Herman Daly, Ph.D., is an ecological economist and professor emeritus at the University of Maryland’s School of Public Policy. His life’s work is to explore how massive-scale human activities can be ordered in ways that take into account the biosphere — “ecosystem services” in economic parlance — the life support systems on which everything depends. As a professor, he’s encouraged students to look beyond the existing neoclassical economic paradigm — the one that says we can, in essence, have infinite growth on a finite planet. Daly came of intellectual age in the late 1950s and early ’60s while attending Rice University in Houston, Texas, his home state. He believed economics was a good choice for a major because it combined humanities, science and philosophy, and he figured it might help him make a living upon graduation. But he later decided choosing economics was a mistake, “because economics along with social science generally does not really have one foot in the sciences and the other foot in the humanities. I kind of thought it had both feet in the air,” he says. Still, that sophomore-year mistake led to his life’s work — attempting to ground economics in both the physical sciences and in the humanities and ethics. After receiving his Ph.D. from Vanderbilt University, Daly taught economics for a time, then went to Northeast Brazil to teach as Ford Foundation Visiting Professor at the University of Ceara. Daly worked as a senior economist in the Environment Department of the World Bank from 1988 to 1994.

He also served as a research associate at Yale University, visiting fellow at the Australian National University, and a senior Fulbright lecturer in Brazil. He has more than 100 articles to his name in professional journals and anthologies as well as many books, including Ecological Economics and the Ecology of Economics (1999); Ecological Economics: Principles and Applications (with J. Farley, 2003, 2011); and From Uneconomic Growth to a Steady-State Economy (2014).

Interviewed by Leigh Glenn

ACRES U.S.A. You’ve said you were interested in helping to resolve poverty in Latin America through economic growth and development. How quickly did that change after you entered the field of economics?

HERMAN DALY. That took a while to disappear. In a way, that’s both fortunate and unfortunate. That made it easier for me to get along as an economist, to be promoted and get tenure. From the time I graduated, it took maybe 10 to 12 years before I had some experience teaching in Northeast Brazil. Reading Mathus, Rachel Carson and more recently then, having studied under Nicholas Georgescu-Roegen at Vanderbilt, re-reading John Stuart Mill — all of those things, plus the whole big population question in Northeast Brazil.

ACRES U.S.A. What kinds of real-life examples did you see in Brazil that prompted you to question the emphasis on economic growth as a panacea?

DALY. First thing, simply population growth. It was very high in Northeast Brazil. (That was in the 1960s; it’s much lower now.) How was economic growth ever going to keep up with population growth? Within that was differential population growth. The fertility of the lower class — the great majority of people — was eight children per woman. The fertility rate in the upper classes was still high, four children per woman. But that’s a big difference. How are wages ever going to rise if the working class is growing at twice the rate of the employing class? So that raised a number of questions. That area is prone to drought and doesn’t have high carrying capacity anyway. So all of this led me to think that growth is not the way to human improvement in that part of the world.

ACRES U.S.A. Your time in Brazil was sandwiched with teaching at Louisiana State University.

DALY. Mainly, I was teaching undergraduate students, and maybe a few master’s and eventually a couple of Ph.D. students. I was teaching fairly conventional economics, and it was only after I’d come back from Brazil, a few years after that, I began to develop courses in what I call population and environment. The undergraduates came from all over the university. Some were engineers. The students I had the most difficulty with were from the nuclear engineering department. I’d gotten involved in opposing the River Bend Nuclear Plant near Baton Rouge. So that was a bit of a difficulty with some of those students. While at LSU, I had edited a book called Toward a Steady-State Economy, in which I collected essays from a number of economists — the generation of my teachers and earlier economists that I’d learned from — with my own essays, and I used that as a basis for teaching. Later, I wrote Steady-State Economics. That, interestingly, was read by a few people at the World Bank.

ACRES U.S.A. How did you become an “ecological economist?” That seems like quite a contradiction in the way economics has long been practiced?

DALY. That happened at LSU. I had a colleague, Robert Costanza, who was in the ecology part of the university. We got together and we saw things the same way and decided to found a society and a journal for ecological economics. We had two European colleagues we were going to go in with. One was AnnMari Jansson from Sweden and the other was Juan Martinez-Alier from Spain. So the four of us founded the International Society for Ecological Economics. We added “International” because there weren’t enough people nationally to found any society. Why “ecological economics”? We toyed with the idea of economic ecology, but economic ecology had sort of already been tainted or captured by pest control management people who were getting rid of pests. “Economic ecology” were pesticides. We didn’t want that. We liked “ecological economics” better. And the other thing was, of course, the identity of the first syllable in each word “eco” — it comes from [the Greek] oikos, meaning household —and the human household, meaning economics, provisioning the household and so forth. It’s the household of nature, and the relationships between parts and exchanges. And then ecological economics: How does the household of humans fit into the larger household of nature — and where does it not fit and what can be done to make it fit better? That was kind of our way of looking at ecological economics. Fortunately, I had a great partner in Bob Costanza. He’s a very energetic fellow. If it had just been me, it would have taken forever, probably. He really helped to make it run. I helped him. And we had the two European colleagues, and so we got the society going and the journal and it has kept going and it’s doing okay. It faces a difficult problem, which it has faced from the beginning, coming out of universities with disciplines, so there is a constant disciplinary pull which goes against the integration of disciplines, so the economists-versus-ecologists problem. And then you have the whole university problem of, I guess, not going too far out on a limb. You want to pull back toward neoclassical economics, because that’s where so many economists came from and indeed, we wanted — our objective was — to try to influence neoclassical economists, to change their way of thinking, at least somewhat, or to build bridges with them. A bridge is a is a two-way street, but this is a tug of war, and the weight in the tug of war is in favor of neoclassical economics. That’s just a fact of life and it has to be dealt with. But regardless, the journal has been a positive influence.

ACRES U.S.A. The World Bank seems like a strange place for an ecological economist to be working. How did that come about? What did you do while there and what caused you to leave?

