In economics, an input–output model is a quantitative economic model that represents the interdependencies between different sectors of a national economy or different regional economies. Wassily Leontief (1906–1999) is credited with developing this type of analysis and earned the Nobel Prize in Economics for his development of this model.
Wassily Leontief's work in the input–output model was influenced by the works of the classical economists Karl Marx and Jean Charles Léonard de Sismondi.
Karl Marx's economics provided an early outline involving a set of
tables where the economy consisted of two interlinked departments.
Leontief was the first to use a matrix representation of a national (or regional) economy.
Basic derivation
The
model depicts inter-industry relationships within an economy, showing
how output from one industrial sector may become an input to another
industrial sector. In the inter-industry matrix, column entries
typically represent inputs to an industrial sector, while row entries
represent outputs from a given sector. This format, therefore, shows how
dependent each sector is on every other sector, both as a customer of
outputs from other sectors and as a supplier of inputs. Sectors may also
depend internally on a portion of their own production as delineated by
the entries of the matrix diagonal. Each column of the input–output matrix shows the monetary value of inputs to each sector and each row represents the value of each sector's outputs.
Say that we have an economy with sectors. Each sector produces units of a single homogeneous good. Assume that the th sector, in order to produce 1 unit, must use units from sector .
Furthermore, assume that each sector sells some of its output to other
sectors (intermediate output) and some of its output to consumers (final
output, or final demand). Call final demand in the th sector . Then we might write
or total output equals intermediate output plus final output. If we let be the matrix of coefficients , be the vector of total output, and be the vector of final demand, then our expression for the economy becomes
which after re-writing becomes . If the matrix
is invertible then this is a linear system of equations with a unique
solution, and so given some final demand vector the required output can
be found. Furthermore, if the principal minors of the matrix are all positive (known as the Hawkins–Simon condition), the required output vector is non-negative.
Example
Consider an economy with two goods, A and B. The matrix of coefficients and the final demand is given by
Intuitively, this corresponds to finding the amount of output each
sector should produce given that we want 7 units of good A and 4 units
of good B. Then solving the system of linear equations derived above
gives us
Further research
There
is extensive literature on these models. The model has been extended to
work with non-linear relationships between sectors.[7]
There is the Hawkins–Simon condition on producibility. There has been
research on disaggregation to clustered inter-industry flows, and on the
study of constellations of industries. A great deal of empirical work
has been done to identify coefficients, and data has been published for
the national economy as well as for regions. The Leontief system can be
extended to a model of general equilibrium; it offers a method of
decomposing work done at a macro level.
Regional multipliers
While
national input–output tables are commonly created by countries'
statistics agencies, officially published regional input–output tables
are rare. Therefore, economists often use location quotients to create regional multipliers starting from national data.
This technique has been criticized because there are several location
quotient regionalization techniques, and none are universally superior
across all use-cases.
Introducing transportation
Transportation
is implicit in the notion of inter-industry flows. It is explicitly
recognized when transportation is identified as an industry – how much
is purchased from transportation in order to produce. But this is not
very satisfactory because transportation requirements differ, depending
on industry locations and capacity constraints on regional production.
Also, the receiver of goods generally pays freight cost, and often
transportation data are lost because transportation costs are treated as
part of the cost of the goods.
Walter Isard and his student, Leon Moses,
were quick to see the spatial economy and transportation implications
of input–output, and began work in this area in the 1950s developing a
concept of interregional input–output. Take a one region versus the
world case. We wish to know something about inter-regional commodity
flows, so introduce a column into the table headed "exports" and we
introduce an "import" row.
Table: Adding Export And Import Transactions
Economic Activities
1
2
...
...
Z
Exports
Final Demand
Total Outputs
1
2
...
...
Z
Imports
A more satisfactory way to proceed would be to tie regions together
at the industry level. That is, we could identify both intra-region
inter-industry transactions and inter-region inter-industry
transactions. The problem here is that the table grows quickly.
Input–output is conceptually simple. Its extension to a model of
equilibrium in the national economy has been done successfully using
high-quality data. One who wishes to work with input–output systems must
deal with industry classification,
data estimation, and inverting very large, often ill-conditioned
matrices. The quality of the data and matrices of the input-output model
can be improved by modelling activities with digital twins and solving
the problem of optimizing management decisions.
Moreover, changes in relative prices are not readily handled by this
modelling approach alone. Input–output accounts are part and parcel to a
more flexible form of modelling, computable general equilibrium models.
Two additional difficulties are of interest in transportation
work. There is the question of substituting one input for another, and
there is the question about the stability of coefficients as production
increases or decreases. These are intertwined questions. They have to do
with the nature of regional production functions.
Technology Assumptions
To
construct input-output tables from supply and use tables, four
principle assumptions can be applied. The choice depends on whether
product-by-product or industry-by-industry input-output tables are to be
established.
Usefulness
Because
the input–output model is fundamentally linear in nature, it lends
itself to rapid computation as well as flexibility in computing the
effects of changes in demand. Input–output models for different regions
can also be linked together to investigate the effects of inter-regional
trade, and additional columns can be added to the table to perform environmentally extended input–output analysis (EEIOA). For example, information on fossil fuel inputs to each sector can be used to investigate flows of embodied carbon within and between different economies.
The structure of the input–output model has been incorporated
into national accounting in many developed countries, and as such can be
used to calculate important measures such as national GDP. Input–output
economics has been used to study regional economies within a nation,
and as a tool for national and regional economic planning. A main use of
input–output analysis is to measure the economic impacts of events as
well as public investments or programs as shown by IMPLAN and Regional Input–Output Modeling System.
It is also used to identify economically related industry clusters and
also so-called "key" or "target" industries (industries that are most
likely to enhance the internal coherence of a specified economy). By
linking industrial output to satellite accounts articulating energy use,
effluent production, space needs, and so on, input–output analysts have
extended the approaches application to a wide variety of uses.
Input–output and socialist planning
The input–output model is one of the major conceptual models for a socialistplanned economy.
