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Scarcity of What and for Whom?

Mark Hudson is a doctoral candidate at the University of Oregon in Eugene, specializing in the political economy of the environment.

Michael Perelman, The Perverse Economy: The Impact of Markets on People and the Environment (New York: Palgrave Macmillan, 2003), 224 pages, hardcover $55.00.

There is no shortage of opinion within the circles of policy and punditry that the free market is, or ought to become, the new Atlas. The dominant discourse holds that the weight of the world, and its scourges from poverty to pollution, can only be borne and transcended through utter reliance on the market. Michael Perelman’s latest book confronts this position head on, arguing that far from providing a basis for sustainability and health, markets provide and respond to incentives which impoverish, dehumanize, mutilate, and kill workers, and which are leading us further into ecological ruin. Perelman scrutinizes a number of pillars of conventional economic theory, assessing them under the light of their implications for people and the environment, and emerges with an argument that economic theory justifies an unjustifiable system. This requires two separate points. First, the market produces disastrous results for workers and for nature. Second, economics as a profession has consistently functioned to obscure and apologize for those results.

Over the last few decades, beginning most notably with the work of Nicholas Georgescu-Roegen, critiques of the anti-ecological quality of economic theory have become numerous. In this short and highly accessible book, Perelman makes two very worthy contributions to this body of critical inquiry. The first is to approach a highly complex set of relations in a way that is straightforward and direct. The second is to examine critically the disconnection between economic theory and history. In confronting the relations between economic theory, the economy, workers, and the environment, Perelman dares to ask the most basic of questions and to judge both markets and economic theory on the basis of their abilities to produce sane, sensible, and sustainable outcomes and explanations. Perelman’s interrogation of markets begins with what he calls the farm worker paradox.

The farm worker paradox illuminates how those who produce the things most vital to human survival and development are compensated the least. In the United States an individual farm worker earns an annual income of about $7,500. How has economic theory attempted to explain this? Given that economics claims to address how resources are allocated in the service of meeting human needs, this would seem to be a central question. However, following a brief flirtation with the problem by Adam Smith, conventional economics from Alfred Marshall onward has dismissed the paradox as an easily explained phenomenon, whereby the market doles out to each person—capitalist or worker—exactly what they put in. That is, mainstream economics “solves” the paradox by claiming that low wages signal low productivity (and that high wages, such as those bestowed upon the CEO’s of Tyco, Enron, and the rest, are indicative of tremendous productivity). This conclusion is the result of a long evolution of economic thought, summarized by Perelman, which has systematically attempted to both obscure and justify the social inequality that is inherent to capitalist organization.

In early political economy, the vast difference between workers and owners was attributed mainly to a “natural order.” In this system, it was natural that everybody but a small elite would labor long hours in exchange for their daily crust. For some prominent thinkers and moral philosophers of the eighteenth century, the resulting prod of hunger and poverty among the laboring class was a positive stimulus. Robert Townsend, for example, suggested that the wage system was, relative to slavery, a much-improved system for the appropriation of labor:

[Slavery]…is attended with too much trouble, violence, and noise, …whereas hunger is not only a peaceable, silent, unremitted pressure, but as the most natural motive to industry, it calls forth the most powerful exertions….Hunger will tame the fiercest animals, it will teach decency and civility, obedience and subjugation to the most brutish, the most obstinate, and the most perverse. (p. 145)

The few who were spared the fate of the laboring masses were distinguished by their control over productive resources, beginning with land. The bloody and conniving histories of land “ownership” were pushed into obscurity and effaced by the laws of individual private property and what Marx called the “fetishism of commodities.”

With the development of fossil-fuelled manufacturing and industrialization, there arose a bubbling discontent concerning the persistent gap between workers and owners in the midst of skyrocketing “productivity.” Social and economic trends contributed to heightened, class-based conflicts, from the Paris Commune to clashes between strikers, National Guardsmen, and Pinkerton agents. Economists addressed themselves to these social clashes by turning their efforts toward the refutation of Marx’s critique of political economy and his analysis of capitalism, in order to reassert the justice of the market system. The development of marginal value theory (independently and simultaneously, as the legend in economics departments goes) by Jevons, Walras, and Menger, was motivated in all three cases by a desire to undermine socialist tendencies in Europe through the reformulation of value theory. Within the marginalist framework, capital and labor each get out of production exactly what they put in. If, for example, the addition of an hour of labor yields one more dollar in revenue for the firm, the worker gets one dollar in return. If one more machine contributes five dollars to revenue, the capitalist gets five dollars in return. What could be more just than rewards commensurate with contribution? Exploitation in this framework vanishes. In the words of then-prominent U.S. economist John Bates Clark,

the distribution of income [is] controlled by a natural law, and…this law, if it worked without friction, would give to every agent of production the amount of wealth which that agent creates….Free competition tends to give labor what labor creates, to capitalists what capital creates, and to entrepreneurs what the coordinating function creates. (p. 152)

Despite the fact that Clark’s “proof” rested on what Perelman refers to as “absurdly unrealistic assumptions,” (p. 152) its comforting message became a “central part of economic dogma” (p. 153).

Clark also implicitly contributed to modern economic theory the notion that the distribution of ownership is irrelevant for economic outcomes. Transactions within the labor market are seen as voluntary exchanges no different than those in any other market. The vast difference in power between capitalists and individual workers disappears, as best summed up by Nobel Prize-winning economist Paul Samuelson’s urging that we “remember that in a perfectly competitive market, it doesn’t matter who hires whom” (p. 153). The ridiculous degree to which neoclassical economists have taken this conceptualization of relations between workers and owners is well demonstrated by Perelman’s presentation of the theories of economists like Clark Nardinelli, who proposed, “presumably in all seriousness…that children in the factories would voluntarily choose to have their employers beat them: ‘Now if a firm in a competitive industry employed corporal punishment the supply price of child labor to that firm would increase. The child would receive compensations of the disamenity of being beaten’” (pp. 153–154). In other words, agreeing to be whipped into greater effort is simply entrepreneurial initiative on the part of workers.