 DALY. The World Bank had just undergone a reorganization in 1987. They reorganized frequently when they realized they were failing. This set-up gave some emphasis to environmental questions. They had regional Environmental Review Departments. Latin America had a review department. The person who was the head of the Latin America Review Department was the late tropical ecologist Robert Goodland who had worked in Brazil. We had corresponded years before. He became head of this department and he needed somebody who a. could talk to economists, b. was basically an environmentalist, and c. who knew something about Latin America. Still, it was a tough sell — a tough sell to get me hired. For me, there was a pull factor — a chance to work in a newly organized, important institution, maybe really open to bringing environmental costs into development. There was also a push factor from LSU because by now, the department had become very neoclassical. I had gotten along for 15 years — 15 years fine, then the structure of the department changed. They considered me to be a danger to the reputation of the department. It made it hard for me to have Ph.D. students because they had to have have five people on a committee and the mere fact that a student wanted to write with me was prima facie evidence they were unsound. So, I didn’t like the way my students were treated. That was the push factor. In some ways, the move was out of the frying pan and into the fire. I should say before anything, there are a lot of very good people who work at the World Bank and I was fortunate to come into contact with a number of them. But the institution itself, I found to be, after six years, pretty hopeless. I thought we were making progress for a while, but then it began to unravel. It was just wasting my time. Then I went to the University of Maryland which was nine miles up the road from the bank.

ACRES U.S.A. What did working at the World Bank teach you?

DALY. I’d been hopeful because of the fact of the reorganization. My immediate boss, the late Robert Goodland [the bank’s first full-time ecologist], was a very fine man and was seriously trying hard to do something within the bank. He did. He made a number of accomplishments. And I’m pleased to have helped him in some way. For example, he was instrumental in getting indigenous rights recognized. In the past, when the bank built a dam and flooded out a whole community, the people were not compensated. Now they’re compensated. It’s not adequate, but still it’s better than nothing. He was instrumental in getting the bank not to finance tobacco growing and with various public health issues, and especially in establishing stricter environmental controls on mining —there were very bad environmental conditions in riverine gold mining, including the use of mercury. He wrote the Environment Assessment Sourcebook, which became the bible for counting environmental costs: “Here’s how to do it, if you want to do it.” Robert made many important contributions. I also worked with the Central Environment Department on the question of sustainable environmental development. The United Nations’ Brundtland Commission’s report had come out and the idea of sustainable development became a sort of mantra. Everybody had to be in favor of sustainable development. It was easy because nobody knew what it meant. We tried to give an analytical definition: You don’t draw down renewable resources faster than they regenerate. You don’t deplete nonrewables faster than you can develop renewable substitutes. You don’t pollute the environment faster than it can absorb and reprocess the waste. So we tried to work that into project assessments. But it just didn’t go. Because at the bank, that kind of environmental cost slows down a project, makes it less financially worthy of doing. The bank is basically a money pump; it wants to make loans. Anything which stands in the way of making loans is selected against. So that did not survive very well. And growth — the general philosophy was, “Well, we’re fighting poverty. Everybody knows the way to fight poverty is growth and if you’re against growth, you hate hate poor people, go do something else.” The idea that growth could ever be uneconomic just did not compute. The institution itself, instead of adding up the good qualities of its individuals, seemed somehow to cancel them out, by separating and dividing. I sort of thought of the World Bank as being like the church: It’s trying to do good in the world, but all of the people who are members got degrees in theology — they went to the few theology schools (they are mostly Ph.D.s in economics) and they got taught bad theology. I don’t put the entire blame on the World Bank. I put a whole lot of blame on the academic discipline of economics which should have been more alert to question of the cost of growth.

ACRES U.S.A. So, when you went on to teach at Maryland, you had this added perspective. How did that shift things for you?

DALY. As with the World Bank, it was a question of the influence of one or two key individuals who appreciated what I was I doing and were in a position to help me get hired. That was in the School of Public Policy. My background in economics was a strength. My experience in Latin America was a strength. My experience at the World Bank was a big strength. They liked that. The fact that I was known as an ecological economist — that was not liked too much. That was a negative and it kept me from getting hired at a tenured level. I initially was hired as senior research associate — on a contract, rather than a tenured basis. That I didn’t like very much, but it paid pretty good. I was teaching. I did a good job teaching and I wrote a lot of things and published. More importantly, I got two international prizes. That eventually led to my actually getting a tenured position. I was glad of that, but it was hard. That was really an extra bar to have to jump over. I don’t have much good to say about the World Bank. But I think universities are just as bad in terms of their bureaucracy and narrowness and commitment to disciplinary purity. [In For the Common Good, Daly dubbed this disciplinolatry.] They are really organized in terms of disciplines and the disciplines police themselves and they have strict criteria. That’s just the way it is. I would never have been hired by the economics department, not even by the ag and resources economics department. Neither of them would have touched me. I was hired in the School of Public Policy, which was much more interdisciplinary. Even there, it was thanks to one or two exceptional individuals who wanted to see my work done there — in ecological economics.

ACRES U.S.A. If you had a clone today, would he have an easier time? Or do you feel now that you’ve retired, neoclassical economic thinking is even more entrenched?

 DALY. I’m afraid that, as I indicated earlier, I was sort of lucky because I started my career when I was still in the fold of standard economics and I got a good deal of the way in. If I were starting over today in ecological economics, say a clone of myself, I’d be dead on arrival as far as economic departments are concerned. Maybe I could get into a geography department or environmental studies or public policy, something like that. Students write me sometimes, “I’m in this economics Ph.D. program. I really hate it. I want to get into ecological economics. What should I do?” Well, I don’t know what they should do, but my general advice is, unless you’re really unhappy, stick it out and get your standard degree and do ecological economics on the side. Because number one, that’s the way the world is. Number two, you’re going to have to make a living. And number three, you have to know your enemy. You have to understand standard economics to defend and argue for ecological economics. So I think that’s the way ecological economics is hopefully entering in — it’s sort of being smuggled in. And then opportunities open up later. The other thing that’s happened is the world is changing. Just look at the problems, questions of energy and environmental costs. All of these are creating demand. Currently in energy, it’s filled largely by people coming out of physics who couldn’t get a job in physics and they converted themselves into energy experts. And, of course, many ecologists are attracted to the field.

ACRES U.S.A. At what point did the light go on for you, as far as the indisputable fact that economies are part of ecosystems and the whole biosphere and not the other way around?

