The Fruits of Civilization (35) Externalities


Externalities are ubiquitous. ~ Alfred E. Kahn

The term free market refers to buying and selling unfettered by government interference. The irony of the term is that nothing in a free market is free, other than the market itself, in operating unencumbered, at least theoretically.

From a supplier’s viewpoint, the price of a good envelopes cost and profit. It is a woefully incomplete accounting.

Anything taken from Nature cannot be taken again: an exploited natural resource is no longer natural. A hillside gouged out for coal or minerals is never the same, nor will the desired material renew itself.

The exception is organic resources which, in time, may replenish themselves, though the disruptive effect may last for centuries; certainly not the time scale in which economics operates. Overexploitation of an organic resource may tip its local population past self-organized criticality, and so foreclose the prospect of recovery. Overfishing, which has happened worldwide, is exemplary.

Producers manufacture products. Anything produced that does not go into a product is an externality of production.

Making any product invariably creates externalities. Building a factory takes land and water that precludes other use. Manufacturing takes raw materials, most of which are unsustainably gouged from the earth.

The production process itself produces more than just the products. Waste – in the form of heat, scrap, and pollution of the soil, air, and water – is inevitable. It is impossible to make anything without producing waste.

Waste is also theoretically messy. Economists lump all waste into a terminological dump called externality and leave it be. Externalities are of little interest to economists of the capitalist faith.