This model involves the direct determination of physical quantities to
be produced in each industry, which are used to formulate a consistent
economic plan of resource allocation. This method of planning is
contrasted with price-directed Lange-model socialism and Soviet-style material balance planning.
In the economy of the Soviet Union,
planning was conducted using the method of material balances up until
the country's dissolution. The method of material balances was first
developed in the 1930s during the Soviet Union's rapid industrialization
drive. Input–output planning was never adopted because the material
balance system had become entrenched in the Soviet economy, and
input–output planning was shunned for ideological reasons. As a result,
the benefits of consistent and detailed planning through input–output
analysis were never realized in the Soviet-type economies.
Measuring input–output tables
The
mathematics of input–output economics is straightforward, but the data
requirements are enormous because the expenditures and revenues of each
branch of economic activity have to be represented. As a result, not all
countries collect the required data and data quality varies, even
though a set of standards for the data's collection has been set out by
the United Nations through its System of National Accounts (SNA):
the most recent standard is the 2008 SNA. Because the data collection
and preparation process for the input–output accounts is necessarily
labor and computer intensive, input–output tables are often published
long after the year in which the data were collected—typically as much
as 5–7 years after. Moreover, the economic "snapshot" that the benchmark
version of the tables provides of the economy's cross-section is
typically taken only once every few years, at best.
However, many developed countries estimate input–output accounts
annually and with much greater recency. This is because while most uses
of the input–output analysis focus on the matrix set of inter-industry
exchanges, the actual focus of the analysis from the perspective of most
national statistical agencies is the benchmarking of gross domestic product. Input–output tables therefore are an instrumental part of national accounts.
As suggested above, the core input–output table reports only
intermediate goods and services that are exchanged among industries. But
an array of row vectors,
typically aligned at the bottom of this matrix, record non-industrial
inputs by industry like payments for labor; indirect business taxes;
dividends, interest, and rents; capital consumption allowances
(depreciation); other property-type income (like profits); and purchases
from foreign suppliers (imports). At a national level, although
excluding the imports, when summed this is called "gross product
originating" or "gross domestic product by industry." Another array of
column vectors is called "final demand" or "gross product consumed."
This displays columns of spending by households, governments, changes in
industry stocks, and industries on investment, as well as net exports.
(See also Gross domestic product.) In any case, by employing the results
of an economic census which asks for the sales, payrolls, and
material/equipment/service input of each establishment, statistical
agencies back into estimates of industry-level profits and investments
using the input–output matrix as a sort of double-accounting framework.
Input–output analysis versus consistency analysis
Despite
the clear ability of the input–output model to depict and analyze the
dependence of one industry or sector on another, Leontief and others
never managed to introduce the full spectrum of dependency relations in a
market economy. In 2003, Mohammad Gani, a pupil of Leontief, introduced
consistency analysis in his book Foundations of Economic Science,
which formally looks exactly like the input–output table but explores
the dependency relations in terms of payments and intermediation
relations. Consistency analysis explores the consistency of plans of
buyers and sellers by decomposing the input–output table into four
matrices, each for a different kind of means of payment. It integrates
micro and macroeconomics into one model and deals with money in a
value-free manner. It deals with the flow of funds via the movement of
goods.
The socialist calculation debate, sometimes known as the economic calculation debate, was a discourse on the subject of how a socialist economy would perform economic calculation given the absence of the law of value, money, financial prices for capital goods and private ownership of the means of production. More specifically, the debate was centered on the application of economic planning for the allocation of the means of production as a substitute for capital markets and whether or not such an arrangement would be superior to capitalism in terms of efficiency and productivity.
The historical debate was cast between the Austrian School represented by Ludwig von Mises and Friedrich Hayek, who argued against the feasibility of socialism; and between neoclassical and Marxian economists, most notably Cläre Tisch (as a forerunner), Oskar R. Lange, Abba P. Lerner, Fred M. Taylor, Henry Douglas Dickinson and Maurice Dobb,
who took the position that socialism was both feasible and superior to
capitalism. A central aspect of the debate concerned the role and scope
of the law of value in a socialist economy. Although contributions to
the question of economic coordination and calculation under socialism
existed within the socialist movement prior to the 20th century, the
phrase socialist calculation debate emerged in the 1920s beginning with
Mises' critique of socialism.
While the debate was popularly viewed as a debate between
proponents of capitalism and proponents of socialism, in reality a
significant portion of the debate was between socialists who held
differing views regarding the utilization of markets and money in a
socialist system and to what degree the law of value would continue to
operate in a hypothetical socialist economy.
Socialists generally held one of three major positions regarding the
unit of calculation, including the view that money would continue to be
the unit of calculation under socialism; that labor time would be a unit of calculation; or that socialism would be based on calculation in natura or calculation performed in-kind.
Karl Marx and Friedrich Engels held a broad characterization of socialism, characterized by some form of public or common ownership of the means of production and workers' self-management within economic enterprises and where production of economic value for profit would be replaced by an ex anteproduction directly for use which implied some form of economic planning and planned growth in place of the dynamic of capital accumulation
and therefore the substitution of commodity-based production and
market-based allocation of the factors of production with conscious
planning.
Although Marx and Engels never elaborated on the specific
institutions that would exist in socialism or on processes for
conducting planning in a socialist system, their broad characterizations
laid the foundation for the general conception of socialism as an
economic system devoid of the law of value and law of accumulation
and principally where the category of value was replaced by calculation
in terms of natural or physical units so that resource allocation,
production and distribution would be considered technical affairs to be
undertaken by engineers and technical specialists.
An alternative view of socialism prefiguring the neoclassical models of market socialism consisted of conceptions of market socialism based on classical economic theory and Ricardian socialism, where markets were utilized to allocate capital goods among worker-owned cooperatives in a free-market economy.
