concerns what he finds the most damaging about capitalism, the need compelling capitalists to expand their economy as ongoing capital investments marginally displace profits.
Click to viewI've been mulling a larger post about just this topic, but just haven't been able to fully form it enough for posting. The post in a nutshell: Think back on all the companies that proved the most profitable over the last century and consider what they did to earn those earnings. For example, consider that you are reading my words (most likely) on a computer screen. Think of all the computer companies of the past and present. The list is long and filled with both winners and losers. What did all these companies do? They improved on the status quo in some way. Perhaps they made some piece of software ubiquitous. Perhaps they pioneered the information delivery systems themselves. Whatever they did specifically, the players' cumulative efforts displaced the technology that had been previously dominant. Before the computers came along, we had to read words like these in other formats, formats involving the efforts of other companies.
It's unlikely I would ever be paid by a publisher to get these words out there. There's simply not that much commercial demand for musings like mine. Still, if I wanted others to read this post in the days before computers and the internets, I would probably have run off copies. Xerox made the big time with this technology, though there were many others. Before computers that was how very small-run printing was done, with hand-cranked mimeograph machines and later with motorized photostatic copiers.
A stenographic pool of document copiers from 1945.
And before Xerox made copying mostly automatic, companies like Smith Corona and Olympia introduced an improvement, seen above being banged on by secretaries in 1945 -- the typewriter. Before that, documents (again, like this post) would have been hand-copied by scriveners. (For an overview of how rewarding a process that must have been, do read Herman Melville's short story "Bartleby, the Scrivener: A Story of Wall Street," the tale of one lawyer's office full of copying help gone pretty much awry.) Of course, had I grander publication ambitions, I could have taken this hand-scrawled screed to a printer. He would have hand-arranged the movable type in his press and, depending on the model used, stamped or cranked out however many essays I desired to pay for. It would have been expensive, but would have still be preferable to endlessly exercising my chicken scratch that passes for handwriting. Before Gutenberg's moveable type, I would have had to pay a printer a princely sum to hand-carve individual plates filled with my words before any mass-production could ensue, raising the costs considerably.
So, to recap: My ability to share my printed words increased over the centuries as the technology for publication improved, sometimes in quantum leaps as new technologies were invented, sometimes incrementally as those technologies were gradually improved. In each step along the way from sharpened and ink-dipped feathers scratching away to today's intertubes, the cost for printing each page steadily declined -- for the consumer.
For the companies and individuals involved in the previous incarnations, each step toward increased mechanization must have been a disaster. Whole industries were wiped out as upstart concerns rendered their once-profitable efforts meaningless, even quaint. This is what economist Joseph Schumpeter called creative destruction. In the wake of each innovation, the working lives of real people were creatively destroyed.
Why "destroyed?" At each improvement, a new technology, technique or approach needed to produce the words per page reduced the number of workers formerly necessary. Since people need work to keep them from banding together and plotting revolution, from attacking the establishment classes and demanding work (as Chris Martenson in The Crash Course points out), increasing the economy's size beyond what population increases dictate absorbs the workforce displaced by technology and guarantees the continuation of profits Rotering points out would otherwise be reduced.
Another of Rotering's videos pegs the start of capitalism at about AD 1500, very close in time to Gutenberg's 1439 first printing. Here human population starts to spike toward the limits of the planet's ability to keep us alive, what he calls "over-reach," driven (as Rotering explains) by our biological imperative to be fruitful and multiply (okay, that last phrasing was mine, not his). He calls this expansionist tendency "The Biological Economy," and gives capitalism sole credit for enabling it.
Here, though, I've got to ask: Is capitalism really to blame . . . or did something else happen at that time that both Marx and Rotering might have missed, or at least seriously undervalued? Put another way, what literally moved the economies those two describe?
Neil Stephenson's Baroque Cycle is a sprawling nine-volume romp through speculative history, following the life of a rogue and a scientist over a century before the word "scientist" was invented. Though I've complained about mistakes I noticed in the series before, the books are well worth the time it takes to tackle them.
Stephenson uses the books to note technologies and practices introduced to the reader with an emphasis on the changes they wrought both to characters within the story and familiar to history. One is modern capitalism. Daniel Waterhouse asks his brother for some money from the family funds. Instead of coin, though, his brother (appropriately named Sterling) gives him a piece of paper, a note promising the holder to a quantity of gold from their nephew's gold shop. Here we see the beginnings of paper currency. We are also introduced to more conservative characters that deride the "money scriveners" as frauds.
One later traditionalist, Mr. Threader, engages Daniel in a discussion of the difference between the economies in the country estates and the city, a discussion that notes the shift from feudal land as the core of most all value -- the basis for feudalism -- to the more nebulous form of currency valuation we use today based upon the extraction of resources untapped until sail technology had enabled greater and greater exploitation of far-away sources of wealth. As Daniel sums the situation to Mr. Threader, "For the country draws its revenue from a fixed stock: sheep eating grass. Whereas, the City (London) draws its wealth from foreign trade, which is ever-increasing and, I say, inexhaustible." (Neil Stephenson, The System of the World, HarperCollins, 2004, p. 35.)
Ever since the Spanish Conquistadors started raiding the New World of the material wealth (often using the natives as slave labor to do so, or later bringing in more traditional slaves from Africa), the amount of wealth must indeed have seemed inexhaustible to the people of that day. They were living from the mid-1400s in a time of massive sea exploration and enjoying the massive finds from distant lands unprecedented even today. That found and moved wealth, powered by taming the seas, enabled early capitalism's first hyper-expansion.
