Chapter 14.
A common concept in economic discourse is fixed pie thinking. This perspective posits a static, unchanging amount of wealth or resources in the world. This way of thinking can lead to the belief that one person’s gain necessarily requires another’s loss, a concept rooted in zero-sum thinking. Economist David Frederick Schloss identified this perspective as far back as 1891, specifically in relation to the idea that the amount of work available is fixed. This thinking extends beyond just labour; it permeates various economic arguments and beliefs.
Such simplistic notions of economics are wielded to justify particular policy views, sometimes leading to the dismissal of the entire field as “fake” or “just made up.” While aspects of economics are indeed socially constructed, the fundamental questions of how societies produce, distribute, and consume resources are undeniably real. Dismissing the entire field risks ceding vital intellectual ground and overlooking the profound insights it offers for improving human lives. To truly grasp the dynamic nature of economics and foster meaningful progress, it is vital to approach the discipline with intellectual humility. This perspective encourages us to critically examine all ideas, regardless of their source, and to remain open to insights from unexpected quarters.
At its core, economics is a behavioural science. While it often involves the manipulation of numbers and the analysis of data, it is fundamentally about human behaviour. As Gary Becker explores in The Economic Approach to Human Behavior, it is the study of how individuals and societies make decisions in the face of scarcity, and how these decisions impact the production, consumption, and transfer of wealth. Economics seeks to explain why people make the choices they do, how they respond to incentives, and how these individual actions shape the broader economic landscape.
As Nobel laureate Daniel Kahneman, drawing on decades of research with his collaborator Amos Tversky, demonstrated in Thinking, Fast and Slow, human decision-making is profoundly influenced by cognitive biases and heuristics, often deviating from perfectly rational models. This vital shift in perspective, further championed by Nobel laureate Richard Thaler in works like Misbehaving, highlights that understanding how people actually behave, rather than how purely rational agents should behave, is fundamental to comprehending economic phenomena. Humans are not so much rational as they are adept at finding a rationale for their emotionally driven behaviour. A robust behavioural economic approach uses data to observe what people do, not simply why they say they did it. This recognition of economics as a behavioural science has roots in earlier insights, such as Herbert A. Simon’s concept of “bounded rationality.”
To fully appreciate the current landscape of economic thought, it is useful to briefly trace its historical evolution. What we now call ‘economics’ began as moral philosophy and political economy. Thinkers like Adam Smith, often considered the ‘father of modern economics,’ published The Wealth of Nations (1776) after his work on moral philosophy. His foundational insights on markets, division of labour, and the ‘invisible hand’ were deeply embedded in observations of human nature and societal organisation. Following Smith, figures like David Ricardo extended this classical tradition.
Through the late 19th and much of the 20th century, economics progressively sought to emulate the rigour of the natural sciences. This period saw the rise of neoclassical economics, with figures like Alfred Marshall providing systematic frameworks for supply and demand. This approach led to an increasing emphasis on mathematical modelling and the development of idealised concepts like ‘homo economicus’—the perfectly rational, self-interested agent. Major historical events profoundly shaped economic theory. The Industrial Revolution spurred classical economists to explain growth. The profound economic crisis of the Great Depression fundamentally challenged the prevailing belief in self-correcting markets, leading to the rise of Keynesian economics. John Maynard Keynes argued for the necessity of government intervention, particularly through fiscal policy, to stabilise economies. Later, as concerns about inflation grew, thinkers like Milton Friedman championed monetarism, emphasising the role of money supply and free markets. This journey highlights that economic theory is not a fixed, universal truth, but a dynamic body of thought.
One of the foundational concepts in economics is scarcity. Scarcity refers to the gap between limited resources and theoretically limitless wants. The perception of this gap profoundly influences economic behaviour and the choices societies make. This understanding of scarcity necessitates decisions: individuals, businesses, and governments must constantly determine how to allocate resources. These decisions involve trade-offs and give rise to the concept of opportunity cost.
Despite the reality of finite planetary resources, human behaviour too often operates as if there were no scarcity. The prevailing interpretation in conventional economics often frames scarcity as an inherent limitation, driving an extractive economic model that inadvertently promotes resource depletion. True scarcity, in its most problematic sense, predominantly exists as a defining characteristic of an extractive economy. It is vital to understand that a finite planet does not necessarily mean a finite economy. While there are undeniable biophysical limits, economic growth is fundamentally about the creation of value, which can be decoupled from ever-increasing physical consumption. Value can increasingly be generated through knowledge, services, innovation, and efficiency.
This principle, that constraints can be a wellspring of creativity, is powerfully illustrated in other human endeavours. Consider the beauty of Islamic architecture and design. Traditional Islamic religious art deliberately avoids figurative representations, focusing instead on intricate geometric patterns. This restriction did not stifle artistic expression; instead, it channelled creative energy into an extraordinary flourishing of abstract beauty and mathematical precision, demonstrating how profound depth can arise precisely because of boundaries.