DALY. It was a combination of factors. I actually remember sitting on a park bench in Brazil in a little town in the interior. I’d been working on a dissertation and I was doing something else on the side, writing an article. I had some clarity in my own mind, how economics fits into the ecosystem. Wassily Leontief … he did a model and divided the economy up into sectors, how each depends on the others. Well, you could extend that beyond economics and into the ecosystem — interdependence and exchanges. The economy is a subsystem within that big network. If there was a moment, I guess that was it. But of course, it was more than just a moment. It was a period of changing one’s mind.

ACRES U.S.A. As you grasped the full realization of that — you’re in a discipline that’s going in the exact opposite direction — how must you have felt at that point?

DALY. It just seemed so screamingly obvious to me — that the economy is a subset of the larger ecosphere. Now economists don’t see it that way. They see the economy as the whole. And what we call ecosphere, they don’t see, they divide that up. They say well. that’s agriculture, that’s forestry, that’s mining, that’s garbage disposal. All of those things that involve environmental services — those are just sectors of the economy. If we have problems with one of those sectors, we substitute around it and we substitute other sectors and and we keep on growing. The economy is the whole thing. It does not exist within the constraining physical envelope of the environment. That’s reinforced within the first pages of every economics textbook. There is a circular flow diagram of the economy; it has no outside. It’s an isolated system. If it’s an isolated system, nothing constrains its growth, there is no metabolic throughput of matter and energy. One of the big things in ecological economics is this concept of metabolic throughput — the digestive tract of the economy. The economy has more than just a circulatory system (money), it has a digestive tract (matter/energy) and that has to be taken into account. And that tends to be overlooked and resisted in the textbooks. It sounds so simple. “Gee, he must be crazy. Nobody would be stupid enough to overlook that.” Economists are not stupid. But they are brought into a way of thinking in which that is not a part and it has a big effect. That was the big era of the “Limits to Growth” debate. It looked like there was a real opening at that time (in the early 1970s) and that things would go in a different way. That has not happened, not yet at any rate.

ACRES U.S.A. And yet, there were others, in the nascent days of economics — you and John Cobb cited [the Swiss historian and political economist Jean Charles Leonard de] Sismondi — who were cautioning against a decoupling of economies from the natural world. What happened? How did neoclassical economics become the overarching way that we structure and view human activity?

DALY. No product of a Ph.D. economics program today who recently graduated from Harvard, Princeton, Yale or anywhere — I’d give you a hundred dollars for anyone who’s ever heard of Sismondi. Why? Well, they don’t teach the history of economic thought anymore. That’s dropped out of the curriculum. It used to be a requirement; now it’s not even an elective. Maybe there are a few old guys left in the department who may teach that once in a while, if there’s demand. But the attitude is, “Well, now that we’ve become really scientific and we really know the truth, why waste time studying errors of the past?” So that’s been relegated to history departments now; it’s not rigorous enough for economists. The other courses in comparative economics — capitalism, socialism, and so on, with the triumph of capitalism, why teach that anymore? There’s no alternative, as we are frequently told. So as these things fall out of the curriculum, what fills it up, what comes back in? Well, what comes back in is mathematics. They give more and more mathematic economics and less and less substantive, historical, concrete stuff, to which, the mathematics might or might not apply. It’s become very formalistic and what gets left out is the content to which the formalism would apply. So, that’s part of what’s happened.

ACRES U.S.A. That seems to be true across the board. For example, how many physicians study the history of medicine?

DALY. That’s a fair point. Physicians probably don’t spend a great deal of time on history of medicine. But there is a specialized field in the history of medicine and some people do pay attention to it. The history of economic thought used to be that way — that used to be a specialty — but it’s lost whatever prestige it had. And that’s too bad.

ACRES U.S.A. So, the only way you’re going to get that is if you read those on your own.

DALY. That’s right. Read them on your own and it’s hard to have time to do that, with five different courses, and econometrics and mathematical economics courses at the same time. Of course, the idea is that this is much more scientific — because it’s mathematical, it must be scientific. Well, I like mathematics — it’s extremely useful, but it’s not the same thing as science.

ACRES U.S.A. At Vanderbilt, you studied with Nicholas Georgescu-Roegen who was, middle of the last century, taken up with the laws of thermodynamics as they apply to and support economics. What impression did that make on you?

DALY. That was major influence on me. I mentioned this idea of metabolic throughput earlier — metabolic throughput of matter-energy. It starts out low entropy, useful matter-energy, and and it ends up waste, dispersed, useless matter-energy. Or as Georgescu-Roegen puts it, “You can’t burn the same lump of coal twice.” You end up with ash and waste heat. So this whole idea of circularity is undermined by the idea of entropic throughput. Useful things get depleted. Environmental services get polluted, So, this is a huge cost of growth. It was neglected, perhaps reasonably so, as long as the Earth was relatively empty. But now as we move into a full world, after years and years of growth, what I perceived was that the limiting factor — what really limited economic growth — was no longer labor and capital, but the remaining natural resource flow of this entropic throughput. That was the limiting factor and that had been left out of economic analysis. The classical economists talked about land and they included the flow of resources through the land, and there was major attention to labor. Steady-state is in many ways a reversion to classical economics as opposed to neoclassical. The neoclassical economists downplayed the physical side; they see value as basically psychic — a psychic utility theory of value, a psychic phenomenon, not as a particularly physical phenomenon that could encounter physical limits. They shifted attention to utility and satisfaction of wants away from the physical world.

ACRES U.S.A. As the world has gotten more full, we as a species, Americans especially, seem to find ourselves less satisfied with what we have. You had written about sufficiency in For the Common Good. The last U.S. annual household income “sufficiency” level I saw was in the range of $70,000 to $75,000.

DALY. On a world basis, it’s even less than that, something like $25,000 to $30,000. There have been studies done both by ecological economists and some neoclassical economists taking the lead and looking at happiness and trying to measure and correlate it with GDP, and they asked the question, How much extra happiness results from an extra thousand worth of GDP? Well, if you’re poor, a whole lot of happiness, until you get up to sufficiency. So you’ve got a sharply rising curve at low levels of income, then it quickly levels off and becomes flat, so that beyond a certain amount, increased GDP or growth doesn’t increase happiness. They measured that in two ways, one by simply asking people, How happy are you, on a scale of 1 to 10, self-evaluated happiness, and the other by correlating with other factors that are thought to indicate happiness like longevity and health, number of friends, things like that, which are more objective measures than just asking somebody how happy are you. Both of those kinds of measures indicate if happiness is what you’re after, growth will give it to you only up to a point, then you hit sufficiency and after that, you’re just spinning your wheels. Or worse than spinning your wheels—spinning your wheels is digging ruts in the environment, making things worse.

