Steady-state economy

Based on Wikipedia: Steady-state economy

The Heresy of Enough

What if the entire foundation of modern economics is built on a dangerous fantasy? Every government on Earth, from Washington to Beijing, measures success by a single metric: growth. Gross Domestic Product must rise, year after year, forever. Politicians who preside over shrinking economies lose elections. Central bankers lose sleep. The entire machinery of modern civilization is calibrated to one assumption: more is always better.

But here's a thought that keeps some economists awake at night: What if infinite growth on a finite planet is mathematically impossible?

This isn't a new worry dreamed up by environmental activists in the 1970s. It's a question that haunted the founders of economics itself, including Adam Smith—the same Adam Smith whose "invisible hand" became the patron saint of free markets. Smith believed that every economy in the world would eventually hit a ceiling, a final resting place he called the "stationary state." The economy would stop growing, not because of bad policy or war, but because it had simply reached its natural limits.

For two centuries, this prediction looked spectacularly wrong. Economies kept growing. Technology kept advancing. The stationary state never arrived. Smith's prophecy was quietly shelved as an embarrassing relic of pre-industrial thinking.

Then came the ecological crisis. And suddenly, the old heresy began to look less like failed prophecy and more like delayed wisdom.

What Exactly Is a Steady-State Economy?

Let's be precise about what we're discussing, because the term "steady-state economy" gets thrown around loosely. In its simplest form, it means an economy with two things held constant: the total amount of physical stuff (factories, buildings, machines, infrastructure) and the total number of people.

Notice what's not held constant: happiness, knowledge, culture, technology, art, wisdom, or human flourishing. A steady-state economy doesn't mean stagnation in everything that matters. It means stability in the physical throughput—the sheer tonnage of materials flowing through the system.

Think of it like a lake versus a river. A conventional growth economy is like a river that must always flow faster and carry more water. A steady-state economy is like a healthy lake: the water level stays roughly constant, but life within it continues to evolve, adapt, and flourish. Fish are born and die. Ecosystems shift. The lake can become more beautiful, more biodiverse, more alive—without requiring more water.

The key insight is distinguishing between quantitative expansion (more stuff) and qualitative improvement (better stuff). Our current economic system conflates these, treating all growth as equally desirable. But there's a profound difference between an economy that grows because it's producing more plastic junk destined for landfills, versus one that grows because it's curing diseases and creating art.

The Classical Economists and Their Gloomy Predictions

Adam Smith published "The Wealth of Nations" in 1776, the same year American colonists declared independence from Britain. It's no coincidence. Both documents were products of the Enlightenment belief that human reason could design better systems. Smith's contribution was explaining how markets, left largely to themselves, could coordinate the activities of millions of people without central planning.

But Smith was no naive optimist about endless growth. He observed that different countries existed in different states of economic development. North America was in what he called the "progressive state"—wealth growing rapidly, wages high, spirits cheerful. China, by contrast, was in the "stationary state"—wealth had plateaued, wages were low, and the population had expanded to fill every available niche. Worse still were nations in the "declining state," where the economy was actually shrinking and people were sliding into destitution.

Here's how Smith described the inevitable endpoint:

In a country which had acquired that full complement of riches which the nature of its soil and climate, and its situation with respect to other countries, allowed it to acquire... both the wages of labour and the profits of stock would probably be very low. In a country fully peopled in proportion to what either its territory could maintain or its stock employ, the competition for employment would necessarily be so great as to reduce the wages of labour to what was barely sufficient to keep up the number of labourers.

This is remarkably bleak. Smith saw the stationary state not as a utopia of sustainable balance but as a trap of permanent poverty. Once all the good land was taken, all the profitable investments made, all the workers employed at bare subsistence wages—that was it. No more progress. Just endless maintenance of the status quo.

Smith thought Holland was approaching this condition in his time. He was wrong, of course. The Industrial Revolution was about to blow apart every limit he imagined. But his basic logic—that physical constraints eventually bind—wasn't wrong. It was just premature.

Ricardo and the Iron Law of Rents

David Ricardo picked up where Smith left off, but with a sharper edge. Writing in the early 1800s, Ricardo was obsessed with the conflict between economic classes: landowners, capitalists, and workers. He believed these groups were locked in a zero-sum struggle over the economic pie.

Ricardo's particular villain was agricultural land. As population grew, Britain needed more food. But the best farmland was already taken. Each new acre brought into cultivation was slightly worse than the last—rockier, less fertile, harder to work. This meant food prices kept rising, which meant wages had to rise just to keep workers alive, which meant profits were squeezed, which meant less investment, which meant slower growth.