The key characteristics of this system involved direct worker ownership
of the means of production through producer and consumer cooperatives
and the achievement of genuinely free markets
by removing the distorting effects of private property, inequality
arising from private appropriation of profits and interest to a rentier class, regulatory capture, and economic exploitation. This view was expounded by mutualism
and was severely criticized by Marxists for failing to address the
fundamental issues of capitalism involving instability arising from the
operation of the law of value, crises caused by overaccumulation of capital and lack of conscious control over the surplus product. This perspective played little to no role during the socialist calculation debate in the early 20th century.
Early arguments against the utilization of central economic planning for a socialist economy were brought up by proponents of decentralized economic planning or market socialism, including Pierre-Joseph Proudhon, Peter Kropotkin and Leon Trotsky.
In general, it was argued that centralized forms of economic planning
that excluded participation by the workers involved in the industries
would not be sufficient at capturing adequate amounts of information to
coordinate an economy effectively while also undermining socialism and
the concept of workers' self-management and democratic decision-making
central to socialism. However, no detailed outlines for decentralized
economic planning were proposed by these thinkers at this time.
Socialist market abolitionists in favour of decentralized planning also argue that whilst advocates of capitalism and the Austrian School in particular recognize equilibrium prices
do not exist, they nonetheless claim that these prices can be used as a
rational basis when this is not the case, hence markets are not
efficient. Other market abolitionist socialists such as Robin Cox of the Socialist Party of Great Britain argue that decentralized planning allows for a spontaneously self-regulating system of stock control (relying solely on calculation in kind)
to come about and that in turn decisively overcomes the objections
raised by the economic calculation argument that any large scale economy
must necessarily resort to a system of market prices.
Early neoclassical contributions
In the early 20th century, Enrico Barone
provided a comprehensive theoretical framework for a planned socialist
economy. In his model, assuming perfect computation techniques,
simultaneous equations relating inputs and outputs to ratios of
equivalence would provide appropriate valuations in order to balance supply and demand.
Calculation in kind, or calculation in-natura, was often assumed to
be the standard form of accounting that would take place in a socialist
system where the economy was mobilized in terms of physical or natural
units instead of money and financial calculation.
Otto Neurath
was adamant that a socialist economy must be moneyless because measures
of money failed to capture adequate information regarding material
well-being of consumers or failed to factor in all costs and benefits
from performing a particular action. He argued that relying on any
single unit, whether they be labor-hours or kilowatt-hours,
would be inadequate and that demand and calculations be performed by
the relevant disaggregated natural units, i.e. kilowatts, tons, meters
and so on.
In the 1930s, Soviet mathematician Leonid Kantorovich
demonstrated how an economy in purely physical terms could use
determinate mathematical procedure to determine which combination of
techniques could be used to achieve certain output or plan targets.
Debate on the use of money
In contrast to Neurath, Karl Kautsky
argued that money would have to be utilized in a socialist economy.
Kautsky states the fundamental difference between socialism and
capitalism is not the absence of money in the former; rather, the
important difference is in the ability for money to become capital under
capitalism. In a socialist economy, there would be no incentive to use
money as financial capital, therefore money would have a slightly different role in socialism.
Jan Appel
drafted a contribution to the socialist calculation debate which then
went through a discussion process before being published as Foundations of Communist Production and Distribution by the General Workers' Union of Germany in 1930. An English translation by Mike Baker was published in 1990.
His argument against socialism was in response to Otto Neurath arguing for the feasibility of central planning.
Mises argued that money and market-determined prices for the means of
production were essential in order to make rational decisions regarding
their allocation and use.
Criticism of the calculation problem
Bryan Caplan, a libertarian
economist, has criticized the version of the calculation problem
advanced by Mises arguing that the lack of economic calculation makes
socialism impossible and not merely inefficient. Caplan argues that
socialism makes economic calculation impossible, yet that problem may
not be severe enough to make socialism impossible "beyond the realm of
possibility". Caplan points out that the fall of the Soviet Union
does not prove that calculation was the main issue there. He suggests
that more likely the problems resulted from bad incentives arising out
of the one-party political system and degree of power granted to the party elite.
Knowledge problem
Proponents of decentralized economic planning have also criticized central economic planning. Leon Trotsky
believed that central planners, regardless of their intellectual
capacity, operated without the input and participation of the millions
of people who participate in the economy and so they would be unable to
respond to local conditions quickly enough to effectively coordinate all
economic activity. Trotsky argued:
If a universal mind existed, of the
kind that projected itself into the scientific fancy of Laplace – a
mind that could register simultaneously all the processes of nature and
society, that could measure the dynamics of their motion, that could
forecast the results of their inter-reactions – such a mind, of course,
could a priori draw up a faultless and exhaustive economic plan,
beginning with the number of acres of wheat down to the last button for a
vest. The bureaucracy often imagines that just such a mind is at its
disposal; that is why it so easily frees itself from the control of the
market and of Soviet democracy. But, in reality, the bureaucracy errs
frightfully in its estimate of its spiritual resources. [...] The
innumerable living participants in the economy, state and private,
collective and individual, must serve notice of their needs and of their
relative strength not only through the statistical determinations of
plan commissions but by the direct pressure of supply and demand.
— Leon Trotsky, The Soviet Economy in Danger
Lange model
Oskar Lange
responded to Mises' assertion that socialism and social ownership of
the means of production implied that rational calculation was impossible
by outlining a model of socialism based on neoclassical economics.
Lange conceded that calculations would have to be done in value terms
rather than using purely natural or engineering criteria, but he
asserted that these values could be attained without capital markets and
private ownership of the means of production. In Lange's view, this
model qualified as socialist because the means of production would be
publicly owned with returns to the public enterprises accruing to
society as a whole in a social dividend while workers' self-management could be introduced in the public enterprises.
This model came to be referred to as the Lange model.
In this model, a Central Planning Board (CPB) would be responsible for
setting prices through a trial-and-error approach to establish
equilibrium prices, effectively running a Walrasian auction. Managers of the state-owned firms would be instructed to set prices to equal marginal cost (P=MC) so that economic equilibrium and Pareto efficiency would be achieved. The Lange model was expanded upon by Abba Lerner and became known as the Lange–Lerner theorem.