ACRES U.S.A. So, this idea — or law — that you talk about in terms of metabolic throughput, or entropy, why has that failed to take hold or displace the mantra of grow-grow-grow? Is it more than the notion that people will do things, even if illogical and not in their best long-term interest, if their mortgage depends upon it?

DALY. I think there’s more to it than just the mortgage. I once asked Georgescu-Roegen that same question, I said, You know, after all this time, why do the growth economists at Harvard and MIT never cite your book about the entropy law…and they didn’t, with one exception. Paul Samuelson said it was a great work, that Georgescu was an economist’s economist and a scholar’s scholar, he was wonderful and all that. Two years later, he never mentioned it again and in his textbook, didn’t even reference it. Now, what happened — well, I think I know what happened — they realized that if Georgescu was right, then they — the popes of the profession — had been very wrong about some very important questions for a very long time and that they had devoted themselves to something which had a basic flaw. So, what do you do? People don’t like to admit they’re wrong. I know I don’t. When I’m forced to, I reluctantly do it. And then there’s reinforcement — all your friends, all your colleagues, too, the whole thing built up, and people are promoted on this basis and so forth. So when I asked Georgescu-Roegen that question, Why don’t they cite your work?, he replied with a Romanian proverb, to the effect that, “In the house of the condemned, one does not mention the executioner.” He pretty well thought of himself as an executioner. And in some ways, he was. He was pulling the chair out from under the guys who were likely to get hung in their own ropes and they didn’t like that and so, I can understand their ignoring him. It’s not quite that cut and dried. Because you can always make the argument, we still have poverty, we need growth. Anything which stands in the way of this is anti-human or something worse. I can understand that sort of attitude. But again, Georgescu-Roegen, said, Look, if growth is costing more than it’s worth, it’s not helping poor people. The only kind of growth we need the is the kind that is worth more than it costs us. So you have to have growth that really increases wealth. If it’s not increasing wealth, then it’s not economic growth. And that raises the whole other question of why there is not the concept of uneconomic growth in economics. There is — in microeconomics, but not in macroeconomics.

ACRES U.S.A. I imagine that’s the same kind of thing you would see playing out in forestry — in succession — on a physical level.

DALY. This is an analogy that some have made. For young ecosystems, they seem to maximize production efficiency. In other words, more new production per existing unit of biomass. For mature ecosystems, you maximize the inverse — maintenance efficiency, more biomass maintained per unit of new production. So you switch from growth efficiency to maintenance efficiency as you go from a young to a mature ecosystem. It’s similar for an economy. As you build more capital and more population, then you have a bigger and bigger problem of maintaining the population and capital that you’ve created. And that’s where most of your production is going to be going, into maintenance, because entropy destroys the ordered structure of both human bodies and capital equipment, so you have to maintain it with production. In fact, [evolutionary economist] Kenneth Boulding said we ought to rename Gross National Product as Gross National Cost — GNC — because production is really the cost of maintenance of life-giving structures, whether human bodies or capital equipment.

ACRES U.S.A. When we talk about agriculture today, there’s a lot of interest in regenerative or restoration agriculture. But are we beyond our ability to reclaim?

DALY. If you were the first to get to the really rich soils, you had an easy time. Now when you’ve got depleted soils — that’s a result of capital depletion — you’ve run down the capital and have not been maintaining the productivity and health of the soil; you’ve let it run down. So, cheap past agriculture now becomes expensive. I don’t know enough about agriculture to say too much. What I’ve learned, I’ve learned from my friend, Wes Jackson and his work at the Land Institute. But that strikes me as very important, to develop perennial crops instead of annuals and crops with deep roots that are able to withstand differences in climate. And to, by breeding, to get the high-yield perennial crop. I’m not enough of a geneticist or farmer to know, but he’s been working at that a long time and has had some success. That looks good to me. One ironic thing, according to Wes Jackson — and I think he’s right — he says agriculture is sort of the original environmental sin, that this is the most environmentally destructive activity, particularly, of course, mechanized and fossil fuel-based agriculture. The World Bank used to count agriculture as part of its green portfolio. When they wanted to show how environmentally sensitive they were, they would point to agricultural investment.

ACRES U.S.A. Let’s shift to money itself. Sometimes, I wonder if the way we structure money isn’t the problem, and if we structured it differently, we would have fewer issues with pulling production from the future and depleting our life-support systems too quickly. One thing you have written about is this idea of making of money, a fetish. How did we come to that?

DALY. It goes back to Marx, money fetishism — sort of attributing to a symbol the reality of the things it’s supposed to symbolize. So, that’s always been a problem with people. You see that most when people identify debt with wealth. There’s such huge expansion of debt and people refer to debt they own as assets. But that’s something other people owe them so it is fundamentally a debt. As an asset, it doesn’t exist unless, in the future, the debt can be repaid. And that debt gets paid out of new production in the future and if that new production isn’t there, the debt which is counted as an asset, is a false asset; it’s an illusion. We’re in that situation right now where a whole lot of … I kind of have a theory that as it gets more difficult to grow physically in the full world, we substitute that sort of growth with schemes for growing monetarily, which is easy because money can be created out of nothing and debt grows and we count debt as wealth. And that’ll go on for a while. You can get away with that for a surprisingly long time, but then it crashes. I should confess that for a long time, I didn’t see any particular importance to money, it’s a medium of exchange, a store of value, blah, blah, blah. But it was only after reading Frederick Soddy, who was a chemist who devoted the last part of his life to economics, that I really saw the importance and the difficulty which I have and other people who have a much stronger background in money also are arguing for what we might call, a hundred percent reserve banking. This was originally advocated by Soddy and taken up by important American economists, Irving Fisher and Frank Knight of the early Chicago School. Their reason for taking it up was so obvious: Why should a private institution be granted the power to issue money? That’s really just like giving a counterfeiter a free ride. You could print money. “Oh, good, thank you.” So the banks do it. And it’s sort of mystical how they do it — by a chain of re-depositing and re-lending that ends up multiplying the amount of money. Frank Knight and Irving Fisher and others said that money should be a public utility. It should be issued by the Treasury. And banks — private individuals — banks should not be allowed to create money. Banks should get deposits from depositors, then lend the money of depositors to borrowers at interest, and then pay the depositors a small rate of interest and charge borrowers a larger rate of interest and make a profit. They should be intermediaries in lending other people’s money. They should not be creators of money. If you ask the man on street today to describe what banks do, he’ll say exactly that. That’s what he thinks happens. Most people think that. And it’s really what should be happening. But what’s really happening, you go to a bank to get a mortgage and the bank creates the money that it lends to you and you pay the bank back, plus interest, and the bank has created the money.

