Growth Driven by Desire for Wealth

Lecture VI:  Growth Driven by Desire for Wealth

Review

1. As you know, the main text of this course, Unearthed: The Economic Roots of our Environmental Crisis, is divided into 3 parts overall.  Part I is entitled “Entropy and Ecology.”  The basic conclusion of this part is that human society is on the way to self-destruction by excessive energy use.  This is our environmental crisis in a nutshell.
2. This conclusion is established in the first 6 chapters comprising Part I, which have been summarized in the first 3 lectures of the present series.  In like manner, the 4th and 5th lectures summarized Chapters 7 through 12, which constitute Part II of the text entitled “Economics and Entropy.”  The overall conclusion of Part II is that the crisis has been precipitated by continuing economic growth.  This conclusion, as detailed in lecture IV, is at cross-purposes with the mainstream economic doctrine that continued growth is essential for a healthy economy.
3. Next in line, lecture V examined two prominent responses to our environmental predicament that are compatible with continued growth.  One is to address specific environmental problems (like acid rain) with specific technological fixes (like smokestack scrubbers).  Primary among several difficulties with this approach is that specific problems admitting specific solutions in this fashion are only symptoms of more general ecological malfunctions, and that system-wide malfunctions cannot be remedied by piecemeal fixes.
4. The other response examined in lecture V is the highly-touted strategy of replacing fossil fuel with clean sources of energy.  It was argued that this strategy, although worthy of being implemented to whatever extent feasible, by itself will not resolve our environmental crisis.  The main reason is that energy use of all sorts produces entropy – clean energy included – and that our crisis boils down to the biosphere’s already being burdened with more entropy than it can handle. 
5. The overall upshot of these considerations is the following.  If there is any chance of diffusing our environmental crisis, it will depend upon reversing the current pattern of continuing economic growth.  Many questions arise in the wake of this unorthodox conclusion.  Some are ethical, some prudential, and some mainly practical.  The present lecture deals with the practical question of what expedients might be employed to bring this reversal about.

Purpose of this lecture

1. Before looking at possible answers, we should make sure we understand the intent of the question.  Economic growth is a process that has causes, which is to say it does not occur randomly.  Some are contributing causes that make growth possible, such as an adequate supply of usable energy and the availability of facilities capable of converting natural resources into salable goods.  These are contributory causes only, by themselves not enough to make economies grow.
2. Our present concern is with active causes that make growth occur once the contributory causes are in place.  By definition, active causes are factors that play active roles in bringing about particular effects.  Examples currently relevant are the buying and the selling of economic goods, which when pursued at sufficient volume can result in economic expansion.
3. Although they play active roles, however, buying and selling are not primarily responsible for continuing growth.  Even if growth of a particular economy were brought to a stop, people in it would continue to buy and sell goods.  What we are looking for is the factor primarily responsible for driving economic activity to ever increasing levels.
4. Consider the addictive use of cigarettes as an analogy.  Causes contributing to this pattern of use include the availability of cigarettes.  Among active causes are keeping a supply of cigarettes at hand and lighting up when the urge demands.  The factor primarily responsible for activating these causes, however, is the addiction itself.  The only effective way of eliminating the pattern of addictive smoking is to overcome the addiction.
5. Our present hope is to discover a way of breaking the pattern of economic growth.  Our tactic is to ferret out the factor that drives economic growth in the manner that addiction drives the compulsive use of cigarettes.  Then, once this factor has been identified, we proceed to the question of how economic growth can be forestalled by rendering this driving factor inoperative. 