Paul Auerbach and Dimitris Sotiropoulos have criticized the Lange
model for degrading the definition of socialism to a form of
"capitalism without capital markets" attempting to replicate
capitalism's efficiency achievements through economic planning. Auerbach
and Sotiropoulos argue that Friedrich Hayek provided an analysis of the dynamics of capitalism that is more consistent with Marxian economics' analysis because Hayek viewed finance as a fundamental aspect of capitalism and any move through collective ownership
or policy reform to undermine the role of capital markets would
threaten the integrity of the capitalist system. According to Auerbach
and Sotiropoulos, Hayek gave an unexpected endorsement to socialism that
is more sophisticated than Lange's superficial defense of socialism.
Contemporary contributions
Networked digital feedback
Peter Joseph argues for a transition from fragmented economic data relay to fully integrated, sensor-based digital systems, or an Internet of things.
Using an internet of sensory instruments to measure, track and feed
back information, this can unify numerous disparate elements and
systems, greatly advancing awareness and efficiency potentials.
In an economic context, this approach could relay and connect
data regarding how best to manage resources, production processes,
distribution, consumption, recycling, waste disposal behavior, consumer
demand and so on. Such a process of networked economic feedback would
work on the same principle as modern systems of inventory and
distribution found in major commercial warehouses.
Many companies today use a range of sensors and sophisticated tracking
means to understand rates of demands, exactly what they have, where it
is or where it may be moving and when it is gone.It is ultimately an issue of detail and scalability to extend this kind
of awareness to all sectors of the economy, macro and micro.
Not only is price no longer needed to gain critical economic
feedback, but the information price communicates is long delayed and
incomplete in terms of economic measures required to dramatically
increase efficiency. Mechanisms related networked digital feedback
systems make it possible to efficiently monitor shifting consumer
preference, demand, supply and labor value, virtually in real time.
Moreover, it can also be used to observe other technical processes price
cannot, such as shifts in production protocols, allocation, recycling
means, and so on.
As of February 2018, it is now possible to track trillions of economic
interactions related to the supply chain and consumer behavior by way of
sensors and digital relay as seen with the advent of Amazon Go.
Cybernetic coordination
Paul Cockshott,
Allin Cottrell, and Andy Pollack have proposed new forms of
coordination based on modern information technology for non-market
socialism. They argue that economic planning in terms of physical units
without any reference to money or prices is computationally tractable
given the high-performance computers available for particle physics and
weather forecasting. Cybernetic planning would involve an a priori simulation of the equilibration process that idealized markets are intended to achieve.
Participatory economics
Proposals for decentralized economic planning emerged in the late 20th century in the form of participatory economics and negotiated coordination.
Decentralized pricing without markets
David McMullen
argues that social ownership of the means of production and the absence
of markets for them is fully compatible with a decentralized price
system. In a post-capitalist society,
transactions between enterprises would entail transfers of social
property between custodians rather than an exchange of ownership.
Individuals would be motivated by the satisfaction from work and the
desire to contribute to good economic outcomes rather than material
reward. Bids and offer prices would aim to minimize costs and ensure
that output is guided by expected final demand for private and
collective consumption. Enterprises and startups would receive their
investment funding from project assessment agencies. The required change
in human behavior would take a number generations and would have to
overcome considerable resistance. However, McMullen believes that
economic and cultural development increasingly favors the transition.
Market socialism
James
Yunker argues that public ownership of the means of production can be
achieved the same way private ownership is achieved in modern capitalism
through the shareholder
system that separates management from ownership. Yunker posits that
social ownership can be achieved by having a public body, designated the
Bureau of Public Ownership (BPO), owning the shares of publicly-listed
firms without affecting market-based allocation of capital inputs.
Yunker termed this model pragmatic market socialism and argued that it
would be at least as efficient as modern-day capitalism while providing
superior social outcomes as public ownership of large and established
enterprises would enable profits to be distributed among the entire
population rather than going largely to a class of inheriting rentiers.
Mechanism design
Beginning in the 1970s, new insights into the socialist calculation debate emerged from mechanism design
theory. According to mechanism design theorists, the debate between
Hayek and Lange became a stalemate that lasted for forty years because
neither side was speaking the same language as the other, partially
because the appropriate language for discussing socialist calculation
had not yet been invented. According to these theorists, what was needed
was a better understanding of the informational problems that prevent
coordination between people. By fusing game theory with information economics,
mechanism design provided the language and framework in which both
socialists and advocates of capitalism could compare the merits of their
arguments. As Palda (2013) writes in his summary of the contributions
of mechanism design to the socialist calculation debate, "[i]t seemed
that socialism and capitalism were good at different things. Socialism
suffered from cheating, or 'moral hazard',
more than capitalism because it did not allow company managers to own
shares in their own companies. [...] The flip side of the cheating
problem in socialism is the lying or 'adverse selection'
problem in capitalism. If potential firm managers are either good or
bad, but telling them apart is difficult, bad prospects will lie to
become a part of the firm".
Relation to neoclassical economics
In his book Whither Socialism?, Joseph Stiglitz
criticized models of market socialism from the era of the socialist
calculation debate in the 1930s as part of a more general criticism of
neoclassical general equilibrium theory, proposing that market models be augmented with insights from information economics. Alec Nove and János Kornai
held similar positions regarding economic equilibrium. Both Nove and
Kornai argued that because perfect equilibrium does not exist, a
comprehensive economic plan for production cannot be formulated, making
planning ineffective just as real-world market economies do not conform
to the hypothetical state of perfect competition. In his book The Economics of Feasible Socialism,
Nove also outlined a solution involving a socialist economy consisting
of a mixture of macro-economic planning with market-based coordination
for enterprises where large industries would be publicly owned and
small- to medium-sized concerns would be organized as
cooperatively-owned enterprises.
Post-capitalism is in part a hypothetical state in which the economic systems of the world can no longer be described as forms of capitalism. Various individuals and political ideologies have speculated on what would define such a world. According to classical Marxist and social evolutionary theories, post-capitalist societies may come about as a result of spontaneous evolution as capitalism becomes obsolete. Others propose models to intentionally replace capitalism, most notably socialism, communism, anarchism, nationalism and degrowth.
