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Scarcity of What and for Whom? :: Monthly ReviewMark Hudson more on Economics

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

Michael Perelman, The Perverse Economy: The Impact of Markets on People and the Environment(NewYork: 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 tobecome, the new Atlas. The dominant discourse holds that the weight of the world, and its scourges frompoverty to pollution, can only be borne and transcended through utter reliance on the market. MichaelPerelmans latest book confronts this position head on, arguing that far from providing a basis forsustainability 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 anumber of pillars of conventional economic theory, assessing them under the light of their implications forpeople 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 andfor nature. Second, economics as a profession has consistently functioned to obscure and apologize forthose 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 highlyaccessible book, Perelman makes two very worthy contributions to this body of critical inquiry. The first isto approach a highly complex set of relations in a way that is straightforward and direct. The second is toexamine critically the disconnection between economic theory and history. In confronting the relationsbetween economic theory, the economy, workers, and the environment, Perelman dares to ask the mostbasic of questions and to judge both markets and economic theory on the basis of their abilities toproduce sane, sensible, and sustainable outcomes and explanations. Perelmans interrogation of marketsbegins with what he calls the farm worker paradox.

The farm worker paradox illuminates how those who produce the things most vital to human survival anddevelopment are compensated the least. In the United States an individual farm worker earns an annualincome of about $7,500. How has economic theory attempted to explain this? Given that economicsclaims to address how resources are allocated in the service of meeting human needs, this would seemto be a central question. However, following a brief flirtation with the problem by Adam Smith, conventionaleconomics from Alfred Marshall onward has dismissed the paradox as an easily explained phenomenon,whereby the market doles out to each personcapitalist or workerexactly what they put in. That is,mainstream economics solves the paradox by claiming that low wages signal low productivity (and thathigh wages, such as those bestowed upon the CEOs 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 socialinequality that is inherent to capitalist organization.

In early political economy, the vast difference between workers and owners was attributed mainly to anatural order. In this system, it was natural that everybody but a small elite would labor long hours inexchange for their daily crust. For some prominent thinkers and moral philosophers of the eighteenthcentury, 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 mostpowerful exertions.Hunger will tame the fiercest animals, it will teach decency and civility, obedienceand 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

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productive resources, beginning with land. The bloody and conniving histories of land ownership werepushed into obscurity and effaced by the laws of individual private property and what Marx called thefetishism of commodities.

With the development of fossil-fuelled manufacturing and industrialization, there arose a bubblingdiscontent concerning the persistent gap between workers and owners in the midst of skyrocketingproductivity. Social and economic trends contributed to heightened, class-based conflicts, from theParis Commune to clashes between strikers, National Guardsmen, and Pinkerton agents. Economistsaddressed themselves to these social clashes by turning their efforts toward the refutation of Marxs

critique of political economy and his analysis of capitalism, in order to reassert the justice of the marketsystem. The development of marginal value theory (independently and simultaneously, as the legend ineconomics departments goes) by Jevons, Walras, and Menger, was motivated in all three cases by adesire to undermine socialist tendencies in Europe through the reformulation of value theory. Within themarginalist framework, capital and labor each get out of production exactly what they put in. If, forexample, the addition of an hour of labor yields one more dollar in revenue for the firm, the worker getsone dollar in return. If one more machine contributes five dollars to revenue, the capitalist gets five dollarsin return. What could be more just than rewards commensurate with contribution? Exploitation in thisframework vanishes. In the words of then-prominent U.S. economist John Bates Clark,

the distribution of income [is] controlled by a natural law, andthis law, if it worked without friction, would

give to every agent of production the amount of wealth which that agent creates.Free competition tendsto give labor what labor creates, to capitalists what capital creates, and to entrepreneurs what thecoordinating function creates. (p. 152)

