International Encyclopedia of Systems and Cybernetics

Elaboration of economic theory and practice in systemic terms is still largely a pending subject, in spite of the relentless efforts of K. BOULDING, one of the three founders of the I.S.S.S. (1952, 1968, 1972 and 1978).

J. WARFIELD observes: "The failure of economics schools of thought to provide an adequate basis for governmental policy is directly related to the complexity of the subject and the absence, within economics, of any strategy for dealing with that complexity". He also denounces the unwarranted simplifications in economics models of human behavior: "… it is clear that the postulated human being found in economics theory has little in common with most human beings" (1990a, p.66-7).

Such criticism is aimed at capitalist as well as at marxist economics.

M. MARUYAMA, in turn, observes that economic theories – and their practical prescriptions – depend on the mindscapes of their respective authors.

An Homogeneist-type formulation "assumes that the cause-effect relationship goes from the key variable to other variables. Causal loops are either ignored or paid lip service" (1994, p.9). Such minds select "the cause", "such as the social security system, the credit card system and even the education system". For an Heterogeneist randomizing mind "If everybody… is self -sufficient, there is no economic problem (grow your own patatoes). Economic interactions among people are the cause of the problems. For the Heterogeneist cooperative mind, "the economic system is inherently self-stabilizing or cyclic. Disturbances are due to "exogenous" (non economic) influences, such as interferences by government and wars. "Laisser-faire is the best policy". And for the Heterogeneistic cogenerative mind, the economic system contains both change-amplifying and Change-counteracting loops. Economic policy failures occur when Change-amplifying causal loops are ignored" (p.9).

This last view is MARUYAMA's preferred attitude. While this "landscape of mindscapes" could be controverted, it emphasizes at least the generally ignored cultural and psychological roots of economic theories.

Historically, the impact of the economic activities of small, or even medium human groups on global environment was slight and could be ignored (even if some archaic and historic cultures were probably self-ruined by their own environmental abuse).

It is however not anymore possible to understand in a realistic way economic processes without settling them firmly on the base of energy flows, considered from a thermodynamic viewpoint.

This has been done by N. GEORGESCU-ROEGEN (1971 and 1982); by H.T. ODUM (1971, 1976, 1991); by R.N. ADAMS (1975 and 1988), and more recently by J.R. PROOPS (1983, 1985, 1987) among others.

It is also impossible to support sound economics without taking in account another consequence of thermodynamics, i.e. the massive production of difficultly recyclable waste by producers and consumers and the resulting relentless growth of an enormous ecological problem. This subject has been widely studied, again by H.T. ODUM and, more recently by many others.

Other authors have considered the improper use and squandering of energetic and material resources, f. ex. D. PIMENTEL in agriculture (1977) and E. MISHAN, in relation to economic growth (1969 and 1987).

More recently, the subject of so-called "sustainable development" has been considered, while generally in a non-systemic way.

Unfortunately, the main currents in economic theory remain still unaware or indifferent to these insights.

Quoting H. DALY, CHANG-GEN BAHG defines the following basic systemic views about economics: "First, from the physical point of view, the economic process is an entropic process; Second, wealth is a kind of open system because it is produced in the throughput process which begins with depleting matter-energy of low entropy and terminates with extruding matter-energy of high entropy, in equal quantity in the environment; Third, the mechanical phenomenon is reversible (note from the compiler: this is arguable i), but the entropic phenomenon is irreversible…; Fourth, there is an anti-symmetric relation between two sources of low entropy, that is, on one hand, the total quantity of energy bearing low entropy of the sun is infinite (this again, is arguable, at least in principle!), but its flow rate toward the earth surface is finite. On the other hand, the total quantity of substance of low entropy on the earth, such as the ore condensed in crust, is finite, and these substances are doomed to exhaustion" (1990, p.93).

One more basic fact is that, as a planet, earth is a limited sink for useless non-recyclable waste, including most specially degraded energy (i.e. heat). This problem is now reflected in the possibility of a warming of the climates at global scale.

From another viewpoint, the reduction of human motivations to merely quantitative satisfaction of material needs suppresses the systemic aspects of the psycho-social and sociocultural of human behavior and the dynamics – possibly emergent and/or chaotic – proper to the evolution of human systems as complex as empires, nation-states and even international business entreprises, whose management cannot be reduced merely to sales, profits, balance sheets, input-output matrixes, marketing, and the like.

In synthesis, the construction of a new economics in systemic terms (ecological, thermodynamical, psychosocial, sociocultural, etc… ) is an urgent need.

A most important subject in this sense is recycling, which corresponds to the shaping of a more or less closed cycle economy, where only direct or indirect solar energy inputs would dynamize the man-planet system. In this way, the most sustainable economic activity would be secured with a lesser global production of entropy.