Once we have attained a steady state at some level of population and physical wealth, we are not forever frozen at that level. Moral and technological progress are very much a part of the steady state, which you will recall was defined in physical terms only. Knowledge, skill, wisdom, goodness, and so forth, are nonphysical. Improvement or growth in these qualities, far from being reduced, would probably be increased in the steady state, since the alternative of quantitative material growth would cease to have first claim on our time and energy. This point at least was made by John Stuart Mill a century ago. It may happen that as a result of technical and moral evolution it becomes both possible and desirable to grow (or decline) to a different level of stocks. We may certainly do it. But growth or decline will then be seen as a temporary adjustment process of moving from one steady state level to another, not as an economic norm. Furthermore, moral and technical evolution would precede physical growth and lead it, rather than being pushed willy-nilly by the growth momentum that demands more and more things for more and more people, now and forever. It is this frantic pushing of technology by demands for growth that leads to such dangerous technological adventurism as fast breeder reactors. We are told that there is no alternative for confronting the energy crisis-it is either a plutonium economy or back to the stone age! Electric power output must continue to double every decade, or else our economy will come unglued. But if we reflect a minute, we note that Sweden's per capita energy consumption is one-half that of the United States, and Switzerland's is only one-third. Yet both are advanced industrial countries with a very high quality of life-perhaps higher than the United States. Let's stop and look before we take the next technological leap, and not allow growthmania to push us blindly. We made a start by saying "no" to the SST. The change to a steady-state economy will require a substantial reorientation of economic thought. The current paradigm in economic theory begins with nonphysical parameters (technology, preferences, and distribution of wealth and income are all taken as "givens") and then inquires how the physical variables of quantities produced and resources used must be adjusted to fit an equilibrium or an equilibrium rate of growth-determined by these nonphysical parameters. The nonphysical conditions are considered to be autonomous, while the physical conditions are accommodating. The new paradigm, however, must begin with physical parameters a finite world, a complex ecosystem, the laws of thermodynamics-and inquire how the nonphysical variables of technology, distribution, and life styles can be brought into a feasible and just equilibrium with the complex biophysical system from which we emerged and with which we are coevolving. The physical conditions become autonomous and the nonphysical patterns of economic life assume the accommodating role. From an economy based on physical growth and moral stagnation, we must shift to an economy based on physical equilibrium and moral improvement. What kinds of institutions are required to bring about the transition to a steady-state economy, and permit its continuance once attained? This in my view is the key question. Elsewhere I have attempted to sketch an outline of the necessary institutions of a steadystate economy and how they might function. These materials have been sent to the committee as supplementary matter. I am sure that you will appreciate that the attempt is necessarily very speculative and tentative, but perhaps a few points are worth mentioning here. The key characteristic of any such plan must be that it does not present insurmountable problems of transition, that it builds on existing institutions and can be approached from existing initial conditions, rather than requiring an impossible "clean slate". The outline builds on the existing basic institutions of private property and the price system, and is to that extent fundamentally conservative. But it demands an extension of these institutions to areas previously not included: mainly to the control of throughput by limiting aggregate depletion of basic resources via a quota auction system, and secondarily to the control of aggregate births by a system of transferable birth licenses. Such a major extension of the market to such vital areas would be intolerable unless the principal defect of the market system-excessive inequality—is remedied by the institution of minimum and maximum limits to personal wealth and income. Some such limitation is implicit in most justifications of private property, and is desirable on independent ethical grounds. Limiting the degree of inequality would seem to me to be a precondition for stability. The advantage of the price system is that it permits decentralized decisionmaking and allows the maximum degree of micro or individual freedom and variability that is consistent with the aggregate limits imposed by considerations of ecological balance. The authorities would set the total amount of annual depletion; how that gets allocated to the individual units would be left to the market. The imposed aggregate quotas are variable from year to year and would permit any degree of gradualism desired in making the transition. The outline also provides price inducements to resource-saving technology and to conservation, as well as an additional source of government revenue. These remarks are merely to give an indication that a steady-state economy is not inconceivable or logically impossible. They hardly begin to spell it out. However, it may well be a political impossibility, and as of 1973 it certainly is. But I am hopeful that over the next decade or two economists will accept the steady-state paradigm and develop and elaborate it convincingly. Since the alternative growth paradigm runs afoul of physical limits, its