In 1993, Peter Drucker outlined a possible evolution of capitalistic society in his book Post-Capitalist Society. This states that knowledge, rather than capital,
land, or labor, is the new basis of wealth. The classes of a fully
post-capitalist society are expected to be divided into knowledge
workers or service workers, in contrast to the capitalists and proletarians
of a capitalist society. Drucker estimated the transformation to
post-capitalism would be completed in 2010–2020. Drucker also argued for
rethinking the concept of intellectual property by creating a universal
licensing system.
In 2015, according to Paul Mason,
several factors — the rise of income inequality, repeating cycles of
boom and bust, and capitalism's contributions to climate change — led
economists, political thinkers and philosophers to start seriously
considering how a post-capitalistic society would look and function.
Post-capitalism is expected to be made possible with further advances in
automation and information technology – both of which are effectively causing production costs to trend toward zero.
Nick Srnicek
and Alex Williams identify a crisis in capitalism's ability and
willingness to employ all members of society, arguing that: "there is a
growing population of people that are situated outside formal, waged
work, with minimal welfare benefits, informal subsistence work, or by
illegal means".
Heritage check system is a socioeconomic plan that retains a market economy but removes fractional reserve lending power
from banks and limits government printing of money to offset deflation.
Money printed is used to buy materials to back the currency and pay for
government programs in lieu of taxes, with the remainder to be split
evenly among all citizens to stimulate the economy (termed a "heritage
check", for which the system is named). The original author of the idea,
Robert Heinlein, stated in his book For Us, The Living: A Comedy of Customs,
that the system would be self-reinforcing and would eventually result
in regular heritage checks able to provide a modest living for most
citizens.
Economic democracy
Economic democracy is a socioeconomicphilosophy that establishes democratic control of firms by their workers and social control of investment by a network of public banks.
In his book Of the People, By the People: The Case for a Participatory Economy, Robin Hahnel describes a post-capitalist economy called the participatory economy.
Hahnel argues that a participatory economy will return empathy to
our purchasing choices. Capitalism removes the knowledge of how and by
whom a product was made: "When we eat a salad the market systematically
deletes information about the migrant workers who picked it".
Socialism often implies common ownership of companies and a planned
economy, though as an inherently pluralistic ideology, it is argued
whether either are essential features. In his book PostCapitalism: A Guide to our Future, Paul Mason argues that centralized planning, even with the advanced technology of today, is unachievable.
In UK politics, strands of Corbynism and the Labour party have adopted this 'post-capitalist' tendency.
Permaculture is defined by its co-originator Bill Mollison
as: "The conscious design and maintenance of agriculturally productive
systems which have the diversity, stability, and resilience of natural
ecosystems".
Progressive utilization theory (PROUT) is a socioeconomic and political philosophy created by the Indian philosopher and spiritual leader Prabhat Ranjan Sarkar
in 1959. PROUT includes the decentralization of the economy; economic
democracy; development of cooperatives; provision of all working members
of society with five basic needs: food, clothing, shelter, education,
medical care; and systematic solution of environmental problems through
technological development and limitation of consumption.
Modern monetary theory (MMT) could enhance the degrowth movement in transitioning to a "post-growth, post-capitalist economy", according to economic anthropologistJason Hickel.
Towards this end, he suggests that the power of "the government’s role
as the issuer of currency" could be utilized to bring the economy back
into balance with the natural world while at the same time reducing economic inequality by providing high quality universal basic services,
implementing the rapid development of renewable energy infrastructure
to completely phase out fossil fuels in a shorter period of time, and
establishing a public job guarantee
for 30 hours a week at a living wage doing decommodified, socially
useful work in the public services sector, and also useful work in renewable energy development and ecosystem restoration.
Hickel notes that providing a living wage at 30 hours a week also has
the added benefit of shifting income from capital to labor. Furthermore,
he adds that taxation can be used to "reduce demand in order to bring resource and energy use down to target levels," and specifically to reduce the purchasing power of the wealthy.
Technology as a driver of post-capitalism
Automation
Technological
change that has driven unemployment has historically been due to
'mechanical-muscle' machines, which have reduced the need for human
labor. Just as the use of horses for transport and other work was
gradually made obsolete by the invention of the automobile, humans' jobs
have also been affected throughout history. A modern example of this technological unemployment
is the replacement of retail cashiers by self-service checkouts. The
invention and development of 'mechanical-mind' processes or 'brain
labor' is thought to threaten jobs at an unprecedented scale, with
Oxford Professors Carl Benedikt Frey and Michael Osborne estimating that 47% of US jobs are at risk of automation.
Information technology
Post-capitalism
is said to be possible due to major changes brought about by
information technology in recent years. These changes have blurred the
boundaries between work and free time
and loosened the relationship between work and wages. Significantly,
information is corroding the market's ability to form prices correctly.
Information is abundant and information goods are freely replicable.
Goods such as music, software or databases do have a production cost,
but once made can be copied infinitely. If the normal price mechanism of
capitalism prevails, then the price of any good which has essentially
no cost of reproduction will fall towards zero.
This lack of scarcity of those things is a problem in those models,
which try to counter by developing monopolies in the form of giant tech
companies to keep information scarce and commercial. But many
significant commodities in the digital economy are now free and
open-source, such as Linux, Firefox, and Wikipedia.
In the social sciences, unintended consequences (sometimes unanticipated consequences or unforeseen consequences, more colloquially called knock-on effects)
are outcomes of a purposeful action that are not intended or foreseen.
The term was popularised in the twentieth century by American sociologistRobert K. Merton.
Unintended consequences can be grouped into three types:
Unexpected benefit: A positive unexpected benefit (also referred to as luck, serendipity, or a windfall).
Unexpected drawback: An unexpected detriment occurring in addition to the desired effect of the policy (e.g., while irrigation schemes provide people with water for agriculture, they can increase waterborne diseases that have devastating health effects, such as schistosomiasis).
