Review of Energy and the Wealth of Nations: Understanding the Biophysical Economy, by Charles A.S. Hall and Kent A. Klitgaard (2012), Springer, 407 pp., ISBN 978-1-4419-9397-7.
In this insightful review, Tina Evans makes the case for Hall and Klitgaards’ work as going beyond more superficial ecological economic analysis into a deeper realm of biophysical economics where human economies do not just depend on a natural resource base, but are part of it. She is impressed by how thoroughly the book delves into the many theoretical and interdisciplinary aspects of biophysical economics, while engaging the reader and presenting a coherent common theme throughout.
Energy and the Wealth of Nations is a centrally important book for sustainability educators, upper division and graduate students, and members of the general public who are interested in understanding and addressing some of the fundamental challenges to socio-ecological sustainability. Hall and Klitgaard address head on what many sustainability educators and practitioners would argue is the central underlying challenge to living more sustainably: the contradiction between 1) how industrial society conceptualizes and operates the globalized growth economy and 2) the natural limits of the biophysical world.
Others have addressed this contradiction from diverse perspectives: M. King Hubbert who first developed the theory of peak oil production; sustainability-oriented economist Richard Douthwaite who analyzed systems of money creation and use in his groundbreaking work The Ecology of Money and who challenged the notion of economic growth as an unmitigated good in The Growth Illusion; Meadows, Randers, and Meadows, authors of The Limits to Growth and its updated editions; and well-known economist Herman Daly who advocates for a steady state economy. But Hall and Klitgaard offer us something new and of critical importance as we move into an era of increasingly evident limits to economic growth. They offer us a well-researched and well-written work that addresses how we might rethink the foundational assumptions and tools of the field of economics itself. They develop the foundations for a field of “biophysical economics” as a melding of the social sciences and biophysical sciences that can guide economic decision making in societies challenged by natural limits on all fronts: limits to land, soil fertility, ocean fisheries, pollution sinks, and – most importantly in their analysis – to net energy available to drive modern societies.
Hall and Klitgaard propose that economics, if it is to serve us well beyond the era of fossil-fuel-fed economic growth, must be grounded by scientific understanding of how the natural world actually works. They argue that the formulas and other analytical tools used to guide and justify policy in the economic realm give the appearance of economics as a science while these tools leave much to be desired in terms of approximating how individuals and societies behave and how the natural world (the source of all the energy and material needed for economic activity) actually works. Energy serves as the most important case in point with regard to highlighting omissions from the field of economics. Hall and Klitgaard effectively argue 1) that we are likely approaching limits to net energy available from fossil fuels and other energy sources and technologies and 2) that economics, as it has developed historically as a social science, has proven incapable of analyzing the role of energy in economies and of offering insights about how we might proceed in a post peak energy world.
Hall and Klitgaard appropriately situate their thorough interdisciplinary analyses both historically and culturally by tracing the development of economics as a discipline and by analyzing how economic thought has influenced political policy and practice over time, with particular emphasis on the U.S. in the post-World-War-II era. The authors also do an excellent job of helping the reader understand important theoretical approaches and technical practices of the field of economics. Throughout their historical and theoretical/methodological analysis of the field, the authors call for grounding economics within a scientific understanding of the natural world and human societies. That grounding, they argue, transforms economics from a field based on unproven theories that function as ideology to a field which can inform decision making as we confront many converging crises of sustainability.
Hall and Klitgaard also discuss conceptual material drawn from multiple fields that is essential to framing the field of biophysical economics. They provide their readers with accessible and useful discussion of scientific concepts and practices that form the foundation for the field as a whole. They also discuss how mathematical analysis has been applied and misapplied in economic analysis and argue for its limited application within biophysical economics.
Perhaps most importantly, Hall and Klitgaard offer a well-developed analysis of peak oil and the emerging, critical challenge of net energy decline within industrial economies that have been designed to function in a context of limitless economic growth. They also highlight environmental challenges to energy capture and production. The analysis the authors provide regarding the energy challenges we face is among the most clear, accessible, concise, and well-supported I have seen. This cogent analysis alone is an excellent contribution to the sustainability literature.
While a single work cannot do everything, these authors cover an impressive breadth of alternative economic analyses without sacrificing depth. A thoroughgoing analysis of how money is created through debt appears be beyond the scope of the authors’ central purpose: laying the foundations of the field of biophysical economics. For courses in which it is important for students to have a clear understanding of the destabilizing aspects of structural debt and how the practice of creating money through interest-bearing loans makes ever-growing debt a structural feature of modern economies, I recommend Richard Douthwaite’s The Ecology of Money and the film Money as Debt as supplemental texts to Energy and the Wealth of Nations.
Faculty and students from multiple disciplinary and interdisciplinary backgrounds will find Energy and the Wealth of Nations to be a highly accessible, informative, well-argued, well-supported, insightful, and important read. Textual material is supplemented by many graphical representations of concepts and data and by useful photographs, making this work accessible to readers with diverse learning styles. I highly recommend this book principally as a course text but also as a relevant book for anyone interested in sustainability. It is both engaging and thorough — a combination that can be difficult to achieve.
Douthwaite, R. (1999). The ecology of money. Schumacher Briefing no. 4. Totnes, Devon, England: Green Books. Available online: http://fleeingvesuvius.org/contents/.
Douthwaite, R. (1999). The growth illusion: How economic growth has enriched the few, impoverished the many and endangered the planet. Gabriola Island, BC: New Society.
Grignon, P. (Creator/Producer). (2006). Money as debt [Motion Picture]. Moonfire Studio/Lifeboat News. Retrieved February 26, 2012 from http://video.google.com/videoplay?docid=5352106773770802849
Meadows, Donella, Randers, J., & Meadows, Dennis (1972). The limits to growth: A report for the Club of Rome’s project on the predicament of mankind. New York: Universe Books.
Meadows, Donella, Randers, J., & Meadows, Dennis (1992). Beyond the limits: Confronting global collapse, envisioning a sustainable future. White River Junction, Vermont: Chelsea Green.
Meadows, Donella, Randers, J., & Meadows, Dennis (2004). Limits to growth: The 30-year update. White River Junction, VT: Chelsea Green.