The death knell for the economics discipline was sounded by Nobelist chemist Frederick Soddy in 1921 ("Mr. Soddy's Ecological Economy," New York Times, April 11, 2009). Why were Soddy's insights into the fatal flaws of economics buried for almost a century? In my The Politics of the Solar Age (1981), reviewed by Langdon Winner (New York Times Book Review 1981), I described how Soddy's deeper understanding of the physical realities of production and economic processes shattered virtually all the theories of economists from Adam Smith and Karl Marx to John Maynard Keynes.
Soddy used the example of the steam engine and what makes a railroad train go. "In one sense or another the credit for the achievement may be claimed by the so-called engine-driver, the guard, the signalman, the manager, the capitalist, or the shareholder – or, again, by the scientific pioneers who discovered the nature of fire, by the inventors who harnessed it, by Labor, which built the railway and the train. The fact remains that all of them by their united efforts could not drive the train. The real engine-driver is the coal. So, in the present state of science, the answer to the question how men live, or how anything lives …, is with few and unimportant exceptions, BY SUNSHINE." (Cartesian Economics, Henderson, London 1922).
In 1971, Romanian scientist Nicholas Georgescu-Roegen re-told Soddy's lesson to the current generation of economists in his The Entropy Law and the Economic Process (Harvard University Press), which I reviewed in the Harvard Business Review in 1971. I had speculated on why economists had ignored both Soddy and Georgescu-Roegen. In handwritten letters to me, Georgescu-Roegen lamented that it was probably impossible for economists to counter his or Soddy's arguments since they destroyed all the core theories of economics. My own experience of the politics of economics, encountered during my service on the Technology Assessment Advisory Council of the US Congress Office of Technology Assessment from 1974 until 1980, led me to agree with Georgescu-Roegen. We shared our frustrations with the economics establishment and their dismissals of critics from other disciplines. Economists had converged on Washington, London and policy-making processes following mathematician John Maynard Keynes and his stimulus recipes for pulling the USA out of the Great Depression used by FDR in the 1930s. Economics with its promises to "manage" whole economies to create full employment colonized national policies in most industrial countries. Even Richard Nixon famously proclaimed "We are all Keynesians now" (New York Times, January 4, 1971).
Yet all was not well. Keynesian pump-priming also led to inflation and the new disease "stagflation" which helped unseat Jimmy Carter, along with OPEC's reminder to the world of the realities of energy-dependent industrial societies. I covered these issues in the British journal Resurgence, edited by Satish Kumar, a former Jain monk from India. Satish insisted that I meet another of his writers, E. F. Schumacher, who in 1973 authored Small is Beautiful. Schumacher and I became friends and I, with Robert Swann (who later founded the Schumacher Society) and Ian Baldwin (who later founded Chelsea Green Publishers), arranged for Schumacher's first lecture tour in the USA. We shared many platforms together, urging economists to look at the realities of energy and environmental dependence of industrial societies. While President Carter and many Senators met with Schumacher and I was invited to testify before many Congressional committees, neither of us could pierce the inner sanctums of the by-then powerful economics profession. Schumacher wrote the forward to my Creating Alternative Futures: the End of Economics (1978), yet both of us were banned from lecturing by the economics departments of most universities.
Meanwhile, the embittered Georgescu-Roegen, then teaching at Vanderbilt University, had nurtured a brilliant student, Herman Daly, who was teaching at the University of Louisiana at Baton Rouge. Herman and I corresponded frequently about impervious economists who simply refused to debate the new challenges to their profession posed by energy and environmental issues.
My views that these issues, described so well by Soddy and Georgescu-Roegen, had rung the death knell for economics made me a pariah, together with my activism with Ralph Nader in the 1968 campaign to Make General Motors Responsible. While students paid me to lecture in their campus-wide events and made my Creating Alternative Futures into an underground bestseller, many of their professors removed it from college libraries.
While I wrote about the Club of Rome's Limits to Growth report and criss-crossed the country lecturing on "The Bankruptcy of Economics," and the idiocies of measuring progress by the Gross National Product (GNP), my friend Herman Daly chose to do his missionary work at the World Bank. We connected with our friend Lester Brown, and I joined his board at the Worldwatch Institute in 1975 and served until 2001 when Lester left to found the Earth Policy Institute. Herman Daly became disenchanted with trying to influence World Bank economists and now teaches in the political science department of the University of Maryland. I continued my crusade to correct GNP and include indicators on health, education, poverty gaps and environment. I launched with the Calvert Group, the Calvert-Henderson Quality of Life Indicators in 2000 (updated at www.calvert-henderson.com), and co-organized the European Parliament's "Beyond GDP" conference in 2007 (www.beyond-gdp.eu).
Fast forward to the economic woes of 2008 still plaguing us today, which I had been forecasting in my editorials for InterPress Service since the late 1980s. Economists, whose narrow profit-maximizing models and misuse of mathematics had informed a generation of MBAs and aspiring hedge fund managers, are still in the saddle. They colonized the Obama administration, with Larry Summers, Tim Geithner and legions of Goldman Sachs alumni still calling the shots in favor of their Wall Street friends. Finance and its oligarchs could never have trumped governments and run their global casino without the ideological justifications provided by economic textbooks and their scientific pretensions.
De-frocking the economics priesthood has become easier since the financial collapse. Many scientists have joined in my crusade with Peter Nobel (grandson of Alfred Nobel) to have the Nobel Committee delink the Bank of Sweden's Prize in Economic Science in Memory of Alfred Nobel, from the real Nobel Prize. Lawyer Peter Nobel accuses the Bank of Sweden of infringing on Nobel's intellectual property. Many winners in mathematics and other sciences joined this effort to separate this prize in economics from the real Nobels, along with mathematicians, Nassim Nicholas Taleb, author of the Black Swan; chaos theorist, Ralph Abraham; historian of science Robert Nadeau and others.
Will we see economics demoted and revealed simply as a profession along with lawyers, advocating their policies honestly? This would be the best news from the financial collapse. With Wall Street in disgrace and the spectacle on TV of central banks printing money, we are all learning that money, a useful invention of the human mind, is not wealth. Real wealth is in human talents, wisdom and understanding of the priceless assets and ecological capital of our living planet. Ethical markets and higher morality have become pragmatic.
Hazel Henderson is author of Ethical Markets: Growing the Green Economy (2006) and a Fellow of the Britain's Royal Society for the Arts.