Desire for wealth basic to economic activity

1. As might be expected, substantial help in identifying this driving influence can be found in the history of economics.  Even those among us who are not economists have probably heard of Adam Smith’s “invisible hand.”  In Smith’s words, an individual engages in economic activity intending “only his own gain” and pursuing only “his own interest.”  The role of the “invisible hand,” as Smith sees it, is to assure that economic activity motivated by individual self-interest promotes the interest of society at large.  Setting aside this general role as momentarily irrelevant, we have it on Smith’s authority that self-interest is the driving factor behind economic activity.
2. The concept of self-interest was further specified by Adam Smith’s followers.  Georgescu-Roegen put it succinctly in his monumental The Entropy Law and the Economic Process mentioned in the last lecture.  According to G-R, the classical teaching in this regard is that all economic phenomena are grounded in the desire for wealth.  Slightly rephrased, this is the principle that desire for wealth is the driving force behind all economic activity.
3. But economic activity itself is not the same as continuing growth.  Grant that people engage in economic activity for reasons of self-interest.  And grant that, among the more fortunate, this activity results in the acquisition of wealth.  But what factor in this overall dynamic promotes continual economic growth?  Once again, the answer is forthcoming from the history of economics. 
4. In The Wealth of Nations, Adam Smith observes that the desire for economic goods “seems to have no limit or certain boundary.”  In The Theory of the Leisure Class, Thorstein Veblen states that “the desire for wealth can scarcely be satiated….”  And John Maynard Keynes, in his Essays in Persuasion, judges that the desires of individual that are served by wealth “may not be insatiable.”  More recently, George Riesman, a staunch defender of laissez-faire capitalism, extols a limitless desire for wealth in view of its power to drive an expanding economy.
5. Indeed, one does not have to be an economist to realize that desire for wealth, like desire for power, is often open-ended.  Once accumulated in modest quantities, desire for additional wealth proceeds apace.  As this dynamic continues, it tends to become addictive.  Affected individuals are driven to ever greater involvement in economic activity in hopes of ever growing accumulations of wealth.
6. The effects of large numbers of individuals striving to increase their personal wealth are amplified as they spread throughout the economy.  Increased economic activity on the individual level amounts to increased activity on the part of organizations in which they participate for money-making purposes.  Expanding activity on the part of money-making organizations, in turn, contributes to higher levels of productive output for the economy at large.  Here is where the other part of Smith’s “invisible hand” metaphor becomes relevant.  Smith sees this unseen influence as working in a beneficent manner, promoting the well-being of all concerned.  From our current perspective, however, the upshot is primarily negative, in that it leads the economy headlong into self-destruction.
7. This line of reasoning, highly condensed as it is, shows how desire for wealth on the individual level leads to growth on the level of the overall economy.  There undoubtedly are other factors propelling growth on the corporate level.  Nonetheless, the very existence of profit-making organizations demonstrates the influence of desire for wealth on the part of individuals participating in them – whether as managers, stock holders, or private investors.
8. The case is similar on the level of the economy at large.  Without desire for wealth operating behind the scenes, economic growth would slow down and soon grind to a halt.  Short of environmental collapse or violent rebellion (remember 9/11), the surest way to interrupt the pattern of economic growth is to neutralized desire for wealth on the individual level.  The remaining task of the present lecture is to explore ways in which that might be done.

