When people stopped considering aspects of the natural world—Sun, Moon, oceans, rivers, mountains, woods—to be gods to be appeased and supplicated, it became relegated to proto-scientific consideration and became objectified as, basically, dirt. The Bible makes clear that “down here,” humans (actually, men) were in charge and everything else (animals, plants, waters) was here for our benefit. The “scientific revolution” in 17-18C Europe, solidified the objectification of the world (“disenchantment” is part of modernity).
So, it’s no surprise that the emergence of global capitalism in the 17-19C and its intellectual handmaiden “economics” found no place for the natural world in its calculations except as a variety of property to be owned and exploited. Indeed, a substantial part of the huge generation of wealth during this time (esp. in Europe and the US) was due to the monetization of extractable commodities (e.g., coal, silver, gold, oil), not to mention the land itself (yes, and exploitation of humans, too!).
Europeans expanded their empires by declaring that land not considered “owned” (i.e., a form of property) and “occupied” (i.e., used/managed in the way that Europeans understood it) was considered “terra nullius” (“empty land”), available for imperial claims. Similarly, such land was brought into “civilization” (i.e., private ownership) and subsequently handed out to military conquerors or potential homesteaders. Indigenous groups (on all continents) were given short shrift.
Most of this happened before late 19C economists even formulated the concept of an “externality,” and recognized that economic analysis was incomplete since it did not take into account certain costs and benefits. And, as has been common in the social sciences, such problems are generally ignored (or at least relegated to a back corner of theoretical discussion.) There was no simple way to value or incorporate e.g., clean air or water, ambient temperature into economic calculations. This was due in part to the fact that property and actions (e.g., dumping toxic waste) had been going on since before science determined that these actions had real (and deleterious) effects. In addition, those who caused these effects (often the wealthy, but even poor folks dumping personal waste in the streets) always had a lot of social inertia and ignorance behind their behavior. Finally, who was to force the inclusion of these externalities? If it was the “government,” then such actions smacked of intervention, contrary to laissez-faire liberalism.
The results, despite decades of incremental fiddling with what is “external” and what not (bottle/can deposits started in 1971), the results of pretending that the rest of the planet was available for use/extraction/dumping at “no cost” are evident to anyone who’s looked at a thermometer lately. It’s particularly ironic that the same politicians who blather on about the superiority of the “market” are the same folks who are afraid of market-based solutions for carbon.
Externalities are also a leading indicator of why the whole project of “economics” is fundamentally flawed. It’s easy to make equations work when you just assume away any number of complications (aka the real world). It’s only in the last few decades that real progress has been made on dealing with the fact that people make decisions for non-rational reasons (see my posting a while back on Daniel Kahneman’s Thinking Fast and Slow). Wow! Stunning! Just imagine that sentiment and emotion affect spending/investment decisions (see, e.g., Victoria’s Secret or Elon Musk)! Sometimes, raising the price increases demand! Oops. Most economists are well intentioned, to be sure, but it would be great to stop pretending they actually knew what they were talking about. After all, it’s (relatively) easy to model a world populated with rational robots and with a large garbage chute into which all manner of unpleasant and complicating costs can be dumped and thence ignored.
Kurt Godel (my favorite undersung 20C thinker) pointed out (1931) that you can’t validate any system of ideas from the inside. In other words, economics can’t prove that economics is accurate (or, as Godel showed, even mathematics can’t prove that mathematics is accurate), so the only way to have confidence is to make a truck-load of assumptions and simplifications.
Of course, there’s always the classic experiment in ignoring externalities performed by/for/on the communist countries during the 20C. Marx said that markets were evil and the State would manage all production and consumption. Lenin theorized along the same lines, but once he took over the USSR, he backed off eliminating markets entirely; it seems that State planners actually couldn’t visualize and manage the entire economy. But after Lenin died, Stalin drove modernization hard (and brutally); five-year plans and all that. Even after Stalin and the brutality gave way to bureaucracy, they never really got a handle on the complexity of the world. Those nasty externalities (freedom, fashion, technological change) got in the way and, in the end, came back to eat up the once-vaunted Soviet state.
I’ve noted elsewhere that modernity is much about the difficulties of recognizing and coming to terms with the complexities of the world. It’s psychologically challenging, whether you’re talking about organizing a dinner party, or planting crops with changing climate, or a central banker designing a program of “Quantitative Easing.” We all get headaches just trying to conceptualize things, so it’s no wonder we often go for simplifying assumptions (e.g. assume no inflation) to make it through.