Perverse result: A perverse effect contrary to what was originally intended (when an intended solution makes a problem worse).
History
John Locke
The idea of unintended consequences dates back at least to John Locke who discussed the unintended consequences of interest rateregulation in his letter to Sir John Somers, Member of Parliament.
"The individual undertaker (entrepreneur), seeking the most efficient allocation of resources, contributes to overall economic efficiency;
the merchant’s reaction to price signals helps to ensure that the
allocation of resources accurately reflects the structure of consumer
preferences; and the drive to better our condition contributes to economic growth."
Marx and Engels
Influenced by 19th century positivism and Charles Darwin's evolution,
for both Friedrich Engels and Karl Marx, the idea of uncertainty and
chance in social dynamics (and thus unintended consequences beyond
results of perfectly defined laws) was only apparent, (if not rejected)
since social actions were directed and produced by deliberate human
intention.
While discerning between the forces that generate changes in
nature and those that generate changes in history in his discussion of Ludwig Feuerbach, Friedrich Engels touched on the idea of (apparent) unintended consequences:
In nature [...] there are
only blind, unconscious agencies acting upon one another, [...] In the
history of society, on the contrary, the actors are all endowed with
consciousness, are men acting with deliberation or passion, working
towards definite goals; nothing happens without a conscious purpose,
without an intended aim. [...] For here, also, on the whole, in spite of
the consciously desired aims of all individuals, accident apparently
reigns on the surface. That which is willed happens but rarely; in the
majority of instances the numerous desired ends cross and conflict with
one another, or these ends themselves are from the outset incapable of
realization, or the means of attaining them are insufficient. Thus the
conflicts of innumerable individual wills and individual actions in the
domain of history produce a state of affairs entirely analogous to [...]
the realm of unconscious nature. The ends of the actions are intended,
but the results which actually follow from these actions are not
intended; or when they do seem to correspond to the end intended, they
ultimately have consequences quite other than those intended. Historical
events thus appear on the whole to be likewise governed by chance. But
where on the surface accident holds sway, there actually it is always
governed by inner, hidden laws, and it is only a matter of discovering
these laws.
For his part, for Karl Marx
what can be understood as unintended consequences are actually
consequences that should be expected but are obtained unconsciously.
These consequences (that no one consciously sought) would be (in the
same way as it is for Engels)
product of conflicts that confront actions from countless individuals.
The deviation between the original intended goal and the product derived
from conflicts would be a marxist equivalent to «unintended
consequences.
This social conflicts would happen as a result of a competitive
society, and also lead society to sabotage itself and prevent historical
progress. Thus, historical progress (in Marxist terms) should eliminate these conflicts and make unintended consequences predictable.
Austrian School
Unintended consequences are a common topic of study and commentary for the Austrian school of economics given its emphasis on methodological individualism. This is to such an extent that unexpected consequences can be considered as a distinctive part of Austrian tenets.
Carl Menger
In "Principles of Economics," Austrian school founder Carl Menger
(1840 - 1921) noted that the relationships that occur in the economy
are so intricate that a change in the condition of a single good can have ramifications beyond that good. Menger wrote:
If it is established that
the existence of human needs capable of satisfaction is a prerequisite
of goods-character [...] This principle is valid whether the goods can
be placed in direct causal connection with the satisfaction of
human needs, or derive their goods-character from a more or less
indirect causal connection with the satisfaction of human needs. [...] Thus quinine would cease to be a good if the diseases it serves to cure
should disappear, since the only need with the satisfaction of which it
is causally connected would no longer exist. But the disappearance of
the usefulness of quinine would have the further consequence that a
large part of the corresponding goods of higher order would also be
deprived of their goods-character. The inhabitants of quinine-producing
countries, who currently earn their livings by cutting and peeling cinchona
trees, would suddenly find that not only their stocks of cinchona bark,
but also, in consequence, their cinchona trees, the tools and
appliances applicable only to the production of quinine, and above all
the specialized labor services, by means of which they previously earned
their livings, would at once lose their goods-character, since all
these things would, under the changed circumstances, no longer have any
causal relationship with the satisfaction of human needs.
— Principles of Economics (Grundsätze der Volkswirtschaftslehre), 1871.
Friedrich Hayek and Catallactics
Economist and philosopher Friedrich Hayek
(1899 – 1992) is another key figure in the Austrian School of Economics
who is notable for his comments on unintended consequences.
In "The Use of Knowledge in Society" (1945) Hayek argues that a centrally planned economy cannot reach the level of efficiency of the free market
economy because the necessary (and pertinent) information for
decision-making is not concentrated but dispersed among a vast number of
agents.
Then, for Hayek, the price system in the free market allows the members
of a society to anonymously coordinate for the most efficient use of
resources, for example, in a situation of scarcity of a raw material,
the price increase would coordinate the actions of an uncountable amount
of individuals "in the right direction."
The development of this system of interactions would allow the progress of society,
and individuals would carry it out without knowing all its
implications, given the dispersion (or lack of concentration) of
information.
The implication of this is that the social order (which derives from social progress, which in turn derives from the economy), would be result of a spontaneous cooperation and also an unintended consequence,
being born from a process of which no individual or group had all the
information available or could know all possible outcomes.
In the Austrian school, this process of social adjustment that generates a social order in an unintendedly way is known as catallactics.
For Hayek and the Austrian School, the number of individuals
involved in the process of creating a social order defines the type of
unintended consequence:
If the process involves interactions and decision making of as
many individuals (members of a society) as possible (thus gathering the
greatest amount of knowledge dispersed among them), this process of
"catallaxy" will lead to unexpected benefits (a social order and
progress)
On the other hand, attempts by individuals or limited groups (who
lack all the necessary information) to achieve a new or better order,
will end in unexpected drawbacks.
Robert K. Merton
Sociologist Robert K. Merton popularised this concept in the twentieth century.