Production induced by consumer demand

1. A general principle elaborated and defended in lecture IV is that wealth derives from the conversion of ecological resources (energy and raw materials) into goods that can be sold in the marketplace.  We must be careful to note, however, that wealth does not result from the production of goods alone.  To produce stockpiles of goods no one will buy does not amount to the creation of wealth.  Wealth is created only by producing goods that are ultimately purchased.  To understand how desire for wealth contributes to economic growth, we need to understand first how production and consumption interact.
2. Goods and services flow from producer to consumer as a result of consumer demand.  To be sure, the goods in question must be supplied by a producer.  Without active consumer demand, however, available goods would not leave the supplier’s warehouse.  The supplier cannot push them through the consumer pipeline if no one is interested in acquiring them.
3. In a manner of speaking, consumer demand sets up a “suction” that pulls goods through the pipeline.  Think of a drinking straw as a simple analogy.  By sucking on one end, a child creates a vacuum that is filled by soda pop entering the other end of the straw.  Without suction, the liquid would stay in the bottle.  In the case of the consumer pipeline, likewise, the flow of goods is set in  motion by active consumer demand and not by goods sitting passively in the warehouse. 
4. The analogy can be extended.  Given an adequate supply of liquid in the bottle, the rate of flow through the straw can be controlled by varying the siphoning pressure  brought about by sucking.  In like fashion, given an adequate supply of goods in the warehouse, the rate of flow through the pipeline can be controlled by varying consumer demand.  Although the extent if such control is obviously limited, greater consumer demand results in greater quantities of goods moving through the pipeline.  If some interested party wants to move more goods out of the warehouse, an available means is to bring about an increased demand for the goods in question.
5. An immediate consequence of this interaction between producer and consumer is that economic growth is bound up with consumer demand.  Economic growth is tantamount to increased production of goods and services.  And increased production depends upon increased demand.  An enabling cause of continuing growth thus is an ever greater demand for goods and services.  In short, goods must be consumed in increasing quantities for an economy to grow.
6. Let us return to the matter of energy use with this interaction in mind.  In the course of the 4th lecture we saw that economic growth poses an environmental problem because GNP and energy use are directly correlated.  Generally speaking, an increases in GNP (i.e., economic growth) requires an increase in energy use by the economy concerned.  And now we see that economic production is directly geared to consumer demand as well.  On one hand, economic growth results in greater quantities of energy used.  On the other, it results from greater quantities of goods consumed.  Put otherwise, it results from more active consumer demand.
7. As we reflect on this set of interdependencies, it is interesting to note that world-wide consumption of goods began to accelerate in the century following the Industrial Revolution.  By 1900, consumption had entered a period of exponential growth, matching the growth in energy use discussed in the previous lecture.  What we now come to understand is that accelerated consumption of goods is at least partially responsible for the acceleration in human energy use.  It follows, by the line of reasoning that is now familiar, that this explosive consumption of goods shares responsibility for our environmental crisis.

Consumer demand stimulated by marketing

1. How do these observations tie in with desire for wealth?  As noted previously, wealth is generated by economic activity, and in particular by the sale of goods and services.  The sale of goods and services, in turn, is enabled by consumer demand.  This means that people hoping to gain wealth through economic activity will have an interest in stimulating consumer demand, and will take advantage of available means to achieve that result.  This is where marketing comes into the picture.
2. In its simplest and least aggressive form, marketing is a matter of bringing products to the attention of potential consumers.  Techniques vary from placing “classified” ads in local newspapers to displaying the product in company with flashing lights and hyperactive images.  More manipulative forms of marketing involve behavioral conditioning, which is a way of transferring favorable responses preexisting in the consumer to the product in question.  For example, think of an ad showing a particular car in the company of a good-looking female.  As far as a male audience is concerned, the marketer’s intent is that the response usually elicited by an attractive female will become associated with the car as well.  Women also might be influenced by the ad to associate themselves with a product that men have been led to find attractive.
3. A more aggressive marketing technique is to create new “needs” to be satisfied by the product involved.  One classic example is the ongoing campaign of certain soft drink manufacturers to create a preference among consumers for their particular brand of flavored water.  A more unscrupulous form of manipulation is the effort of cigarette companies to create a need among young people for tobacco products.  By managing the preferences of consumers in this way, marketing experts have been able to channel enormous profits into the coffers of their corporate clients.  These profits then can be transferred into the pockets of wealth-seeking investors, stock-holders, and corporate managers.
4. As if even more aggressive techniques were needed to keep the economy running, research is currently underway into the neuroscience of preference management.  Funded by large corporations, and taking place in major universities, these ventures into “neuromarketing” are aimed at the development of marketing methods taking advantage of known “pleasure centers” in the brain.  Corporations contributing to such research include Ford, Motorola, Proctor and Gamble, and Coca-Cola.  Universities involved include Harvard, Yale, Stanford, Carnegie Mellon, Pittsburgh, and MIT. 
5. The point of this brief survey of marketing techniques is merely to show that corporate managers have increasingly effective means of stimulating consumer demand for their products.  Marketing thus plays an essential role in the series of causes through which desire for wealth energizes economic growth. 
6. Let us recapitulate.  Desiring wealth, corporate managers and investors are motivated to take steps increasing the production of goods and services.  This is done by engaging marketing experts to generate increased demand for the products in question.  By the same chain of influences, desire for additional wealth leads to increased efforts to stimulate consumer demand.  This in a nutshell, as the process continues, is the manner in which economic growth is driven by desire for wealth.