Perelman’s second major contribution is to take a long historical perspective on the interplay between economic theory on the one hand, and the environmental and human requirements of capitalist development on the other. His juxtaposition of the rationalizing contortions carried out by mainstream economic theorists and the often-contrasting realities—political, ecological, and social—emerging around them is striking. Perelman provides a nice selection of examples pertinent to issues of the environment and natural resource scarcity. One of these draws on the history of the passenger pigeon to illustrate the disconnection between market signals and species extinction. In neoclassical theory, when a resource becomes scarce, prices are supposed to rise, thereby inducing consumers to use less of it. The market is thus seen as the best tool for conservation. Perelman, however, notes that passenger pigeons were hunted to extinction (from a population of staggering numbers) between about 1840 and 1900 without so much as a blip in the price. The reason for this “anomaly” was that passenger pigeons were (a) easy to hunt even as their numbers dwindled; and (b) seen as a substitute for chickens—or more accurately, for chicken (it is the meat that is relevant, rather than the bird)—which was still in plentiful supply. This makes perfect economic sense and is completely unproblematic from the theorist’s perspective. Passenger pigeons are, to the market, indistinguishable from chickens. However, if the relevance of species goes beyond their place on the dinner plate (and, even more fundamentally, their potential as exchange value) the price mechanism must be seen as an inadequate, indeed a “perverse” instrument for mediating the relations between humans and nature.

In probing this disconnection between economic theory and the actual functioning of the economy, Perelman also looks at the reception given by mainstream economists to those among their own ranks who attempt to deal with resource scarcity. Since these instances are rare, he pays particular attention to the reaction of economic theorists to William Stanley Jevons’s 1865 book, The Coal Question, in which Jevons lays out the inevitability of the depletion of British coal deposits. In what later became known as the “Jevons Paradox,” Jevons argued that increases in efficiency of coal use would actually result in increased total coal use, rather than conservation of it, thus raising the uncomfortable prospect that economists—self-professed scholars of the allocation of scarce resources—might actually have to consider the possibility of scarcity.

This is not to say that neoclassical economists never worry about scarcity. It is an indispensable economic concept, constructed as a relation between the (insatiable) wants and limited means of firms and individuals. Thus, every economic decision is made within a “budget constraint,” meaning simply that although the world is full of possibilities, each individual actor can only afford to get their hands on so much of it at a given point in time. However, as Perelman points out, this has little or nothing to do with the kind of scarcity that Jevons was discussing. “[T]he overarching scarcity that economists study is the general scarcity of capital; that is, complex conditions artificially collapsed down to a single monetary measure….This sort of scarcity does not represent an ultimate barrier to the economy” (p. 41). Within the neoclassical framework, given the appropriate mobilization of savings and investment, more can be produced in perpetuity. Substitution of one resource for another will take care of any particular scarcity that might threaten, like Jevons’s dwindling coal supplies, to limit the growth of the economy. Of course, Perelman observes, coal has not run out, and Jevons did not foresee the emergence of oil or atomic energy. However, the point about general scarcity—the economy’s ultimate reliance on the productive consumption of both energy and matter for the transformation of natural resources into useful items—remains the proverbial elephant in the economist’s living room. While Jevons is viewed as a giant of neoclassical economics for his pioneering of marginal value theory, his work on the scarcity of coal was, and continues to be, seen by economic theorists as an eccentric slip up. Perelman confesses that he “never took a class that mentioned Jevons without some snide remark about his ‘foolish’ book on scarcity” (p. 40).

A final important point that Perelman discusses (one that is of particular and increasing relevance these days) is the giant gap between the comforting conclusions of economic theory—that resource scarcity is not a problem because markets will induce substitution for scarce goods—and the monumental political and military efforts carried out by world powers to ensure this result. History is crowded with violence, coercion, and conquest designed to ensure the access of civilizations to a steady supply of vital resources. While the ideological agents of capital derive equations demonstrating that scarcity is kept at bay by the operation of the free market, its political agents work to ensure that this is never put to the test. Local scarcities looming on the horizons of core nations are in reality warded off most often with violence. That violence might be administered by the IMF and World Bank through neoliberal economic discipline and the prying open of fresh markets, or it might be more directly delivered via the bullet and the bomb.

In all, Perelman does an excellent job of revealing the terrible consequences of the “normal” functioning of markets for people and the environment. While the book adds little that is brand new to the critique of market-dominated society, The Perverse Economy’s historical and direct approach to examining the contradictions between economic theory and the material unfolding of capitalist production is a worthy contribution. Unlike most of this body of literature, this book is highly accessible and engaging.

So, what is to be done? Perelman suggests we rehabilitate the good name of economic planning. He argues that the spur of war once urged

countries to undertake massive social and economic transformations, in which markets were subordinated to goals of improving worker morale, health, and productivity. The experience, he argues, demonstrated that efficiency and social solidarity work in unison (p. 182). The problem, as Perelman acknowledges, is the difficulty of a democratic check on the planners. In fact we already have, in a very selective way, a planned economy. It is an economy planned at both national and transnational levels to benefit a tiny minority, under the cover of market rule. The real questions then are who plans, how, and for what? It is a question of democratic or elite control, and we are currently witnessing an increasingly intense period of the latter. The emergence of the former will depend ultimately on the organized power and democratic yearnings of those on the wrong end of the farm worker’s paradox.