In "The Unanticipated Consequences of Purposive Social Action"
(1936), Merton tried to apply a systematic analysis to the problem of
unintended consequences of deliberate acts intended to cause social change. He emphasized that his term purposive action,
"[was exclusively] concerned with 'conduct' as distinct from
'behavior.' That is, with action that involves motives and consequently a
choice between various alternatives". Merton's usage included deviations from what Max Weber defined as rational social action: instrumentally rational and value rational. Merton also stated that "no blanket statement categorically affirming or denying the practical feasibility of all social planning is warranted."
Everyday usage
More recently, the law of unintended consequences has come to be used as an adage or idiomatic warning that an intervention in a complex system tends to create unanticipated and often undesirable outcomes.
Akin to Murphy's law, it is commonly used as a wry or humorous warning against the hubristic
belief that humans can fully control the world around them, not to
presuppose a belief in predestination or a lack or a disbelief in that
of free will.
Causes
Possible causes of unintended consequences include the world's inherent complexity (parts of a system responding to changes in the environment), perverse incentives, human stupidity, self-deception, failure to account for human nature, or other cognitive or emotional
biases. As a sub-component of complexity (in the scientific sense), the
chaotic nature of the universe—and especially its quality of having
small, apparently insignificant changes with far-reaching effects (e.g.,
the butterfly effect)—applies.
In 1936, Robert K. Merton listed five possible causes of unanticipated consequences:
Ignorance, making it impossible to anticipate everything, thereby leading to incomplete analysis.
Errors in analysis of the problem or following habits that worked in the past but may not apply to the current situation.
Basic values which may require or prohibit certain actions even if
the long-term result might be unfavourable (these long-term consequences
may eventually cause changes in basic values).
Self-defeating prophecy,
or, the fear of some consequence which drives people to find solutions
before the problem occurs, thus the non-occurrence of the problem is not
anticipated.
In addition to Merton's causes, psychologist Stuart Vyse has noted that groupthink, described by Irving Janis, has been blamed for some decisions that result in unintended consequences.
Types
Unexpected benefits
The creation of "no-man's lands" during the Cold War, in places such as the border between Eastern and Western Europe, and the Korean Demilitarized Zone, has led to large natural habitats.
The sinking of ships in shallow waters during wartime has created many artificial coral reefs, which can be scientifically valuable and have become an attraction for recreational divers. This led to the deliberate sinking of retired ships for the purpose of replacing coral reefs lost to global warming and other factors.
In medicine, most drugs have unintended consequences ('side effects') associated with their use. However, some are beneficial. For instance, aspirin, a pain reliever, is also an anticoagulant that can help prevent heart attacks and reduce the severity and damage from thrombotic strokes. The existence of beneficial side effects also leads to off-label use—prescription or use of a drug for an unlicensed purpose. Famously, the drug Viagra was developed to lower blood pressure, with its use for treating erectile dysfunction being discovered as a side effect in clinical trials.
Unexpected drawbacks
The implementation of a profanity filter by AOL in 1996 had the unintended consequence of blocking residents of Scunthorpe, North Lincolnshire, England, from creating accounts because of a false positive. The accidental censorship of innocent language, known as the Scunthorpe problem, has been repeated and widely documented.
In 1990, the Australian state of Victoria made safety helmets
mandatory for all bicycle riders. While there was a reduction in the
number of head injuries, there was also an unintended reduction in the
number of juvenile cyclists—fewer cyclists obviously leads to fewer
injuries, all else being equal. The risk of death and serious injury per cyclist seems to have increased, possibly because of risk compensation,
or due to invisibilisation of cyclists. (the more a transportation
method is uncommonly sighted, the likelier it could be deemed to be
accident prone)
Research by Vulcan, et al. found that the reduction in juvenile cyclists was because the youths considered wearing a bicycle helmet unfashionable. A health-benefit model developed at Macquarie University
in Sydney suggests that, while helmet use reduces "the risk of head or
brain injury by approximately two-thirds or more", the decrease in
exercise caused by reduced cycling as a result of helmet laws is
counterproductive in terms of net health.
Prohibition in the 1920s United States,
originally enacted to suppress the alcohol trade, drove many small-time
alcohol suppliers out of business and consolidated the hold of
large-scale organized crime
over the illegal alcohol industry. Since alcohol was still popular,
criminal organisations producing alcohol were well-funded and hence also
increased their other activities. Similarly, the War on Drugs, intended to suppress the illegal drug trade, instead increased the power and profitability of drug cartels who became the primary source of the products.
In CIAjargon, "blowback" describes the unintended, undesirable consequences of covert operations, such as the funding of the Afghan Mujahideen and the destabilization of Afghanistan contributing to the rise of the Taliban and Al-Qaeda.
The introduction of exotic
animals and plants for food, for decorative purposes, or to control
unwanted species often leads to more harm than good done by the
introduced species.
The introduction of rabbits in Australia and New Zealand for food was followed by an explosive growth in the rabbit population; rabbits have become a major feralpest in these countries.
Cane toads, introduced into Australia to control canefield pests, were unsuccessful and have become a major pest in their own right.
Kudzu, introduced to the US as an ornamental plant in 1876
and later used to prevent erosion in earthworks, has become a major
problem in the Southeastern United States. Kudzu has displaced native
plants and has effectively taken over significant portions of land.
The protection of the steel industry in the United States reduced
production of steel in the United States, increased costs to users, and
increased unemployment in associated industries.
In 2003, Barbra Streisand unsuccessfully sued Kenneth Adelman and Pictopia.com for posting a photograph of her home online. Before the lawsuit had been filed, only 6 people had downloaded the file, two of them Streisand's attorneys. The lawsuit drew attention to the image, resulting in 420,000 people visiting the site. The Streisand Effect
was named after this incident, describing when an attempt to censor or
remove a certain piece of information instead draws attention to the
material being suppressed, resulting in the material instead becoming
widely known, reported on, and distributed.