Putting the components together

1. 1 In the course of this lecture, we have seen how increased production is dependent upon increased consumption and how consumption is stimulated by various kinds of marketing.  In previous lectures, we looked carefully at how economic production uses up negentropy and generates entropy in the form of various types of ecological degradation.  It follows that desire for wealth, acting through this sequence of enabling causes, results in ever greater amounts of entropy being discharged into the biosphere.  This entropy is the nub of our environmental crisis.
2. 2 To pull these various components of the picture together, let us represent them in the form of a diagram (Figure 13.1 of the text).
   
   

   Generation of wealth in a market economy

   
   The “black box” on top represents production and shows an entropy-output resulting from a negentropy-input.  These factors and the interactions connecting them have been treated in previous lectures.  As we recall, the negentropy in question takes the form mainly of raw materials and energy, while entropy takes the form of global warming, ozone depletion, loss of species diversity, and so forth.  These components of the diagram are predominantly physical and biological in nature.
3. The remaining components of the diagram are economic.  The consumption “box” at the bottom has been left open to show a motor-like component standing for consumer demand.  This motive force “sucks” goods and services (g) from the production sector and sets up a counterflow of money (m) rendered in exchange for goods.  This flow of money splits into 3 branches.  The central arrow represents money invested in capital improvement.  The arrow pointing left shows money invested in marketing, with the intended result of stimulating consumer demand.  To the right is an arrow representing money retained as profit, available for distribution to shareholders as dividends and to managers as salaries.  So grows the wealth of those interested parties. 
4. This diagram can be interpreted to represent both an economy at large and the operations of individual corporate entities.  In the case of a given corporation, managers will oversee the distribution of proceeds along these three branches.  Given their responsibilities to stockholders, they will be concerned to adjust the flows into marketing and capital improvement in a manner intended to maximize profits.  As a general tendency, we may presume that desire for wealth takes precedence in the allocation of proceeds along the three branches.
5. Let us now endow arrows (n), (e), and (p) with quantitative significance.  We know antecedently that increased amounts of negentropy (n) brought into the production process will result in increased quantities of entropy (e) discharged into the biosphere.  We also know that profit (p) is typically quantified in monetary terms.  With this understanding, we can think of a lengthening of the (p) arrow as indicating increased profits, and similarly for the arrows representing entropy and negentropy.
6. Now imagine an unseen manager (not represented in the diagram) operating the system with the intent of increasing profits.  More intense marketing increases the speed of the “motor” that drives consumption, increased consumption pulls more negentropy into the production process, and this in turn yields more profit for distribution among managers and stockholders.  But increased negentropy-in results in more entropy-out.  The upshot is that action taken to increase profits results in more entropy being discharged into the system’s environment.
7. As previously determined, however, action taken to increase profit is motivated by desire for wealth.  In undertaking to maximize profit, the manager sets in motion a series of causes resulting in yet further environmental degradation.  The figure thus illustrates how desire for wealth leads to increased consumption, and how increased consumption contributes to further destruction of the biosphere.

