Keynes’ “widow’s cruse” – capitalism to natural growth

Supplemental notes for 3/12/10 Economies that Can become part of Nature

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How an economy can relieve growing internal and environmental strains that would trigger a wider than local collapse.

It’s a subject enough people need to understand before the shrinking time to respond slips away.

5/18/19

Current economic thinking on Keynes “widow’s cruse” repeatedly misses the whole point. Keynes illustrated his discovery that capitalism would have natural limits of overinvestment with the parable from 1 Kings 17 about Elijah granting God’s gift to an impoverished old widow, of an inexhaustible jar of flour and jug of oil, to last until rains came again.   In Chapter 16.V of The General Theory, he directly states what he meant, saying that to avert the worst crises of capitalism as growing returns from exploiting people and the earth reached limits:

“In so far as millionaires find their satisfaction in building mighty mansions to contain their bodies when alive and pyramids to shelter them after death, or, repenting of their sins, erect cathedrals and endow monasteries or foreign missions, the day when an abundance of capital will interfere with an abundance of output may be postponed.

It is clear he is talking about the world economy becoming managed as a healthy cash cow, solving the “tragedy of overinvestment in the commons” by spending returns on investment.  That is the better choice than letting the share of income earned by capital continue tending to infinity as the productivity of exploiting people and the earth shows diminishing marginal returns.   To put it crudely, you might simplify the parable to “better to be a cash cow than dead meat.”   Better a circular money economy, as in naturally balanced systems, than endless compounding of worthless promises.

For the owners of the world the choice is to either be generous enough in spending their profits to relieve the people and environment of ultimately unproductive demands – caring for the earth, or alternately to drive their exploitation to exhaustion, leading the earth into an all-consuming plague of plagues as growing ealth extraction becomes more disruptive than constructive.  In Chapter 16 Keynes also said that time we would face that would not be far off, and now it appears we see he was right.

Historically the Romans and the fabled “Egyptians” of the Exodus seem to provide the real world models for owners of the world, making the wrong choice as their fortunes reached natural limits.   The actual Egyptians, thriving for ages giving good work to their population during the annual floods, seem to offer one example of the other choice.   Nearly all of us make that basic choice in our careers, learning to back off from making excessive demands on our environments as a key investment strategy to use, letting other things flourish, all the time.

Of course, there are lots of other principles to follow in maintaining the productivity of a network of resources, such as not spending all the profits on unproductive services.   Equally tough moral choices lie in needing not to accumulate overhead that depletes your energy returns on energy invested, EROI.   It would seem very easy to bankrupt a big and otherwise seemingly healthy business, culture, or whole economy, letting its energy costs rise to equal its energy returns.

6/15/11

J.M. Keynes devoted the concluding theory chapter of his design for modern economics, Chapter 16 of The General Theory, to describing the natural limits of money in a free market system .

It seems economists were generally confused as to why Keynes would consider that, and didn’t study what Keynes had to say about where following the rest of his theory would lead. He pointed to why a market economy will continue to have growing savings and keep making growing investments even when natural limits and environmental conflicts make that increasingly unprofitable for the system as a whole.

He also described the alternative that would allow the whole system to remain profitable in the long term. Either way the expansion of wealth and money would reach a climax. Either investors would continuing to accumulate savings until they produced no net returns and businesses failed, or by spending enough assure the long term profitability of the whole.

The one choice is utterly disastrous and the other a bit unappealing to some but a way out of a real trap.  It’s counter intuitive in many ways, and forces us to recognize that every part of an economic system depends on the good health of the whole.

A strong case seems possible that we have reached a global point of diminishing profitability for growth, affecting the whole economic system.   That could well be the cause of increasingly intense debates over the direction of the economy for decades, the dangers of resource depletion and climate change, the erupting strains of many kinds leading up to the 2008 collapse, the great economic volatility ever since, and the continuing persistent rise of basic resource costs.

Those can all be grouped under evident natural causes for there now being too much money chasing too little real economic opportunity.   They could well be the main source of our growing concern with “systemic risks” and for “nothing we do seeming to work”. From his view from the 1930’s Keynes had predicted a point at the end of growth when the whole economy would sour, as increasing investment was increasingly unproductive. He stated plainly he thought that point of excessive financial capital would be fairly easy to achieve.