But the externalities are out there. We can’t wish them away. Whether it’s planetary carrying capacity, or Soviet suppression of ‘decadent’ American jazz, merely to pretend differences and complications and unknowns aren’t there is a conceit. Barring some climatological miracle, as the Soviets were fond of saying, capitalism will be consigned to the ash heap of history for ignoring certain externalities. We can take small comfort that, for the same reason, the Soviets got there first.
So, it’s no surprise that the emergence of global capitalism in the 17-19C and its intellectual handmaiden “economics” found no place for the natural world in its calculations except as a variety of property to be owned and exploited. Indeed, a substantial part of the huge generation of wealth during this time (esp. in Europe and the US) was due to the monetization of extractable commodities (e.g., coal, silver, gold, oil), not to mention the land itself (yes, and exploitation of humans, too!).
Europeans expanded their empires by declaring that land not considered “owned” (i.e., a form of property) and “occupied” (i.e., used/managed in the way that Europeans understood it) was considered “terra nullius” (“empty land”), available for imperial claims. Similarly, such land was brought into “civilization” (i.e., private ownership) and subsequently handed out to military conquerors or potential homesteaders. Indigenous groups (on all continents) were given short shrift.
Most of this happened before late 19C economists even formulated the concept of an “externality,” and recognized that economic analysis was incomplete since it did not take into account certain costs and benefits. And, as has been common in the social sciences, such problems are generally ignored (or at least relegated to a back corner of theoretical discussion.) There was no simple way to value or incorporate e.g., clean air or water, ambient temperature into economic calculations. This was due in part to the fact that property and actions (e.g., dumping toxic waste) had been going on since before science determined that these actions had real (and deleterious) effects. In addition, those who caused these effects (often the wealthy, but even poor folks dumping personal waste in the streets) always had a lot of social inertia and ignorance behind their behavior. Finally, who was to force the inclusion of these externalities? If it was the “government,” then such actions smacked of intervention, contrary to laissez-faire liberalism.
The results, despite decades of incremental fiddling with what is “external” and what not (bottle/can deposits started in 1971), the results of pretending that the rest of the planet was available for use/extraction/dumping at “no cost” are evident to anyone who’s looked at a thermometer lately. It’s particularly ironic that the same politicians who blather on about the superiority of the “market” are the same folks who are afraid of market-based solutions for carbon.
Externalities are also a leading indicator of why the whole project of “economics” is fundamentally flawed. It’s easy to make equations work when you just assume away any number of complications (aka the real world). It’s only in the last few decades that real progress has been made on dealing with the fact that people make decisions for non-rational reasons (see my posting a while back on Daniel Kahneman’s Thinking Fast and Slow). Wow! Stunning! Just imagine that sentiment and emotion affect spending/investment decisions (see, e.g., Victoria’s Secret or Elon Musk)! Sometimes, raising the price increases demand! Oops. Most economists are well intentioned, to be sure, but it would be great to stop pretending they actually knew what they were talking about. After all, it’s (relatively) easy to model a world populated with rational robots and with a large garbage chute into which all manner of unpleasant and complicating costs can be dumped and thence ignored.
Kurt Godel (my favorite undersung 20C thinker) pointed out (1931) that you can’t validate any system of ideas from the inside. In other words, economics can’t prove that economics is accurate (or, as Godel showed, even mathematics can’t prove that mathematics is accurate), so the only way to have confidence is to make a truck-load of assumptions and simplifications.
Of course, there’s always the classic experiment in ignoring externalities performed by/for/on the communist countries during the 20C. Marx said that markets were evil and the State would manage all production and consumption. Lenin theorized along the same lines, but once he took over the USSR, he backed off eliminating markets entirely; it seems that State planners actually couldn’t visualize and manage the entire economy. But after Lenin died, Stalin drove modernization hard (and brutally); five-year plans and all that. Even after Stalin and the brutality gave way to bureaucracy, they never really got a handle on the complexity of the world. Those nasty externalities (freedom, fashion, technological change) got in the way and, in the end, came back to eat up the once-vaunted Soviet state.
I’ve noted elsewhere that modernity is much about the difficulties of recognizing and coming to terms with the complexities of the world. It’s psychologically challenging, whether you’re talking about organizing a dinner party, or planting crops with changing climate, or a central banker designing a program of “Quantitative Easing.” We all get headaches just trying to conceptualize things, so it’s no wonder we often go for simplifying assumptions (e.g. assume no inflation) to make it through.
But the externalities are out there. We can’t wish them away. Whether it’s planetary carrying capacity, or Soviet suppression of ‘decadent’ American jazz, merely to pretend differences and complications and unknowns aren’t there is a conceit. Barring some climatological miracle, as the Soviets were fond of saying, capitalism will be consigned to the ash heap of history for ignoring certain externalities. We can take small comfort that, for the same reason, the Soviets got there first.
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