The second of the "Five Limits" is industrial expansion. If fossil fuels are the life blood of Industrialism, then industrial expansion is the body - or some would characterize it as a cancer: Grow or die. The "problem of production" discussed in the article that follows is this: the illusion that we can continue to produce and consume at ever-increasing rates, forevermore.

"The Problem of Production"
Excerpt from E. F. Schumacher "Small is Beautiful"
(London: Abacus, 1974) pp. 10-16

One of the most fateful errors of our age is the belief that 'the problem of production' has been solved. Not only is this belief firmly held by people remote from production and therefore professionally unacquainted with the facts - it is held by virtually all the experts,the captains of industry, the economic managers in the governments of the world, the academic and not-so-academic economists, not to mention the economic journalists. They may disagree on many things but they all agree that the problem of production has been solved: that mankind has at last come of age. For the rich countries, they say, the most important task now is 'education for leisure' and, for the poor countries, the 'transfer of technology'.

That things are not going as well as they ought to be going must be due to human wickedness. We must therefore construct a political system so perfect that human wickedness disappears and everybody behaves well, no matter how much wickedness there may be in him or her. In fact, it is widely held that everybody is born good; if one turns into a criminal or an exploiter, this is the fault of 'the system'. No doubt 'the system' is in many ways bad and must be changed. One of the main reasons why it is bad and why it can still survive in spite of its badness, is this erroneous view that the 'problem of production' has been solved. As this error pervades all present-day systems there is at present not much to choose between them.

The arising of this error, so egregious and so firmly rooted, is closely connected with the philosophical, not to say religious, changes during the last three or four centuries in man's attitude to nature. I should perhaps say: western man's attitude to nature, but since the whole world is now in a process of westernization, the more generalized statement appears to be justified. Modern man does not experience himself as a part of nature but as an outside force destined to dominate and conquer it. He even talks of a battle with nature, forgetting that, if he won the battle, he would find himself on the losing side. Until quite recently, the battle seemed to go well enough to give him the illusion of unlimited powers, but not so well as to bring the possibility of total victory into view. This has now come into view, and many people, albeit only a minority, are beginning to realize what this means for the continued existence of humanity.

The illusion of unlimited powers, nourished by astonishing scientific and technological achievements, has produced the concurrent illusion of having solved the problem of production. The latter illusion is based on the failure to distinguish between income and capital where this distinction matters most. Every economist and businessman is familiar with the distinction, and applies it conscientiously and with considerable subtlety to all economic affairs -except where it really matters: namely, the irreplaceable capital which man has not made, but simply found, and without which he can do nothing.

A businessman would not consider a firm to have solved its problems of production and to have achieved viability if he saw that it was rapidly consuming its capital. How, then, could we over look this vital fact when it comes to that very big firm, the economy of Spaceship Earth and, in particular, the economies of its rich passengers?

One reason for overlooking this vital fact is that we are estranged from reality and inclined to treat as valueless everything that we have not made ourselves. Even the great Dr. Marx fell into this devastating error when he formulated the so called 'labour theory of value'. Now, we have indeed laboured to make some of the capital which today helps us to produce - a large fund of scientific, technological, and other knowledge; an elaborate physical infrastructure; innumerable types of sophisticated capital equipment, etc. - but all this is but a small part of the total capital we are using. Far larger is the capital provided by nature and not by man - and we do not even recognize it as such. This larger part is now being used up at an alarming rate, and that is why it is an absurd and suicidal error to believe, and act on the belief, that the problem of production has been solved.

Let us take a closer look at this 'natural capital'. First of all, and most obviously, there are the fossil fuels. No one, I am sure, will deny that we are treating them as income items although they are undeniably capital items. If we treated them as capital items, we should be concerned with conservation; we should do everything in our power to try and minimize their current rate of use; we might be saying, for instance, that the money obtained from the realization of these assets - these irreplaceable assets - must be placed into a special fund to be devoted exclusively to the evolution of production methods and patterns of living which do not depend on fossil fuels at all or depend on them only to a very slight extent. These and many other things we should be doing if we treated fossil fuels as capital and not as income. And we do not do any of them, but the exact contrary of every one of them: we are not in the least concerned with conservation; we are maximizing, instead of minimizing, the current rates of use; and, far from being interested in studying the possibilities of alternative methods of production and patterns of living - so as to get off the collision course on which we are moving with ever-increasing speed - we happily talk of unlimited progress along the beaten track, of 'education for leisure' in the rich countries, and of 'the transfer of technology' to the poor countries.

The liquidation of these capital assets is proceeding so rapidly that even in the allegedly richest country in the world, the United States of America, there were many worried men, right up to the White House, calling for the massive conversion of coal into oil and gas, demanding ever more gigantic efforts to search for and exploit the remaining treasures of the earth . . .

The explanation is not difficult to find. As with fossil fuels, we have indeed been living on the capital of living nature for some time, but at a fairly modest rate. It is only since the end of World War II that we have succeeded in increasing this rate to alarming proportions. In comparison with what is going on now and what has been going on, progressively, during the last quarter of a century, all the industrial activities of mankind up to, and including, World War II are as nothing. The next four or five years are likely to see more industrial production taking the world as a whole, than all of mankind accomplished up to 1945. In other words, quite recently - so recently that most of us have hardly yet become conscious of it - there has been a unique quantitative jump in industrial production.

Partly as a cause and also as an effect, there has also been a unique qualitative jump. Our scientists and technologists have learned to compound substances unknown to nature. Against many of them, nature is virtually defenseless. There are no natural agents to attack and break them down. It is as if aborigines were suddenly attacked with machine-gun fire: their bows and arrows are of no avail. These substances, unknown to nature, owe their almost magical effectiveness precisely to nature's defenselessness - and that accounts also for their dangerous ecological impact. It is only in the last twenty years or so that they have made their appearance in bulk. Because they have no natural enemies, they tend to accumulate, and the long-term consequences of this accumulation are in many cases known to be extremely dangerous, and in other cases totally unpredictable.

In other words, the changes of the last twenty-five years, both in the quantity and in the quality of man's industrial processes, have produced an entirely new situation - a situation resulting not from our failures but from what we thought were our greatest successes. And this has come so suddenly that we hardly noticed the fact that we were very rapidly using up a certain kind of irreplaceable capital asset, namely the tolerance margins which benign nature always provides. . . .

And this takes us to the third category of 'natural capital' which we are recklessly squandering because we treat it as if it were income: as if it were something we had made ourselves and could easily replace out of our much-vaunted and rapidly rising productivity. Is it not evident that our current methods of production are already eating into the very substance of industrial man? To many people this is not at all evident. Now that we have solved the problem of production, they say, have we ever had it so good? Are we not better fed, better clothed, and better housed than ever before - and better educated? Of course we are: most, but by no means all, of us: in the rich countries. But this is not what I mean by 'substance'. The substance of man cannot be measured by Gross National Product. Perhaps it cannot be measured at all, except for certain symptoms of loss. However, this is not the place to go into the statistics of these symptoms, such as crime, drug addiction, vandalism, mental breakdown, rebellion, and so forth. Statistics never prove anything.

I started by saying that one of the most fateful errors of our age is the belief that the problem of production has been solved. This illusion, I suggested, is mainly due to our inability to recognize that the modern industrial system, with all its intellectual sophistication consumes the very basis on which it has been erected. To use the language of the economist, it lives on irreplaceable capital which it cheerfully treats as income. I specified three categories of such capital: fossil fuels, the tolerance margins of nature, and the human substance. Even if some readers should refuse to accept all three parts of my argument, I suggest that any one of them suffices to make my case.

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