Steady state economy

A steady-state economy is an economy made up of a constant stock of physical wealth (capital) and a constant population size, or one where these grow at constant rates. In effect, such an economy does not grow in the course of time. The term usually refers to the national economy of a particular country, but it is also applicable to the economic system of a city, a region, or the entire world. Early in the history of economic thought, classical economist Adam Smith of the 18th century developed the concept of a stationary state of an economy: Smith believed that any national economy in the world would sooner or later settle in a final state of stationarity. The world's mounting ecological problems have brought about a widening interest in the concept of a steady-state economy. Critics of the steady-state economy usually object to it by arguing that resource decoupling, technological development, and the unrestrained operation of market mechanisms are capable of overcoming any resource scarcity, any rampant pollution, or population overshoot. Proponents of the steady-state economy, on the other hand, maintain that these objections remain insubstantial and mistaken — and that the need for a steady-state economy is becoming more compelling every day.:148–155 A steady-state economy is not to be confused with economic stagnation: Whereas a steady-state economy is established as the result of deliberate political action, economic stagnation is the unexpected and unwelcome failure of a growth economy. An ideological contrast to the steady-state economy is formed by the concept of a post-scarcity economy. Herman Daly defines his concept of a steady-state economy as an economic system made up of a constant stock of physical wealth (capital) and a constant stock of people (population), both stocks to be maintained by a flow of natural resources through the system. The first component, the constant stocks, is similar to the concept of the stationary state, originally used in classical economics; the second component, the flow of natural resources, is a new ecological feature, presently also used in the academic discipline of ecological economics. The durability of both of the constant stocks is to be maximized: The more durable the stock of capital is, the smaller the flow of natural resources is needed to maintain the stock; likewise, a 'durable' population means a population enjoying a high life expectancy — something desirable by itself — maintained by a low birth rate and an equally low death rate. Taken together, higher durability translates into better ecology in the system as a whole.:14–19 Daly's concept of a steady-state economy is based on the vision that man's economy is an open subsystem embedded in a finite natural environment of scarce resources and fragile ecosystems. The economy is maintained by importing valuable natural resources from the input end and exporting valueless waste and pollution at the output end in a constant and irreversible flow. Any subsystem of a finite nongrowing system must itself at some point also become nongrowing and start maintaining itself in a steady-state as far as possible. This vision is opposed to mainstream neoclassical economics, where the economy is represented by an isolated and circular model with goods and services exchanging endlessly between companies and households, without exhibiting any physical contact to the natural environment.:xiii In the early 2010s, reviewers sympathetic towards Daly's concept of a steady-state economy have passed the concurrent judgement that although his concept remains beyond what is politically feasible at present, there is room for mainstream thinking and collective action to approach the concept in the future.:549 :84 :83 For centuries, economists and other scholars have considered matters of natural resource scarcity and limits to growth, from the early classical economists in the 18th and 19th centuries down to the ecological concerns that emerged in the second half of the 20th century and developed into the formation of ecological economics as an independent academic subdiscipline in economics. From Adam Smith and onwards, economists in the classical period of economic theorising described the general development of society in terms of a contrast between the scarcity of arable agricultural land on the one hand, and the growth of population and capital on the other hand. The incomes from gross production were distributed as rents, profits and wages among landowners, capitalists and labourers respectively, and these three classes were incessantly engaged in the struggle for increasing their own share. The accumulation of capital (net investments) would sooner or later come to an end as the rate of profit fell to a minimum or to nil. At that point, the economy would settle in a final stationary state with a constant population size and a constant stock of capital.:3 :295