What we now see are the convergence of all the hidden liabilities from past bad investment practices. We have the rapid deterioration of the environment, the high debt and noncompetitive cost structure of the developed economies, the globally escalating food and fuel resource prices due to theglobal condition of demand exceeding supply, and our beginning to feel the heat of climate change, that together seem to prove the case.

Seeing the necessity to halt this progressive deterioration is where one finds the boldness to consider the one last option that would actually work, reducing whole system economic demand on the earth by regulated divestment of excess savings. It could be done if a simple principle was followed universally, and social peer pressure was what enforced it, and both of those seem quite possible, but it takes global learning and communication of a new kind. Finding some means to do it is an indispensable step to relieving our burden on the earth and finding the funds for other purposes needed to restore a healthy sustainable economy.

Of course, it also can’t be done without better ways to measure economic impacts and their financial liabilities as well as things from everyone else’s lists too. The following is the original of this post. You can use a site search for references to Keynes , and go to my blog list of “natural economy” posts to find other discussions of how and why it’s important to restore a “circular economy” now that our “growth economy” is becoming unprofitable and multiplying our complications.

4/1/10

Keynes was also a misunderstood systems ecologist… among many things, and there’s a trail of evidence that he discovered the secret of how natural systems switch from multiplying complex designs to refining simple solutions, he gave it the strange name “the widow’s cruse” after a bible story about the gift of an inexhaustible cup (I Kings 17:8–16). His proposal makes no real sense to anyone, unless, you consider our “crisis of capitalism” as a growth ecology creating insurmountable internal problems for itself at natural limits and needing to switch to nature’s usual solution for that.

The general conservation equation for auto-catalytic growth compares the resource for making products (P) and the saving from it for developing the process (S). If the linked markets for it’s “work” and “investment” grow and stabilize together, then the system stays in balance as it develops.  In an economy that occurs when the returns added to savings (S*r) and spending from savings (S*s) match the increase in products (P*p).

When physical limits cause product growth to stop, p = 0
THEN stable change over time requires:
EITHER:   r = 0 and an end to average positive returns on investment
OR:  r – s = 0 so the comfortable positive returns are spent on purposes other than multiplying returns
SO:  both S1 = S0 + S0 (r – s) and S1/P1 = S0/P0

That’s Keynes “widow’s cruse” idea for turning the economies into an “inexhaustible cup” with a lasting sustainability plan, to spend enough of the seed money on something useful for the system to stabilize it.

It’s not about stabilizing growth but stabilizing a healthy economy without growth, treating it as a natural living system switching to maturation, sacrificing the practice of limitless growing investment and concentrating wealth.   It would be a big cultural change for us, but once it’s realized why it was always going to be physically necessary…, as at the end of growth there is no other healthy economy option …  there are ways to provide quick systemic relief.

It’s also an application of “new physics”, using scientific models to refer to and assist in studying complex physical systems that remain undefined. That’s an approach that avoids representing nature as the conceptual model used, and allows connecting different languages of interpretation through their references connecting aspects of the same physical things.

Physical systems that operate by themselves in relatively passive environments develop by auto-catalytic growth from a seed process of some kind, generally animated by their own self-organizing parts. The whole system develops by treating some of its products as operating surpluses, and using them to build the process. That multiplies its scale and the surpluses until the erupting internal and external environmental imbalances disrupt or exhaust it, or trigger a switch to maintaining the surpluses and adapting to the new environments by completing and perfecting the design its operations.

Jul 2011

a steering mechanism, guiding the system toward sustainability, seeking profitable options for the system as a whole

For other views of “what to do” from an environmental and systems science view, see also my “What to do” from 3/6/10 and my

My various other discussions can be found from a site search of Synapse9 for mentions of keynes, most discussing the natural limit for money that Keynes identified.

It comes down to one thing, that is the subject for slides #5-8, in my 6/10/11 notes for Alex Jakulin’s Foo Camp talk on my work.

All natural systems start with growth like economies, using a “seeding mechanism” for planting seeds to multiply the “start-up” system.  For money and the economy, it’s the regular use of investments to grow investments.  That mechanism, like any growth system’s start-up mechanism, has to change form to become a real“steering mechanism”.

As a start-up system it acts to continually expand itself at maximum rates. To become an “end-up” steering mechanism, guiding the future of the system toward sustainability, it has to change to seeking profitable options for the system as a whole, avoiding expansion that only becomes ever more unprofitable.

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