ACRES U.S.A. What about a decaying money?

DALY. [German theoretical economist] Silvio Gessell had that idea — spend it or it loses value. That was an interesting idea during the Depression when the problem was, people were not spending money. That idea has some resonance to it. But I think we’re in a totally different position now. The tendency is we’re spending too much money or we want to spend money and we don’t need extra incentive to spend more — that just fosters growth that has become uneconomic and we don’t want to push it in the aggregate. Whereas back during the Depression, that was a good idea. So, I don’t buy the demurrage thing at all. And actually, whatever functions would be supplied through that will be supplied automatically through inflation. The theory I would offer is that we take away from the private banks (the Fed) the right to create money and we place that entirely with the Treasury and the Treasury spends money into circulation for public purposes. Once it gets spent into circulation, it gets re-spent and re-re-spent and so forth, the banks get it, others get it, others lend it and do whatever they want with it. Once it’s in circulation, everyone who receives the money token has to give up real value for the token. But the first person to spend the token (the issuer of money) gives up nothing (a mere token) in exchange for real value. That difference is called seigniorage, because that person, the seignior, is like the lord of the manor. Whoever issues token money gets the “counterfeiter’s profit” or seigniorage as it is more elegantly called. Seigniorage should not go to private banks; it should go to the public treasury. The other part of the idea is that, what is it that’s going to control how much money the government spends? Governments have a pretty bad record of just printing money, spending it and causing inflation. Well, of course, that’s the constraint… whenever the price index begins to rise, we have inflation. That’s the signal for the government to spend less money and/or to tax more money from the public to keep the price level from going up. So, in a sense, this theory says — and I’m not the only one, many people advocate this, but it’s not the official view — the government just has an infinite bucket of dollars; it can just reach in and grab some whenever it wants. A budget deficit for an entity that creates money (the federal government) doesn’t make sense. State governments are different; they can’t create money. The federal government can create money, so it’s got an infinite bucket of money and whenever it wants to, it dips in and spends it, and if it spends more money than people are willing to hold, they will spend it and the price level goes up. Then the Treasury must spend less and/or tax more. The reason we tax the public is to control inflation, not to balance the budget. We don’t need to balance the budget. We don’t have to borrow from our citizens at interest when we spend more than we tax. But if the price level starts going up, we have to have the discipline to either spend less or tax more — and that’s the rub; that’s the difficult part. Since the federal Treasury has an infinite bucket of dollars it makes no sense to borrow dollars at interest from the public “to finance a deficit,” and then tax the public to pay it back, because you’re just transferring money from taxpayers to investors. [Note: U.S. interest on debt at the close of 2016 was more than $432 billion.] There’s a lot of debate about that. But what does it all have to do with ecological economics? The fractional reserve banking system is an incentive to grow. It’s a growth pusher and it builds up and builds up debt which can only be redeemed by future growth, so builds growth into the system as necessary that can only be redeemed by future growth.

ACRES U.S.A. Back to this notion of money fetishism, there seems to be a public feeling that exchanging money in Las Vegas is the same value as an economy based in the physical world, such as agriculture and other raw materials. What is your take on this?

DALY. Economists have a saying: “A dollar’s worth of GNP is equal to a dollar’s worth of GNP — I don’t care whether it was spent on computer chips or potato chips, it’s the same dollar’s worth.” What’s in the economist’s mind when he says that? He’s saying that somebody was willing to spend that dollar and it’s the willingness to spend that dollar which is a measure of the utility in his mind of a potato chip versus a computer chip or, to take an older example, a Bible versus a bottle of beer. Whatever you’re willing to spend it on is of equal value because of your willingness to spend it on that. That is a psychological measure of utility or satisfaction, which is what they’re aiming at. So, if you’re willing to gamble, you gamble and get a thrill out of that, or if you spend it on food, you get a satisfaction. Now, that’s the theory. What can one say about it? I personally would say that it’s a deep philosophical question. If the origin of value is just whatever the hell people want, whatever an individual wants, that’s the source of value, there is not an ethical basis for evaluations. Which is what the economist said. But I think it’s fundamentally an ethical question, wasting money on low-probability things, even if you get a thrill from it, is qualitatively different from growing food to feed people. But that’s an issue of people’s fundamental values. I don’t think it’s an issue of monetary policy.

ACRES U.S.A. Earlier, you spoke about circulation. Is there an interplay between the so-called “multiplier” in the economy and creation or extraction of physical wealth?

DALY. Well, the multiplier effect is, the way that term is used, it’s part of Keynesian economics. It came out in the 1950s or so. Basically, all it means is the number of times a dollar is re-spent. So, if you have $10 for an investment, how many times does that $10 get spent on new consumption. That’s the multiplier, so called. Just multiply new spending into total spending. It’s fundamentally not much different from the older velocity of the circulation of money. But for some reason within the Keynesian framework, that became a big deal — the multiplier. It almost has…mystical powers to multiply investment. People talk about investment dollars versus consumption dollars. But any dollar spent is a dollar spent and it gets re-spent. To the extent that the dollar gets re-spent, that increases aggregate demand, aggregate demand gets satisfied by production, which requires throughput of matter and energy, and the environment is affected. You could say that independently of talking about the multiplier.

ACRES U.S.A. What about in terms of local economies? I can go to a local store and buy something made in China. What then?

