This is the next part of a series arguing that existing economic theory is insufficient to solve the inherent systemic problems of the economy.
In my last post/diary, I made the case that economic systems are analogs of biological interactions; specifically, capitalism is a form of predation and socialism is a variant of facilitative relationships. Here, I will extend the analogy and discuss how the geochemical portion of the ecological nutrient cycle is functionally equivalent to markets.
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[If you haven’t read Part 2a, please do. This essay builds on that discussion.
Econology Part 1a: It's not the economy, Stupid; it's economics
Econology Part 1b: Econoctopus: the deep, insidious tentacular nature of economies
Econology Part 2a:The biological interactions of economic production]
In the earlier parts of this series, economics was used as a familiar portal to introduce unfamiliar ecological concepts. This time, a familiar ecological phenomena will be the portal to a different (possibly unique) perspective on the structure of economies.
As mentioned in the introduction, economic production is similar to ecological food webs.
But economies are not only about production; knowing how stuff is made does not say much about how is it traded. And as a layperson, I have difficulty connecting the strands of the economic, sociological and anthropological elements of markets into a coherent metaphor that explains the relationships between markets, production and human welfare.
This is where the ecological food web can offer some insight. The strong parallels between economic production and food chains suggests the entire ecological nutrient cycle is analogous to economies. Given that stable functioning ecosystems are healthy due to the balance of biological productivity and species diversity, they may model how analogous economic elements interact and provide a comprehensive overview of economies work.
The most obvious way to do this is to follow the traffic of ecological capital (organic calories) inside and outside the food web. But organic calories don’t really exit the food web; they are created and consumed for energy within food webs. Fortunately, there are two nutrients which traverse food webs much like capital moves in economic production… carbon and water. And as it turns out, water share several important traits with economic capital (money): (1) water is fungible (to a living organism, there is no difference between water sipped from a puddle or water in hay); (2) water can and does undergo literal transformation (see below) as it traverses the water cycle; and (3) water is rate limiting to ecological productivity (the abundance of water is likely the most significant factor in determining total ecosystem biomass and diversity). In comparison, economic capital (money) is (1) fungible; (2) although economic capital does not literally (chemically) transform from one form of matter to another form of matter, the market exchange of money for goods and services makes the goods/services explicitly equivalent to money; and (3) the availability of money limits economic growth and activity.
Figure 2 shows how food webs are able to make use of the movement of water through the environment.
As plants are sessile and cannot seek water, it must be delivered to them by rainfall. When it rains, water is taken up by plants and incorporated or biochemically transformed into more plant mass. At this point, the water either stays in the form of plants (plant growth or propagation) or is eaten by something else (predation) or is metabolized to meet the energy needs of the plant (transpiration). In the first two, the water stays in the food web (fig 2-1); in the last, water is released into the air as water vapor (fig 2-5). A similar process happens in plant predators, the herbivores (fig 2-2). They eat water containing plants and transform the plant matter (and water within) into herbivore mass (becoming secondary producers); the water, now in the shape of herbivores either stays herbivore, is preyed on by a predator (fig 2-3) or gets metabolized (respiration) for energy (fig 2-5). This pattern continues through the food chain until it reaches the apex (fig 2-4) where water is seldom loss to predation.
As biological entities, we humans are more interested in the biologically productive portion of the water cycle; however, the bulk of the water cycle is attributable to global geochemical forces. Atmospheric water vapor [mostly from evaporation from soil/bodies of water (fig 2-9) in addition to food web transpiration/respiration (fig 2-5)], coalesces into clouds (composed of liquid droplets or ice crystals) (fig 2-7). Water holding couds are buffeted by the winds until the meteorological conditions trigger their release as precipitation.
This pattern of events also occurs in economies…
[In this discussion, economic capital encompasses all goods and services which can be exchanged for currency, including labor, materials, consumer products, land, structures, equipment and currency. This equivalence allows capital movement to be condensed to a uni-directional single stream flow analogous to the passage of water in a terrestrial ecosystem.]
As shown in figure 3, capital (materials, tools and equipment) enters the production stream for workers (fig 3A&B) to transform into marketable capital (goods and services). Upon production, marketable capital either stays with the primary producers (fig 3A&B) - as savings; is taken up by the next tier of workers (fig 3B/C); or is spent by workers (fig 3E) on their own behalf. The amount taken up by the next tier of workers (fig 3B/C) is decided by the power brokers within organizations. Spending and saving of workers (fig 3A/B&E) reflect how workers dispose of their incomes to meet their needs. The next tier of workers (fig 3B/C) retains a portion of the marketable capital as income for their contribution to the production of marketable capital (an example of secondary production might be an inventory of primary production). These wages also undergo the three way split: retention by secondary producers (fig 3C/D); loss to the next tier of workers (fig 3C/D); or spending to support their well-being (fig 3E). Executives and owners at the apex of the production pyramid either retain (fig 3D) or spend (fig 3E) their takings; there is no other loss.
Spending in the marketplace (fig 3F) is where the capital exchange occurs (trade goods and services for money and vice versa). The financial sector (fig 3G) tracks and transfers capital (purchased goods and services) (fig 3H) to buyers. Purchased capital (fig 3H) always traverses the production pyramid to reach its final destination because the purchasing capital is produced by the workers at the lower production tiers. Executives (fig 3D) purchase goods with the cumulative capital produced by all other workers (fig 3A, B, C & D).
Banks and financial institutions behave in economies in ways similar to clouds in the water cycle (fig 3G): they concentrate capital; they mediate transformation of capital into different states of matter (currency into stocks/bonds); and they facilitate transfer of capital between and amongst institutions and economies. Likewise, governments (fig 3I) mimic natural reservoirs by buffering capital flow during periods of expansion and contraction.
[Another way to read the economic rotation: Workers make widgets (fig 3A/B/C). Executives sells widgets in marketplace for money (fig 3E, F, G). Taxes are paid to the government (fig 3H -> I) before wages are paid to workers (fig 3H -> A, B, C, D).]
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Part 2 of this series highlighted the similarity between economies and ecological water cycles. The respective capital of both systems serve the same purpose in their respective systems; the individual elements (transpiration/respiration & spending, clouds & financial institutions) perform analogous functions and even the distinct bifurcation of the water cycle by biological and geochemical forces resembles the division between economic production and markets. It would be fair to conclude that, at minimum, one is a metaphor of the other and they may ascend to the level of analytically pertinent models (though it would be difficult to determine which is the model due to the complexity of both systems).
The next part will explore how the water cycle can shed light on economies.
Econology Part 3: The ecology of economies.
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