current political feasibility is a very hollow advantage. If, in Senator Muskie's words, and in the statement by Senator Clark, if "we should begin to regulate growth itself rather than regulating only the by-products of growth," then we must have the courage to face up to the need for radical changes. In my view the least radical innovation that would still do the job is a See reading #7 in H. E. Daly, ed. Toward a Steady-State Economy, W. H. Freeman Co. 1973. See also H. E. Daly "A Model for a Steady-State Economy," (mimeo.) address presented at Yale University School of Forestry and Environmental Studies. system of auctioned depletion quotas on basic resources, administered by the government." Thank you. [An appendix to Dr. Daly's statement follows:] APPENDIX EFFICIENCY AND TECHNICAL PROGRESS UNDER GROWTHMANIA AND STEADY STATE ÁSSUMPTIONS Efficiency is measured by the ratio of useful service to costs incurred in rendering that service. The ultimate useful service is want satisfaction, the ultimate cost is throughput (the physical maintenance flow beginning with depletion and ending with pollution). Thus total efficiency is the ratio of service to throughput. But it is useful to break total efficiency into two components and thereby bring the stock dimension into the picture. Stocks are accumulated flows of throughput and thus in an ultimate sense are costs. This is true both for producer stocks and for consumer stocks. The throughput in its flow form does not directly yield services. It must first be transformed and accumulated into stocks of consumer durables that yield services, or into producer durables (tools) that satisfy the want to save labor or make labor less irksome. These considerations are summarized in the following equation: Total The equation allows us to speak of two kinds of efficiency: (1) the efficiency of the stock in satisfying wants, which is limited only by human appetities and ingenuity, and (2) the efficiency of the throughput in maintaining the physical stocks, which is limited by the first and second laws of thermodynamics. The best that human ingenuity can do is to approach these limits. In other words, given any positive size of stocks, throughput cannot be made to approach zero. Note that the stock, as an intermediate form of the throughput, appears as a "cost" in ratio (1) and as a "benefit" in ratio (2). In the total efficiency ratio (product of the two) the stocks cancel out. Economics has long been frustrated in its scientific aspirations by the fact that service or want satisfaction is unmeasurable. Although we all directly experience want satisfaction and know what it is, we cannot pin a number on it. The throughput, however, is measurable. Now if for some reason the two efficiency ratios were constant, then an increase in throughput would yield a proportional increase in stocks, which in turn would yield a proportional increase in services. Measurable throughput would then be a good index of non-measurable welfare (services), and it would make good sense to assume that increasing throughput implies increasing welfare. If the two efficiencies should increase, then the implication would hold a fortiori. In the past these two possibilities were probably close to the real facts. In any event we have geared our economy to increasing throughput as if this were the case. But we have gone so far as to forget that throughput was only an index of welfare, not welfare itself, and not even an index unless the two efficiencies were at least constant. In our fascination with the GNP-throughput we have forgotten to keep one eye on the efficiencies. In fact we have become so intent on increasing throughput that we willingly pay the price of lowering the second efficiency ratio just so we can increase the denominator-witness planned obsolescence and fashion changes. The second ratio is further reduced by our social conventions of rewarding labor and capital according to their productive efficiency, which is measured by the reciprocal of ratio (2)-i.e. the amount of throughput (resource flow) transformed per unit of stock of capital or per worker. Thus our system of distribution according to the ratio of throughput to stock leads to efforts to increase For details see references cited in footnote 8. Also "A Critique of Growth Fallacies with a Suggestion for a National Materials Policy," paper presented by H. E. Daly to "Conference on Scarcity and Growth" of the National Commission on Materials Policy, at University of Minnesota June, 1972. (mimeo.) that ratio by increasing the throughput flow of resources relative to the stocks of labor and capital. While this might make sense from a growth viewpoint it does not from a steady-state view, and even from the growth view it has the effect of lowering ratio (2) thus weakening the association between throughput growth and welfare increase. The social struggle between labor and capital for shares of the total product leads to ever greater attempts to increase capital and labor productivity with a consequent lowering of "throughput productivity" or ratio (2), thus continually undermining the presumed constancy upon which the use of throughput as a welfare index rests. The second ratio is also reduced by the law of diminishing returns. As wells and mines become depleted it requires an ever larger throughput of matter and energy to maintain a unit of stock-less of the throughput is usable for stock maintenance and more is waste. The disposal of ever greater amounts of material and thermal waste puts greater stress on the ecosystem, and makes it ever more necessary for us to defend ourselves from the unwanted side-effects of a large throughput. But these extra stocks used defensively really provide no net increase in want satisfaction, thereby lowering ratio (1) or "stock efficiency". Ratio (1) is further lowered by the provision of "disservices" such as cigarettes, harmful drugs, etc. which are pushed off on