DALY. If it’s made in China, then re-spending takes place in China. If you live in a depressed area and people are buying things from far away, couple hundred miles away, then the money is flowing out of local economy into the broader economy and it’s being re-spent in the broader economy, not re-spent in the local economy. Local money has the virtue that it can only be re-spent in the local economy. It took me a while to realize that. I was a little bit blind to the virtues of local currency. But I think they really can be very valuable, particularly for depressed areas. You ask, what are the boundaries of the community that you’re interested in supporting? I think there’s a lot to be said for more localized community. Other people disagree. But I think it’s very important to keep control local without going to total extremes.

ACRES U.S.A. Regarding support for local food systems, how effective are Slow Money’s small loans in this area?

DALY. It seems in that sense rather similar to a local currency, which of course can be lent or borrowed in small amounts if local. So, I would say it’s almost a similar basis.

ACRES U.S.A. In recent years, you’ve written about “uneconomic growth” and the need for having that as a concept. Can you expand upon this idea of “uneconomic growth?”

DALY. Economic growth is usually considered an aggregate concept. GDP is an aggregate. I would think of it first and foremost as, Is the aggregate economy growing too fast, too much? Is its growth increasing environmental and social costs by more than it’s increasing production benefits? There are benefits to growth. You get more things. Count that as positive. There are negative consequences to physical growth: you deplete more resources, you pollute more ecosystem services, you have to labor longer and harder. If you do a proper accounting of all those costs and benefits, which is greater? I think that as you begin in the empty world, there are very good reasons for believing the benefits are going to be greater than the costs. But then as you get into the full world, you’re going to be sacrificing more and more important ecosystem services. Now this gives human beings a lot of credit. It assumes that number one, the marginal benefit of growth is declining. Why assume that? Because we’re intelligent. We satisfy our most pressing wants first and only after we’ve satisfied our most pressing wants, then we satisfy our less pressing wants with less marginal utility. On the other hand, we are increasing costs — we sacrifice ecosystem services and resources. Presumably we would do that in order of increasing importance. That is, we would sacrifice the least important ecosystem services first, and only then, as we’re forced to sacrifice more important ones would we do it. Now you’re right if you question that because we don’t really know, we’re very ignorant of the sequencing of ecosystem costs. We may ignorantly sacrifice an important one before an unimportant one. That just means this is a favorable assumption to growth. It means we’re doing it intelligently. Even if we do it intelligently, there’s still a limit that occurs. The falling benefits and rising costs cross somewhere: one’s going up and one’s going down and where they cross — that’s the end of economic growth. Up until that point, the extra benefit has been greater than the extra cost. Beyond that point, where the extra cost is greater than the extra benefit, is uneconomic growth.

ACRES U.S.A. Can you apply the idea or measurement of “uneconomic growth” by sector?

DALY. Right now “sector” is difficult here. Probably the biggest everyone is worried about is global climate change. Is that the fossil fuel–burning sector? What sector is that? If that were the case, then you would say carbon emissions is one sector. The other thing that people talk about is biodiversity — that we are sacrificing biodiversity. That’s a pretty spread-out concept. I don’t know how you could make a sector out of biodiversity. On the other hand, I would admit there are some areas of the economy that look to be more costly than others, like within the fossil fuel area, you look at fracking — that’s really environmentally very destructive and the payoff is fairly low. These wells don’t last that long, they’re depleting wells, and they’re probably only drilled because they can get zero-interest financing. I mean they’re keeping people busy, but they don’t look economic.

ACRES U.S.A. What are your thoughts on divestment from fossil fuels or other ecologically harmful, publicly traded entities? How effective is divestment?

DALY. It’s part of the economic process that ought to be happening. We talked about aggregate growth — growth of the whole thing. The other thing is reallocation. So even if the aggregate stays the same, you can still make economic improvements by reallocating from less important uses to more important uses. And some people call that growth. I’d say that’s reallocation and not aggregate growth. You take away from the fossil fuel industry which is causing a whole lot of problems and move that to solar which is on balance much better. You’ve made an improvement. I don’t think I should call it growth, but it’s an improvement.

ACRES U.S.A. Is what we’ve been witnessing since about the late 1990s an end-stage industrialism, where the shift to an economy driven by finance (and financial machinations, such as derivatives) evidence that we’re beyond having gone off the rails economically and ecologically?

DALY. Yes, I do. I think that’s part of that confusion of debt with wealth. It becomes harder and harder. Let’s put it another way. Frederick Soddy made a distinction. He said debt is negative pigs and wealth is positive pigs. Your herd of positive pigs grows, it’s going to hit a limit, because these pigs can’t grow forever, they have a gestation period, they have to be cleaned up after, they take up space. Negative pigs — that’s just a number, an abstract mathematical number. You can grow that as fast as you want. We foster this growth of negative pigs through all of this investment, kind of inventing all these financial derivatives and so forth and bets. At some point, when people want to cash in their negative pigs for positive pigs, it’s not going to work. There’s not going to be enough positive pigs to go around, so they’re going to get real mad and there’s going to be defaults on debts, people will be fighting each other and it will be very unhappy. We have that on a grand scale with Wall Street, with exceedingly complex financial arrangements which are bets on which debts are going to be repaid, which are not, and we illogically count that as an asset.

ACRES U.S.A. What about what’s termed socially responsible investing — and what about retirement, which is a pretty newfangled idea and probably isn’t sustainable. What about how that gets paid for?