Passenger-side airbags
in motorcars were intended as a safety feature, but led to an increase
in child fatalities in the mid-1990s because small children were being
hit by airbags that deployed automatically during collisions. The
supposed solution to this problem, moving the child seat to the back of
the vehicle, led to an increase in the number of children forgotten in
unattended vehicles, some of whom died under extreme temperature
conditions.
Risk compensation, or the Peltzman effect,
occurs after implementation of safety measures intended to reduce
injury or death (e.g. bike helmets, seatbelts, etc.). People may feel
safer than they really are and take additional risks which they would
not have taken without the safety measures in place. This may result in
no change, or even an increase, in morbidity or mortality, rather than a
decrease as intended.
According to an anecdote, the British government, concerned about the number of venomous cobra snakes in Delhi,
offered a bounty for every dead cobra. This was a successful strategy
as large numbers of snakes were killed for the reward. Eventually,
enterprising people began breeding cobras for the income. When the
government became aware of this, they scrapped the reward program,
causing the cobra breeders to set the now-worthless snakes free. As a
result, the wild cobra population further increased. The apparent
solution for the problem made the situation even worse, becoming known
as the Cobra effect.
Theobald Mathew's temperance campaign in 19th-century Ireland resulted in thousands of people vowing never to drink alcohol again. This led to the consumption of diethyl ether,
a much more dangerous intoxicant—owing to its high flammability—by
those seeking to become intoxicated without breaking the letter of their
pledge.
It was thought that adding south-facing conservatories
to British houses would reduce energy consumption by providing extra
insulation and warmth from the sun. However, people tended to use the
conservatories as living areas, installing heating and ultimately
increasing overall energy consumption.
A reward for lost nets
found along the Normandy coast was offered by the French government
between 1980 and 1981. This resulted in people vandalizing nets to
collect the reward.
Beginning in the 1940s and continuing into the 1960s, the
Canadian federal government gave Quebec $2.25 per day per psychiatric
patient for their cost of care, but only $0.75 a day per orphan. The
perverse result is that the orphan children were diagnosed as mentally
ill so Quebec could receive the larger amount of money. This psychiatric
misdiagnosis affected up to 20,000 people, and the children are known
as the Duplessis Orphans in reference to the Premier of Quebec who oversaw the scheme, Maurice Duplessis.
There have been attempts to curb the consumption of sugary
beverages by imposing a tax on them. However, a study found that the
reduced consumption was only temporary. Also, there was an increase in
the consumption of beer among households.
The New Jersey Childproof Handgun Law, which was intended to protect children from accidental discharge of firearms by forcing all future firearms sold in New Jersey to contain "smart" safety features,
has delayed, if not stopped entirely, the introduction of such firearms
to New Jersey markets. The wording of the law caused significant public
backlash, fuelled by gun rights lobbyists, and several shop owners offering such guns received death threats and stopped stocking them.
In 2014, 12 years after the law was passed, it was suggested the law be
repealed if gun rights lobbyists agree not to resist the introduction
of "smart" firearms.
Drug prohibition can lead drug traffickers to prefer stronger, more dangerous substances, that can be more easily smuggled and distributed than other, less concentrated substances.
Televised drug prevention advertisements may lead to increased drug use.
Increasing usage of search engines, also including recent image search features, has contributed in the ease of which media is consumed. Some abnormalities in usage may have shifted preferences for pornographic film actors, as the producers began using common search queries or tags to label the actors in new roles.
The passage of the Stop Enabling Sex Traffickers Act
has led to a reported increase in risky behaviors by sex workers as a
result of quashing their ability to seek and screen clients online,
forcing them back onto the streets or into the dark web. The ads posted were previously an avenue for advocates to reach out to those wanting to escape the trade.
The use of precision guided munitions meant to reduce the rate of civilian casualties
encouraged armies to narrow their safety margins, and increase the use
of deadly force in densely populated areas. This in turn increased the
danger to uninvolved civilians, who in the past would have been out of
the line of fire because of armies' aversion of using higher-risk
weaponry in densely populated areas.
The perceived ability to operate precision weaponry from afar (where in
the past heavy munitions or troop deployment would have been needed)
also led to the expansion of the list of potential targets. As put by Michael Walzer:
"Drones not only make it possible for us to get at our enemies, they
may also lead us to broaden the list of enemies, to include
presumptively hostile individuals and militant organizations simply
because we can get at them–even if they aren’t actually involved in
attacks against us." This idea is also echoed by Grégoire Chamayou:
"In a situation of moral hazard, military action is very likely to be
deemed 'necessary' simply because it is possible, and possible at a
lower cost."
Other
According to Lynn White, the invention of the horse stirrup enabled new patterns of warfare that eventually led to the development of feudalism (see Stirrup Thesis).
Perverse consequences of environmental intervention
Because of the complexity of ecosystems,
deliberate changes to an ecosystem or other environmental interventions
will often have (usually negative) unintended consequences. Sometimes,
these effects cause permanent irreversible changes. Examples include:
During the Four Pests Campaign
a killing of sparrows was declared. Chinese leaders later realized that
sparrows ate a large amount of insects, as well as grains. Rather than
being increased, rice yields after the campaign were substantially
decreased.
(The decision to cull sparrows may itself have been an unintended
consequence of silencing intellectuals: "For 3 years after the
establishment of the Communist Government, in 1949, Chinese scientists
and intellectuals found themselves in the midst of turmoil. Many
scientists were humiliated and intimidated during the nationwide program
of "thought reform" and political indoctrination".)
During the Great Plague of London
a killing of dogs and cats was ordered. If left untouched, they would
have made a significant reduction in the rat population that carried the
fleas which transmitted the disease.
The installation of smokestacks to decrease pollution in local areas, resulting in spread of pollution at a higher altitude, and acid rain on an international scale.
After about 1900, public demand led the US government to fight forest fires
in the American West, and set aside land as national forests and parks
to protect them from fires. This policy led to fewer fires, but also led
to growth conditions such that, when fires did occur, they were much
larger and more damaging. Modern research suggests that this policy was
misguided, and that a certain level of wildfires is a natural and
important part of forest ecology.
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