A different lens, borrowed from biology, offers a compelling counter-narrative to this linear, extractive view. When observing natural ecosystems, we see systems that become progressively diverse and abundant. These ecologies thrive through regenerative processes and the continuous cycling of resources. This biological perspective challenges us to reconsider how human economic systems can emulate such regenerative principles, moving beyond managing limits to actively cultivating conditions for sustained flourishing.
Economic decisions are not merely technical calculations but profound reflections of underlying societal values and ethical priorities. They are shaped by how those with power choose to organise society. The choices we make about how resources are produced and distributed inevitably shape the kind of society we inhabit, impacting everything from social equity to ecological health. Recognising these embedded values and the power dynamics that enshrine them is essential for building economic systems that truly serve the well-being of both people and planet.
To build economies that truly serve both people and planet, understanding traditional economic mechanisms is vital, but so is recognising their limitations and integrating them with newer, more holistic frameworks. Markets play a crucial role in coordinating economic activity. A market is any place, physical or virtual, where buyers and sellers interact to exchange goods or services. The interaction of supply and demand determines prices and quantities. However, the prevailing goal in traditional market-driven economies is often measured by Gross Domestic Product (GDP). GDP has significant limitations, as it does not account for non-market activities, the distribution of income, or the environmental impact of production. The reliance solely on GDP growth warrants critical examination.
This is where alternative economic frameworks become essential. One such framework is Doughnut Economics, introduced by Kate Raworth in her book Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist. This model offers a visual representation of a sustainable and equitable economy. It consists of two concentric rings: the social foundation for human well-being and the ecological ceiling of planetary boundaries. The space between these rings is the “safe and just space” for humanity. Raworth argues that the goal of economic activity should be to bring humanity into this space. She proposes seven ways to rethink economics: change the goal to focus on the Doughnut, see the big picture, nurture human nature, get savvy with systems, design to distribute, create a circular economy, and be agnostic about endless growth. This framework has significant implications for how we approach economic issues, including the role of government. For example, Amsterdam has used the Doughnut to develop a post-COVID-19 recovery plan that prioritises social and environmental goals.
The framework also has relevance for businesses, which can use it to assess their social and environmental impacts and develop more sustainable models. While this framework is relatively new, it has generated considerable interest and debate. Many proponents see this approach as a valuable tool for rethinking economics in a way that is more aligned with the challenges and opportunities of the 21st century.
To this understanding of economics, we can add the insights of J. Doyne Farmer, who, in his work on complexity economics, argues that traditional economic models often fall short by assuming a level of rationality that does not reflect reality. Farmer highlights that real-world economies are complex systems characterised by feedback loops and emergent behaviour. This perspective suggests we need to consider the bottom-up interactions of individual agents and how they give rise to macroeconomic phenomena. Farmer’s work encourages us to move beyond models assuming a fixed amount of resources to understanding how complex interactions can lead to emergent properties of abundance and resilience. Agent-based modelling, a technique Farmer advocates, allows economists to simulate these complex interactions and gain a deeper understanding of how economies function. This approach can help us move beyond the limitations of traditional models and develop more accurate predictions.
While human societies construct economic systems based on complex social agreements, there is an ultimate arbiter to which all systems must conform: the universe itself. The universe is indifferent to us; it is the ultimate unbiased authority. It operates by immutable physical and biological laws. Our planet, as a finite system, has inherent boundaries. Exceeding these planetary boundaries triggers unavoidable physical consequences. Truly sustainable economic frameworks must acknowledge and design within these non-negotiable biophysical realities, moving beyond anthropocentric assumptions to align human activity with the principles of the natural world.
Economics is a dynamic and evolving field. From understanding the roots of economic growth to grappling with issues like inequality, climate change, and globalisation, economics provides a framework for analysing the complex forces that shape our world. The insights from behavioural economics, alternative frameworks like Doughnut Economics, and the understanding of complex systems all offer valuable lenses to strive towards a future where both people and the planet can thrive.
Next Chapter: Civil Society: Association and Moral Ambition
Bibliography
Becker, Gary S. The Economic Approach to Human Behavior. University of Chicago Press, 1976.
Kahneman, Daniel. Thinking, Fast and Slow. Farrar, Straus and Giroux, 2011.
Raworth, Kate. Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist. Chelsea Green Publishing, 2017.
Thaler, Richard H. Misbehaving: The Making of Behavioral Economics. W. W. Norton & Company, 2015.
Thaler, Richard H., and Cass R. Sunstein. Nudge: Improving Decisions About Health, Wealth, and Happiness. Yale University Press, 2008.