DALY. A good investment has to have some kind of a positive rate of return. The question is, Does the actual physical investment produce an increase in physical wealth — equal to that monetary rate of return? If it doesn’t, then I think it’s not a good idea. As somebody who is retired, I consider that sort of a difficult situation. If I look at my pension from the university, TIAA and so forth, there’s a little footnote. They calculate how much you can expect to be paid per month over your expected lifetime and then at the bottom it tells you this calculation assumes a 6 percent rate of return on our investment. I don’t think there’s going to be a 6 percent rate of return on the investment into the future, in a non-growing economy. Of course, if you’re converting the ecosystem into the economy at a rate of 6 percent or more, yeah, that’ll work, you’ll get 6 percent for a while. But you’ll end up having sold your “planet” and spent the money. So I think probably what’s going to happen in the future is that retirement more and more will have to be financed out of past savings, spending down past accumulated savings and less and less out of growth resulting from an interest rate or a positive rate of return. Even with a limited throughput, you can still have qualitative improvement. So, maybe there’s a little bit of rate of return, but I don’t think it’s going to be 6 percent or, good Lord, the World Bank thought anything less than 10 percent was not worth doing. Investing in something like solar energy — that’s good. But even solar energy is not free of environmental costs. Indeed, you need materials to capture sunlight. Materials have to be mined. Mining is a destructive activity. It’s a sad fact, but it’s sort of like the dark side of the food chain — you’re not going to stay alive unless you eat something. And if we can not eat animals, then we are going to eat more vegetables. I don’t see any way out. So my thought is to try to minimize the entropic throughput — that’s what impinges on the rest of the environment, including all other living things. So, let’s try to have a satisfactory life with a minimal throughput. I don’t think it’s realistic to have zero impact on the environment, but it’s certainly not realistic to have an ever-growing impact. And that’s what we’re aiming at now. That’s why a steady-state economy is important. And, of course, people point out, “Well, we’re already too large for a steady state. You can’t maintain the present scale.” Absolutely right. A steady state will have to be at a lower level, one that is sustainable. So, I don’t have good answers to all those things. But I think that the growth economists have even worse answers.

ACRES U.S.A. How do you describe “steady state?”

DALY. The idea of a steady state goes back to the classical economists — they called it a stationary state. But it just means a non-growing population of people, of human bodies, and a non-growing population of capital equipment, of things in the broad sense, including consumer goods, all of your capital stock. But the two populations do not grow in the aggregate. Of course, they do die and wear out, so they have to replaced. So there has to be a birth rate equal to the death rate to keep the population constant. And there has to be production equal to the physical depreciation rate to keep the stock of capital constant. New people can be qualitatively different from old people, from dying people — they of necessity are — and new capital equipment can be qualitatively different from the old that’s wearing out. So there is the possibility of qualitative change, even improvement, in a steady-state economy, but you just don’t have aggregate growth.

ACRES U.S.A. How do you arrive at a steady state? There are incredible and wide-ranging policy changes that would have to be made.

DALY. Limits on throughput quotas, maximum and minimum limits on income, population limits, distributive limits — these are things which are beyond the pale politically. But they follow logically from the basic nature of the problem to be faced. Now, in terms of policies it becomes much more challenging. What are you going to do to keep the population constant? You can do like China — and have two-child families instead of one-child families and enforce it in some way. You could do like like Japan did after World War II, where you don’t do anything top down; everyone decides to only have two children and they exercise social pressure on each other to the extent that if you have three children, you’re really in trouble or you’re considered a bad person. People aren’t ready to think about that yet. The Chinese did. The Japanese did. And eventually other people will be forced to think about that. I think that’s going to be necessary, but it’s difficult, I admit. In the case of population of capital goods, that’s a little easier in a way because you can, in effect, just put a limit on “food supply” — and the food supply of capital goods is metabolic resource throughput. Starving people to limit population is the brutal positive check discussed, but not recommended, by Malthus or by anyone else. However, limiting the food supply to the population of capital goods (resource depletion) starves capital growth, not human beings. My only answer to your question, which is raised many times by many students, they say, “All of these things you talk about — they’re logical, but Congress would never pass this. This is way beyond anything that’s going to happen, so why do we spend time on it?” My defense is, if the analysis is correct, then at some point, there’s going to be a real breakdown and it would be nice to have ideas on the shelf for reconstruction after the breakdown. That may be the best I can offer in terms of why deal with this. Now, maybe you can avoid a breakdown if people try to begin doing these things in advance. Politically, that’s not likely. So, it looks like we’re sort of in a dilemma, a bind between a political impossibility — adopting a steady-state economy — and a biophysical impossibility, growing forever. So I think that a biophysical impossibility is more impossible than a political impossibility. Am I optimistic? I can’t say so, no. But optimism — I think one has a duty to be hopeful. What else are you going to do? Be hopeful and work for it and you never know. Things work out differently and there can be a breakthrough. So, hope for it. But if you say, it doesn’t look likely, I’ll have to agree with you.

ACRES U.S.A. Under a steady-state economics, how would trade function both among countries that produce the same kinds of goods as well as those that don’t — including agricultural products?

DALY. Of course, if you’re limiting depletion, you’re limiting depletion of fossil fuels and that’s going to make transport more expensive, so you’re not going to be doing as much long-distance trading as you would have been. From a steady-state economy, I don’t see any necessary problem other than you’re going to shorten supply lines because transportation is going to become more expensive — both within and between countries.

ACRES U.S.A. What would happen with the structure of businesses? Would we need to return to a charter system?

DALY. I think there would be good reasons for that, independent of steady state. Again, I think the steady state could be established with various corporate sizes and structures or just small business and that would be a relatively independent issue as to which would be most desirable because they would all face same restriction on throughput. They would have to exist within that restriction.

ACRES U.S.A. How do you price things in that type of system?

DALY. You have to be careful with the idea of pricing. This is the economist’s major solution: just get the prices right. Well, the problem is, getting the prices right, how shall I put it? Suppose you have the prices right, the prices all measure opportunity costs and everything is appropriately allocated. Now double size of the economy, double the size of the resource throughput, you’ll have another set of prices in order to be optimal for the new larger scale. Assume we calculate that, get the prices right, pricing for an economy that’s twice as big. In both cases, the prices are right. But which economy is better? That question is not answered. That’s a question of the scale of the economy relative to the total ecosystem. Are you better off to have more nature and less human stuff, or more human stuff and less nature? Prices could be right in both cases, but it’s a separate question. And that’s the question economists — I call it the question of scale, relative size — and that’s not answered by