Despite the fact that Clarks proof rested on what Perelman refers to as absurdly unrealisticassumptions, (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 isirrelevant for economic outcomes. Transactions within the labor market are seen as voluntary exchangesno different than those in any other market. The vast difference in power between capitalists and individualworkers disappears, as best summed up by Nobel Prize-winning economist Paul Samuelsons urging thatwe remember that in a perfectly competitive market, it doesnt matter who hires whom (p. 153). The

ridiculous degree to which neoclassical economists have taken this conceptualization of relationsbetween workers and owners is well demonstrated by Perelmans presentation of the theories ofeconomists like Clark Nardinelli, who proposed, presumably in all seriousnessthat children in thefactories would voluntarily choose to have their employers beat them: Now if a firm in a competitiveindustry employed corporal punishment the supply price of child labor to that firm would increase. Thechild would receive compensations of the disamenity of being beaten (pp. 153154). In other words,agreeing to be whipped into greater effort is simply entrepreneurial initiative on the part of workers.

Perelmans second major contribution is to take a long historical perspective on the interplay betweeneconomic theory on the one hand, and the environmental and human requirements of capitalistdevelopment on the other. His juxtaposition of the rationalizing contortions carried out by mainstreameconomic theorists and the often-contrasting realitiespolitical, ecological, and socialemerging around

them is striking. Perelman provides a nice selection of examples pertinent to issues of the environmentand natural resource scarcity. One of these draws on the history of the passenger pigeon to illustrate thedisconnection between market signals and species extinction. In neoclassical theory, when a resourcebecomes scarce, prices are supposed to rise, thereby inducing consumers to use less of it. The marketis thus seen as the best tool for conservation. Perelman, however, notes that passenger pigeons werehunted to extinction (from a population of staggering numbers) between about 1840 and 1900 without somuch as a blip in the price. The reason for this anomaly was that passenger pigeons were (a) easy tohunt even as their numbers dwindled; and (b) seen as a substitute for chickensor more accurately, forchicken (it is the meat that is relevant, rather than the bird)which was still in plentiful supply. This makesperfect economic sense and is completely unproblematic from the theorists perspective. Passengerpigeons 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 therelations 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

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who attempt to deal with resource scarcity. Since these instances are rare, he pays particular attention tothe reaction of economic theorists to William Stanley Jevonss 1865 book, The Coal Question, in whichJevons lays out the inevitability of the depletion of British coal deposits. In what later became known as theJevons Paradox, Jevons argued that increases in efficiency of coal use would actually result inincreased total coal use, rather than conservation of it, thus raising the uncomfortable prospect thateconomistsself-professed scholars of the allocation of scarce resourcesmight actually have toconsider 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 firmsand individuals. Thus, every economic decision is made within a budget constraint, meaning simply thatalthough the world is full of possibilities, each individual actor can only afford to get their hands on somuch of it at a given point in time. However, as Perelman points out, this has little or nothing to do with thekind of scarcity that Jevons was discussing. [T]he overarching scarcity that economists study is thegeneral scarcity of capital; that is, complex conditions artificially collapsed down to a single monetarymeasure.This sort of scarcity does not represent an ultimate barrier to the economy (p. 41). Within theneoclassical framework, given the appropriate mobilization of savings and investment, more can beproduced in perpetuity. Substitution of one resource for another will take care of any particular scarcitythat might threaten, like Jevonss 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 scarcitythe economys ultimate reliance on the productiveconsumption of both energy and matter for the transformation of natural resources into useful itemsremains the proverbial elephant in the economists living room. While Jevons is viewed as a giant ofneoclassical 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 henever 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 thesedays) is the giant gap between the comforting conclusions of economic theorythat resource scarcity isnot a problem because markets will induce substitution for scarce goodsand the monumental politicaland 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 vitalresources. While the ideological agents of capital derive equations demonstrating that scarcity is kept atbay 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 disciplineand 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 ofmarkets for people and the environment. While the book adds little that is brand new to the critique ofmarket-dominated society, The Perverse Economys historical and direct approach to examining thecontradictions 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. Heargues that the spur of war once urged

countries to undertake massive social and economic transformations, in which markets weresubordinated 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 Perelmanacknowledges, is the difficulty of a democratic check on the planners. In fact we already have, in a veryselective way, a planned economy. It is an economy planned at both national and transnational levels tobenefit a tiny minority, under the cover of market rule. The real questions then are who plans, how, and forwhat? 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 powerand democratic yearnings of those on the wrong end of the farm workers paradox.