the public through aggressive advertising, all in the name of growth. Also the law of diminishing marginal utility implies a lowering of the first ratio as larger stocks are accumulated, since each extra unit of stock satisfies a less pressing want. This is especially true when the increments go mainly to the rich rather than the poor. In that case the trivial want satisfactions of the rich take priority over the larger satisfactions that would result from serving the more pressing needs of the poor. At some point the "indirect" growth-induced reductions in the two efficiencies more than offset the positive "direct" effect of throughput growth on welfare, and throughput then becomes a perverse index of welfare. The forces leading to reductions in the efficiency ratios all seem to result from encounters with limits. As growth pushes us nearer the limits we experience a feeling of reduced well-being, even though our GNP welfare index is growing (in fact because it is growing). But our experienced reduction of well-being is, within the old paradigm, attributed to insufficient growth. There is a clamor for more growth, not less, and of course the result is perverse. If one is suffering from an overdose of medicine one needs an emetic, not more of the medicine. But can we not call on technology to save the plot by increasing the two efficiency ratios? Unfortunately the engineers get their orders from economists and are trapped by a system that is geared to compound interest and dedicated to increasing throughput. So they design technologies with larger jaws and greater dependence on non-renewable resources that can be rapidly exploited, and with greater tendencies to over-exploit renewables. This is not to deny that technology could increase the two efficiency ratios, within the limits previously mentioned. Rather the point is that such beneficial technical change will be the exception to the rule as long as our system sees exponentially increasing GNPthroughput as a benefit rather than a cost. Technology serves the goals of society. If these goals are wrong then "improved" technology just makes things worse. If we adopt the steady-state perspective then technology will be able to serve more rational goals. One change in the direction of technical development would be to increase the portion of the throughput that is derived from solar energy and renewable resources, and consequently reduce the portion derived from the non-renewable sources of depletable minerals and fossil fuels. This would permit a long-run survival efficiency that is totally ignored by current growthmania. Senator CLARK. Thank you very much. Your testimony is among the most interesting and innovative that I have had the pleasure to hear on American economic growth and its future directions. We are very appreciative to you for this statement, and for the other material that you have submitted for the record. That will be included in the record. (See p. 18.) There are several questions that I have. Senator Stafford, do you have any questions at this time? Senator STAFFORD. Thank you, Mr. Chairman. I am sorry I didn't hear the first part of the testimony this morning by Dr. Daly. But I do have one question, and that has to do with your statement about adventurism and fast breeder nuclear reactors. Do you care to expand on what you had in mind there? Mr. DALY. Yes; the problems that many people see with the nuclear power and going into the fast breeder are not so much the technical issues of can we find ways to dispose of radioactive waste products, and so on, but really the social issues that would be involved in safeguarding such a toxic and dangerous substance as plutonium. I am not a physicist. I am speaking second-hand on much of this. But evidently plutonium is the most toxic substance known to man. Extremely small amounts of it induce lung cancer. A rather small quantity of it constitutes a critical mass and can be used for atomic weapons. So if you project the AEC's tentative plans for moving to use of breeder reactors we would have tons and tons of plutonium moving all around the country, and this would have to be safeguarded from accident, from theft, from purposeful sabotage, with 100 percent efficiency. Ninety-nine point nine-nine-nine efficiency wouldn't be good enough. Whether or not human beings can handle anything over any sustained period of time with 100 percent efficiency seems to me to be a very doubtful proposition, and one not really amenable to a technical solution. That is what I had in mind. Senator STAFFORD. You are an economist ? Dr. DALY. Yes. Senator STAFFORD. Not a nuclear physicist? Senator STAFFORD. So the opinions you express are those of an economist looking at a fast breeder reactor, and not those of a physicist? Dr. DALY. That is right. However, they are shared by a number of physicists. Also the points at issue are questions of social control, not physical science. Senator STAFFORD. Let me ask you with respect to your testimony. You make another interesting comment there about a system of transferable birth licenses. It seems to me I read fairly recently that our birth rate in this country has recently dropped below the necessary rate to maintain the present population after we have leveled out at something about at our present numbers. Would you expand a little more on what you meant by transferable birth licenses? Dr. DALY. Yes. This is a proposal which was first made by Kenneth Boulding. I mentioned it. I put it in secondary importance precisely for the reason that you mentioned, that the present trend of the birth rate seems to be down. So maybe the urgency of such a thing is not so great as it was. However, birth rates have a way of going back up after periods of time as they did after the depression. So that I simply mention it as kind of a logical counterpart to the other notion. It seems to be a rather far-out idea. It offends the sensibilities when one speaks of |