Values that enable pursuit of wealth

1. With the figure still in view, let us reflect on the social circumstances that make it possible for a system like this to operate.  One thing that comes to mind immediately is that society permits individuals to act in ways that increase their personal wealth.  Civilized societies today generally do not permit individuals to murder other individuals for personal gain.  Other things society generally does not permit without penalty are theft, lying under oath, and abusive behavior.  But society does sanction pursuit of individual wealth, even when it results in harm to large numbers of people.
2. For whatever reason, society attaches a positive value to the acquisition of wealth.  One can imagine societies in which this is not the case.  We all know of religious communities that impose a vow of poverty.  Larger societies in which voluntary poverty was a norm likewise would not attach a positive value to personal wealth.  In point of fact, however, most societies today value wealth over poverty.  When an individual sets out to gain personal wealth, society at large looks on with approval.  At very least, most societies do not frown on wealth-accumulating activity.
3. Let us adopt a terminology for discussing such matters.  Let us say that wealth has the status of a social value in a society that looks favorably on attempts to acquire it.  Returning to the system of wealth-motivated activity depicted in the diagram, we may now observe that this kind of activity is likely to occur only in cultures where wealth has the status of a social value.  If wealth-amassing activity were generally frowned upon it would be less likely to occur, because individuals would be discouraged from financial manipulations aimed at personal gain.  In effect, they would be discouraged from self-aggrandizing activity that leads to ecological consequences harmful to other creatures. 
4. Wealth is not the only social value working to enable economic activity of the sort depicted in the diagram.  No less influential are various values motivating consumer behavior.  For marketing efforts to be successful, they must engage values generally held by the groups they are aimed at.  Just as army-recruitment tactics draw credibility from the value of patriotism, so attempts to sell merchandize gain effectiveness by their appeal to commonly held consumer values.  Let us identify a few.
5. One value promoting sales is that of acquisition.  In consumer society, personal prestige depends significantly on the quantity of possessions one is able to put on display before one’s peers.  Personal standing in this context is less dependent on what one does with one’s possessions than upon one’s ability to acquire them in the first place.  Acquisition is valued in consumer society as a way of demonstrating that a person, so to speak, has “disposable” means.
6. Among marketing techniques employed to take advantage of this value is the portrayal of a given product as “new” or “improved.”  Consumers beguiled by such descriptions will view the product as an item not yet included in their display of possessions.  They thus will be motivated to buy it as a means of enhancing their prestige.  No matter that most “trophy” items acquired under this motivation end up on the junk heap; merely gaining possession was the point of the purchase.
7. Other values playing similar roles in consumer society include comfort, convenience, and gratification.  These will be considered more carefully in the following lecture.  For the moment, we have only to recognize them as values that enable marketing tactics like those under discussion to succeed.  If values of this sort were not operative in society generally, then marketing experts could not stimulate consumer demand in ways that enable a small contingent of well-situated individuals to satisfy their insatiable desire for wealth.

Looking ahead

1. At the beginning of this lecture we set about trying to identify a factor that drives economic growth in the way that addiction drives the continuing use of cigarettes.  The express hope was that if such a factor could be identified, then economic growth could be curtailed by rendering that factor inactive.  It came as no surprise, given precedents in economic theory, that desire for wealth soon emerged as the driving force in question.  We then tried to pin down in some detail the chain of causes through which desire for wealth exercises this influence.  The intent at this latter stage was to locate points at which this line of influence could be interrupted.
2. What we have now found is that desire for wealth is enabled to work its pernicious effect by certain values inherent in current industrial society.  These  values are of two sorts.  On one hand, society attaches positive value to wealth itself.  A consequence is that attempts to gain individual wealth generally are met with social approbation.  On the other hand, society upholds certain values like acquisition and comfort that support efforts by marketing specialists to stimulate consumer activity.  It is by stimulating consumption that corporations increase their profits, channeling higher  dividends to their stockholders and higher salaries to their top managers.  And it is because of the enabling effect of these values that economic growth continues apace.
3. The prognosis at this point seems clear.  If these values can somehow be rendered ineffective, then economic growth could be halted and perhaps reversed.  It goes without saying that cessation of growth, if it occurs, will be traumatic.  But there is no reason to think that cessation of growth would result in the destruction of human society.  Quite the contrary.  In many respects, a society that restricted the flow of increasing amounts of wealth to already-wealthy individuals and corporations would be a much better place to live than the one we are currently inhabiting.
4. Be this as it may, a society without growth is unquestionably preferable to the destruction of civilization as we have come to know it, which is the direction in which our current environmental crisis is heading.  The overall upshot of this lecture is that our best shot at avoiding such a calamity is to bring about the replacement of our current consumer values with other values more conducive to a healthy environment.  In the next lecture we look carefully at what a value change of this sort would involve.