Meanwhile, the landowners were laughing all the way to the bank. They owned the increasingly scarce good land and could charge ever-higher rents. Ricardo saw a future where productive capitalism was slowly strangled by parasitic landlordism.

His solution? Free trade. Let Britain import cheap grain from abroad, break the monopoly of domestic landowners, and keep the growth machine running. This wasn't environmentalism—it was a pro-business, anti-aristocracy argument. But it shared with modern steady-state economics a recognition that resource constraints are real and consequential.

Ricardo's dire predictions also proved premature. The Corn Laws were eventually repealed in 1846, but even more importantly, technological advances in agriculture kept increasing yields faster than population grew. The Malthusian trap was escaped, at least for another few generations.

John Stuart Mill: The First Optimistic Stationarian

Then came John Stuart Mill, and everything changed.

Mill was that rare creature: a genuine polymath. He made major contributions to economics, philosophy, logic, and political theory. His 1848 treatise "Principles of Political Economy" became the standard economics textbook for fifty years. But his most radical contribution was reframing the stationary state from curse to blessing.

Mill looked at the same future Smith and Ricardo feared and saw something beautiful.

He acknowledged the obvious: economic growth couldn't continue forever. Every step forward was, as he put it, "a postponement" of the inevitable stationary state. The goal kept flying before us, but we were always approaching it. So why not embrace it?

I cannot regard the stationary state of capital and wealth with the unaffected aversion so generally manifested toward it by political economists of the old school.

Mill saw the stationary state as humanity's chance to finally focus on what mattered. Once we stopped scrambling for more stuff, we could turn our attention to better stuff—and better lives. Art, philosophy, human relationships, the cultivation of character, the contemplation of nature. All the things that make life worth living but don't show up in GDP figures.

He was, in essence, the first degrowth advocate—a full century before the environmental movement gave it that name.

Herman Daly and the Modern Steady-State

For most of the twentieth century, Mill's vision was forgotten. The two World Wars and the Great Depression made economic growth seem not just desirable but desperately necessary. After 1945, the Western world embarked on the most sustained period of economic expansion in human history. GDP growth became synonymous with progress, and questioning it seemed either foolish or dangerous.

Then came the 1970s.

The environmental movement erupted. The first photographs of Earth from space showed a small, fragile blue marble floating in void. The Club of Rome published "The Limits to Growth," a computer-modeled projection suggesting that if present trends continued, the world economy would hit hard resource limits within a century and collapse. The oil crisis of 1973 demonstrated that resource scarcity wasn't just theoretical.

Into this ferment stepped Herman Daly, an economist who would spend the next five decades elaborating a modern version of the steady-state economy. Daly wasn't just reviving Mill's philosophical vision; he was grounding it in ecological science.

Daly's key insight was treating the economy as a subsystem of the environment, not the other way around. This sounds obvious but contradicts how most economics is taught. In standard textbooks, the economy is represented as a closed loop: firms produce goods, households consume them, money circulates, and the system is complete. Nature appears, if at all, as a storehouse of "resources" to be extracted and a sink for "externalities" to be absorbed.

Daly inverted this picture. The economy, in his view, is an open system embedded within a finite natural environment. It survives by importing valuable resources at one end and exporting waste at the other. The economy is like a living organism: it must eat, metabolize, and excrete. And like any organism, it exists within an ecosystem that sets limits on how large it can grow.

Here's the crucial point: the ecosystem is not growing. The Earth receives a fixed amount of energy from the sun. The total amount of matter on the planet is constant (we're not importing asteroids, at least not yet). Recycling is never perfectly efficient—the second law of thermodynamics ensures that some energy is always lost as waste heat, some matter always dispersed beyond recovery.

Given all this, an economy that grows forever is not just unlikely but physically impossible. At some point, the subsystem must stop growing within the non-growing system that contains it. The only question is whether we stop voluntarily, intelligently, with some grace—or whether we crash into limits violently, chaotically, with massive suffering.

The Three Components of Daly's Steady-State

Daly specified three things that must be held constant in a sustainable economy:

First, a constant stock of physical capital. Not zero capital, but stable capital. Buildings, machines, and infrastructure can be maintained and improved, but the total mass shouldn't keep expanding indefinitely. When things wear out, you replace them with something better, not something bigger.

Second, a constant population. Again, not zero population growth through draconian measures, but demographic stability achieved through low birth rates balanced by low death rates. This is what most developed countries are already approaching naturally, as people choose to have fewer children when infant mortality drops and women gain education and autonomy.