That foreign trade is sometimes in the Baroque Cycle backed by traditional means, by the wealthy aristocrats funding expeditions. More and more, though, by this time the ships anchored in the Thames Pool are funded by companies which are in turn capitalized by company stock, by debt. Debt as a basis for an economy is pretty much all we have today, something I covered in an earlier post. Sometimes these ventures proved wildly successful. Other times, memories of the wild successes fueled a drive to fund less worthy ventures. Those investors usually lost their investments, sometimes far more if they went into debt to invest. (Sound familiar?)
Dr. Waterhouse's chief scientific explorations involve mechanical devices that process information, something he at one point in the stories emigrated to the colonies to pursue at his fledgling Massachusetts Bay Colony Institute of Technologickal Arts. He finally managed to build mechanisms to punch cards that will be later used in his Logic Mill. These machines were powered by foot-powered bellows pumped by inmates at a women's prison in London. (Think of a Stairmaster.) Waterhouse is happy with the arrangement at first, but does some calculations and realizes a limiting factor. From the same book, he explains this limitation in a conversation with a potential investor:
"It will not work."
"The Logic Mill will not do logic?"
"Oh, yes, of course it will do that. Doing logic with a machine is not so very difficult. Leibniz took it up where Pascal dropped it, and I built upon Leibniz's work for fifteen years in Boston. . . .
(I love how Stephenson not only drops just about every historical name he can into the stories, but also weaves those historical characters into the fictional lives. Both Leibniz and Isaac Newton prove Waterhouse's close personal friends. But I digress. Back to the story.)
"Then what do you mean, when you say it will not work?"
"When I returned . . . two days ago I devoted some time to reviewing the (most recent designs). I am most pleased with the results. But then I discovered a grave difficulty: we want power. . . . (T)he Logic Mill shall require a source of Power, in the newfangled Mechanickal sense of that word, that is both mighty and steady. A very large water-wheel in a great river might serve; but much better would be -- "
"The Engine for Raising Water by Fire!"
(Neil Stephenson, ibid., p. 428, emphasis by the author.)
Dr. Waterhouse's investor here refers to a venture Waterhouse has undertaken with real history's Thomas Newcomen. Newcomen built probably the first practical steam engine, originally designed to pump mines clear of groundwater in places devoid of running water for mills. In the books Waterhouse helps fund Newcomen's fledgling steam-powered startup.
So here in the Baroque Cycle we find two technologies, wind travel and steam power, that dramatically increase economic production, allowing companies to expand their productivity without employing more people. The centuries following Rotering's AD 1500 mark starting the advent of capitalism also began with steadily improving ocean transport and trade and the later explosion of fossil fuel energy consumption that marked the Industrial Revolution. I don't think that's a coincidence, not at all.
In thinking that, I'm not alone.
Here I'd like to re-introduce another C-Realm guest, John Greer of The Archdruid Report. In his post "The Economics of Entropy", he notes terms for elements of the economy seldom acknowledged by economists:
. . . (T)here is no such thing as “the” economy in any human society; there are, rather, three economies, each of which follows distinctive rules.
The primary economy, in this way of looking at things, is the natural world itself, which produces something like three-quarters of the goods and services on which human beings rely for survival. The secondary economy, which depends on the primary one, is the collocation of labor, capital plant, and resources extracted from the primary economy that produces the other quarter or so of the goods and services human beings use. The tertiary economy, finally, is the system of social processes by which the products of the first two economies are allocated to people. This can take many different forms, of which the one most familiar to us is money.
Wind and fossil carbons are both products in a primary economy, just like timber, quarry extracts, crops and livestock. They also, as I suggest with my citations from Stephenson, drove our population expansion and continue to support it even centuries later. Without the products of the primary economies, there are no secondaries, let alone tertiaries. Sadly, this is a lost lesson.
In another post, Greer further notes that the tertiary economy has (in his words) ". . . metastasized so deeply into our economic life that it’s nearly impossible to do much of anything without it." He continues:
For most people in the modern industrial world, the only way to get access to any kind of wealth - that is, any good or service - is to get access to money first, and exchange the money for the wealth. This makes it all too easy to confuse money with wealth, and it also fosters the habit of thought that treats money as the driving force in economic life, and thinks of wealth as a product of money, rather than seeing money as an arbitrary measure of wealth.
The thought experiment of placing a hundred economists on a desert island with $1 million each but no food or water is a good corrective to this delusion. Unfortunately this same experiment is being tried on a much vaster scale by the world’s industrial economies right now. We have seven billion people on a planet with a finite and dwindling supply of the concentrated energy resources that are keeping most of them alive, and governments and businesses alike are acting as though the only possible difficulty in this situation is coming up with enough money to pay for investments in the energy industry.
Sadly, the age of hyper-expansion fueled by fossil liquids may have come to an end just a few years ago. Newcomen's fuel may have done exactly the same thing even earlier. Chris Martenson concurs on coal, noting in his Crash Course that the energy extracted from coal peaked in the '90s. We continue to burn coal of lesser and lesser energy content, meaning that we need to dig up and burn more and more black rocks to get the same amount of energy we made from rocks in the '90s.
And so we arrive at today's situation. With this post, I hope to maintain that the expansion Rotering accused capitalism of fueling, his Biological Economy, was only mostly guided by capitalism. It was literally fueled by wind and fossil carbons. Now that those fuels are in decline, its time to look beyond the economics presented in textbooks and consider rules from other disciplines, like physics:
The comment of Sir Arthur Eddington, one of the twentieth century’s greatest physicists, is typical: “If your theory is found to be against the second law of thermodynamics, there is nothing for it but to collapse in deepest humiliation. . . .”