Join Now
. The other thing, I think prices will automatically adjust if you limit throughput. That’s going to make throughput more expensive, limiting fossil fuels — that will be necessary because that’s what’s going to make people more careful in how they use fossil fuels and yes, that is going to be harder on the poor. [To deal with that,] Take the auction revenues or the taxes, however you raise the price of petroleum, and redistribute that towards the poor — that’s a good way of doing it. So, I think prices are important. If you put limits on the physical throughput, prices will automatically go up and adjust. You don’t need to do anything else. There are some things where you may need special taxes to change the prices. But there are so many silly things that economists try to do with prices like what we call contingent valuation of species, or how much is a whale worth? If you’re going to do something to deplete the number of whales — what is the cost of depleting the number of whales? Go around and ask people. How much would you be willing to pay to save one whale? Or how much would you be willing to accept for the disappearance of a whale? So there’s willingness to pay to save versus willingness to accept the loss of, and those two things, theoretically, ought to give you the same answer, but in fact, they give different answers, which just means it’s a nonsensical question to ask people. People don’t think in those terms. It doesn’t make any sense at all and yet they take this contingent valuation and build up all sorts of silly theories about how much this or that is worth. Or they value a national park by what it costs people to get there. That’s an incomplete, silly measure. So there’s a whole lot of nonsense that goes on under this rubric of pricing. But prices really are important. That’s the way we ration things which are scarce. But prices do not help us decide how much of the ecosphere should be taken up by the economy.

ACRES U.S.A. I often wonder will we have enough of a base just to maintain what exists, as you spoke of earlier, as in, for example, making sure we have enough petroleum to keep the things going that have come to sustain life. In The Upside of Down, Thomas Homer-Dixon uses the analogy of the 1906 San Francisco earthquake and fire and the idea of maintaining enough to rebuild from.

DALY. That’s an interesting question. There was some geophysicist (Harrison Brown) years ago who did a thought experiment. Imagine you have a sort of reverse neutron bomb. It doesn’t kill people. All people survive, but it destroys all of the built capital. It leaves knowledge in libraries okay, so you have all the knowledge, all the people. But you’ve destroyed all the capital wealth that’s been built up. Could you replace it? Well, his answer was, no, you couldn’t. And his reason for it was, yes, you have all the knowledge there, all the people and everything, but look at what you’re going to have to do to get the resources. You’d need to mine the materials. You don’t have the rich iron ore of the Mesabi Iron Range, you’re going to have to be mining very lean ores and slag heaps. You don’t have East Texas oil bubbling out of the ground. You’re going to have to get it from deep under the Gulf of Mexico or Alaska or somewhere with amounts of capital equipment you don’t have anymore. So how are you going to get it out? That struck me as an instructive thought experiment, in terms of limits to production. I hope I’m not depressing you too much here.

ACRES U.S.A. You and Cobb describe an “ideology of death” in For the Common Good. What do you mean by that? And what would an “ideology of life” look like? How would people relate to it?

DALY. I like John Ruskin — his statement that there is no wealth, but life. Without life, wealth is just material or stuff. That is always to be focused on the life-support capacity as kind of the fundamental basis of both natural wealth and human-made wealth. As for “ideology of death,” what we meant was converting that into weapons — and not even weapons, but things that diminish the capacity of Earth to support life, like luxury goods that don’t capture solar energy or don’t really do anything good. So wasting the capacity of the Earth to support life is the ideology of death.

ACRES U.S.A. Did you find people were able to relate to that idea and others in the book?

DALY. Some. [Coauthor on For the Common Good] John Cobb is a philosopher/theologian and I’m an economist. The book had some influence. People talked about it. It didn’t cause the economists to change at all really. But other people talked about it.

ACRES U.S.A. I still think it would be relevant today, maybe even more so, given the way things have gone in the last 25 years or so.

DALY. Well, maybe, maybe it will have a renaissance. I keep looking for younger economists and others to pick up the standard and run with it. There are some. For example, Peter Victor in Canada, Tim Jackson in the U.K., Josh Farley in this country, and more recently, Kate Raworth in the U.K. — who’s written a book with the curious title, Doughnut Economics, but it’s a serious book. I don’t know what’s going to happen. And there’s building up a disrespect for standard neoclassical economics. They’re going to have a harder and harder time, I think.

ACRES U.S.A. What are you hopeful about?

DALY. I consider hope to be a religious category. That’s your hope or confidence in the overall nature of creation and the Creator, if you believe in a creator, which I do, then I see hope in dimensions beyond my control and understanding. To the extent that I … I didn’t make myself, I just sort of showed up one day, here’s this consciousness floating around the universe trying to make sense of things and where in the hell did that come from? There’re a lot of materialists who try to tell me that it came from a long period of trial and error, and just by chance, all this stuff came together and I’ve got this incredibly complex brain in my head and somehow, at some point of complexity, voila!, here comes consciousness and that’s going to happen with robots in the future. I’m sorry, I don’t find it convincing. I can’t prove it, but I just don’t find it convincing. I find it more convincing that there’s a fundamental power that’s behind creation. So that’s sort of a basis of hope, whether it’s hope in this world or another, I don’t know. But I feel it’s my duty — if this is God’s creation, and I think it is — then it ought to be respected and cared for. Not forever, it’s not going to go on forever, if entropy is true. Maybe entropy’s not true, but that’s beyond my pay grade. That’s kind of my way of dealing with it. I don’t know. Different people I guess have different ways of facing these questions. But I think that’s important. There are ultimate questions of that nature, and if, for example, as many of my colleagues in the university think, they take a very scientific-materialist view of the world and everything is explainable in terms of, just like Democritus or Epicurus — matter in motion — well, then I think you’ve have left out so much, what’s the basis for doing anything? Why is one thing better than another, if it’s all just a question of matter in motion producing thought as an epi-phenomenon that is determined and could not be otherwise? Or as Darwin himself asked, “Why should I pay any attention to the thoughts of a monkey’s mind?” The reason why he sometimes tended to doubt his own theory was, “If my mind evolved from a monkey’s mind, why should I trust it?” Well, anyway those kinds of questions are not answered by the scientific-materialist view. If you assume a materialist answer, you cut the grounds out from under any motivation to do anything. Other people don’t see it that way. I once had a chance to ask a similar question to E.O. Wilson, who’s a very interesting and admirable person, but he’s an environmental activist and, at the same time, a devoted materialist. So I asked him, how does he reconcile those two? His answer, it was very honest, he said, “Well I can’t. They’re not reconcilable, but I’m not willing to give up either one, so I just live with the contradiction.” That’s an honest answer. Some people can do that. I prefer not to have the contradiction.