Third, and most distinctively, a minimized throughput of natural resources. This is where Daly departed from classical economics. He wasn't just concerned with the size of the economic stocks but with the flow of materials needed to maintain them. A car that lasts thirty years requires less throughput than one that lasts ten years, even if both contribute equally to the capital stock at any given moment.

This last point connects to a profound principle: durability is ecological virtue. The longer our stuff lasts, the less nature we need to pillage. A society with beautifully crafted houses that last centuries, furniture passed down through generations, and machines built to be repaired rather than replaced—such a society could maintain a high standard of living with a fraction of the resource throughput we currently require.

The Objections and Their Answers

Critics of the steady-state economy have raised several powerful objections over the decades. These deserve serious engagement.

The Decoupling Hope

The most common objection is that economic growth can be "decoupled" from resource use. The argument goes like this: as economies mature, they become more efficient. We produce more value with less stuff. We shift from manufacturing physical goods to providing intangible services. Eventually, GDP can keep rising while resource consumption falls.

There's something to this. Developed economies have indeed reduced the material intensity of each dollar of GDP. A smartphone contains more computing power than a room full of 1970s mainframes while using a fraction of the resources. Services like software, consulting, and entertainment can expand without proportional increases in physical throughput.

But here's the problem: absolute decoupling—where total resource use actually falls while the economy grows—has never been achieved at scale, for any extended period, anywhere in the world. We've achieved relative decoupling (resource use grows more slowly than GDP) but not absolute decoupling (resource use falls while GDP rises).

When you dig into the numbers, developed countries have often just exported their resource-intensive industries to developing countries. The stuff still gets produced and consumed; it just doesn't show up in domestic statistics. Count the full lifecycle of imported goods, and the decoupling largely vanishes.

Moreover, the services economy isn't as dematerialized as it appears. Data centers that run the cloud consume enormous amounts of electricity. The "sharing economy" often just creates more total consumption. Financial services, far from being immaterial, drive the extraction industries that destroy ecosystems.

None of this proves decoupling is impossible in principle. But it suggests we shouldn't bet civilization's future on a phenomenon that has never actually occurred.

The Technology Cavalry

A related objection pins hope on technological innovation. New technologies will find substitutes for scarce resources, clean up pollution, and generally solve problems before they become catastrophic. This has happened before. We didn't run out of whale oil; we invented kerosene. We didn't exhaust copper for telegraph wires; we invented fiber optics.

Technology is indeed powerful and often surprising. But the steady-state argument doesn't deny this. It points out that technology operates within physical laws. You cannot substitute your way around the laws of thermodynamics. You cannot innovate more fresh water into existence on a planet with a fixed hydrological cycle. You cannot engineer away the carbon dioxide already in the atmosphere without expending enormous energy.

Technology can buy time and ease transitions. But it cannot repeal the fundamental reality that infinite growth within a finite system is a mathematical contradiction.

The Poverty Objection

Perhaps the most morally weighty objection concerns global poverty. Billions of people still lack adequate food, shelter, healthcare, and education. How can anyone advocate stopping economic growth when so many have so little?

This objection deserves respect. But it confuses growth with distribution. The global economy has grown enormously over the past half-century, yet poverty persists. The issue is not insufficient production but grossly unequal distribution. We produce enough food to feed everyone; we throw away nearly a third of it while hundreds of millions go hungry.

A steady-state economy in rich countries wouldn't prevent development in poor ones—it would create ecological space for it. The problem with current arrangements is that wealthy nations have already claimed a massively disproportionate share of the planet's resources and waste absorption capacity. When Americans and Europeans consume at current rates, there's less room left for everyone else.

Daly himself was careful to distinguish between growth and development. Growth means getting bigger; development means getting better. Poor countries may well need more stuff—more hospitals, more schools, more housing. But they don't need to replicate the wasteful consumption patterns of rich countries. And rich countries, which already have more stuff than they can meaningfully use, could stop growing quantitatively while continuing to develop qualitatively.

What Would It Actually Look Like?

If we took the steady-state seriously, what would change?

First, we'd need different metrics of success. GDP would lose its throne. Instead, we might track something like the Genuine Progress Indicator, which adjusts for environmental degradation, unpaid household work, and the costs of inequality. We'd measure what we actually care about—health, happiness, education, environmental quality—rather than using economic output as a crude proxy.

Second, we'd restructure incentives. Currently, the tax system punishes labor and rewards resource extraction. Payroll taxes make hiring expensive; cheap energy makes burning fossil fuels attractive. A steady-state economy would flip this: tax resources heavily, tax labor lightly. Make it expensive to deplete natural capital and cheap to employ human beings.

