Increasingly, the ideas of economists guide the actions of our elected leaders and shape the societies and communities in which we live. This means that incorrect or outdated economic theories can result in damaging policy errors. So we should be concerned to learn that economics has failed to take into account a key transition: from a world relatively empty of humans and their capital equipment to one now relatively full.
A small minority of economists do understand that we have made an important shift. In the 1990s, Herman Daly and others developed the idea that we have shifted to “full-world economies.” (See pages 29-40 here.) The North Atlantic cod fishery illustrates this transition. This week’s graph shows tonnes of codfish landed per year, from 1850 to 2000.
Fifty years ago, when empty-world economics still held, the fishery was constrained by a lack of human capital: boats, motors, and nets. At that time, adding more human capital could have caused the catch to increase. Indeed, that is exactly what happened in the 1960s when new and bigger boats with advanced radar and sonar systems were deployed to the Grand Banks and elsewhere. The catch tripled. The spike in fish landings is clearly visible in the graph above.
But in the 1970s and ’80s, a shift occurred: human capital stocks—those fleets of powerful, sonar-equipped trawlers—expanded so much that the limiting factor became natural capital: the supply of fish. The fishery began to collapse and no amount of added human capital could reverse the decline. The system had transitioned from one constrained by human capital to one constrained by natural capital—from empty-world to full-world economics. A similar transition is now evident almost everywhere.
An important change has occurred. Unfortunately, economics has not internalized or adapted to this change. Economists, governments, and business-people still act as if the shortage is in human-made capital. Thus, we continue our drive to amass capital—we expand our factories, technologies, fuel flows, pools of finance capital, and the size of our corporations, in order to further expand the quantity and potency of human-made capital stocks. Indeed, this is a defining feature of our economies: the endless drive to expand and accumulate supplies of capital. That is why our system is called “capitalism.” And a focus on human-made capital was rational when it was in short supply. But now, in most parts of the world, human capital is too plentiful and powerful and and, thus, destructive. It is nature and natural capital that is now scarce and limiting. This requires an economic and civilizational shift: away from a focus on amassing human capital and toward a focus on protecting and maximizing natural capital: forests, soils, water, fish, biodiversity, wild animal populations, a stable climate, and intact ecosystems. Failure to make that shift will push more and more of the systems upon which humans depend toward a collapse that mirrors that of the cod stock.
Graph source: United Nations GRID-Arendal, “Collapse of Atlantic cod stocks off the East Coast of Newfoundland in 1992“