Third, we'd design for durability. Building codes would mandate structures that last centuries, not decades. Consumer products would be required to be repairable. Planned obsolescence—the deliberate design of products to fail so consumers must buy replacements—would be outlawed as the environmental crime it is.

Fourth, we'd redistribute working hours. If the economy stops growing, productivity gains can't be absorbed by producing more stuff. Instead, they'd translate into more leisure. We'd work less, not more. The forty-hour week could become the twenty-hour week. People would have time to care for children and elders, to participate in community life, to pursue education and art for their own sake.

Fifth, and perhaps most controversially, we'd need to address population. This doesn't require coercion—the evidence suggests that when women gain education, autonomy, and access to family planning, fertility rates fall naturally. But it does require acknowledging that on a finite planet, the number of humans matters, not just how each human lives.

The Political Problem

None of this is technically difficult. The challenge is entirely political.

Our economic system is designed for growth. Capitalism, in its current form, requires continuous expansion. Corporations must grow or be acquired. Stock markets demand quarterly increases. Banks issue loans expecting to be repaid with interest, which requires the economy to expand to generate that interest. Politicians promise growth because growth is how they deliver jobs without redistributing from the rich to the poor.

A transition to a steady-state economy would threaten powerful interests. Fossil fuel companies would lose their business model. Real estate speculators would lose their appreciation gains. Finance would shrink dramatically. The entire growth-dependent infrastructure of modern capitalism would need reconstruction.

This is why early steady-state theorists like Mill imagined the transition happening naturally, as economies matured and growth simply petered out. It seemed politically easier to prepare for an inevitable change than to actively engineer one.

But Daly and his followers have been more impatient. They've argued that we cannot wait for a gentle transition because ecological limits are approaching too fast. Climate change, biodiversity collapse, freshwater depletion, soil degradation—these cascading crises suggest we're already in overshoot, already beyond sustainable levels, already drawing down natural capital that took millions of years to accumulate.

If that's true, we don't need a graceful glide into stationarity. We need active, deliberate degrowth—a managed contraction of resource throughput, starting in wealthy countries, to get back within planetary boundaries before it's too late.

The Movement Today

Daly passed away in 2022, but the ideas he championed have only grown more influential. A global community of academics, activists, and even some policymakers now takes the steady-state and degrowth frameworks seriously. Academic conferences draw thousands of participants. The European Union has begun studying post-growth scenarios. Some cities and regions are experimenting with alternative economic indicators.

The COVID-19 pandemic provided an unexpected experiment. When economies shut down in 2020, emissions plummeted, air quality improved, and wildlife returned to places it had abandoned. Of course, this wasn't a steady-state economy—it was a crisis that caused massive suffering. But it demonstrated something important: reduced economic activity can mean environmental improvement. The question is whether we can achieve such improvements deliberately, equitably, and without the suffering.

Research published in 2022 described degrowth toward a steady-state economy as "possible and probably positive." The study concluded with a call that would have sounded utopian a generation ago but now appears in mainstream academic journals:

The case for a transition to a steady-state economy with low throughput and low emissions, initially in the high-income economies and then in rapidly growing economies, needs more serious attention and international cooperation.

The Deeper Question

Beneath all the economic technicalities lies a philosophical question that Mill understood better than most: What is an economy for?

If the purpose of economic activity is human flourishing, then we need to ask whether endless growth actually delivers flourishing. The evidence is mixed at best. Beyond a certain threshold—roughly the per capita income of Portugal or South Korea—additional wealth shows diminishing returns to happiness. Americans in 2024 are far richer than Americans in 1970 but no happier. We have more stuff and less time to enjoy it. We have bigger houses and weaker communities. We have infinite entertainment options and epidemic loneliness.

The steady-state vision isn't primarily about sacrifice. It's about redirecting human energy from accumulation to appreciation, from having to being, from quantity to quality. It's the radical proposition that enough can be enough—that there might be a point where we have sufficient material wealth and can turn our attention to other things.

This is not a return to poverty. It's a recognition that beyond sufficiency, the pursuit of ever more stuff yields ever less satisfaction while imposing ever greater ecological costs. The goal is not less human flourishing but more—achieved through stability rather than endless expansion.

Whether such a transition is politically achievable remains an open question. But the physical arguments for its necessity grow stronger with each passing year, each broken temperature record, each extinct species, each depleted aquifer. The economy exists within nature, not the other way around. Sooner or later, one way or another, we will live within our means.

The only question is whether we'll do it by choice or by catastrophe.