Exclusive Sneak Peek at “Limits to Investment”

Perhaps the most important book missing from the bookshelves of most financiers is Limits to Growth, written in 1972 under the auspices of the Club of Rome.

Demonized as neo-Malthusian alarmism when it came out, the book has since sold 12 million copies, been updated three times, each validating the original message, and it remains fervently debated. From what I can tell, however, it is largely absent from the lexicon of financiers and financial system policymakers. And to the extent financiers are familiar with it, they have accepted the demonization without much thought, and forgotten it. That is a mistake.

Unfortunately, we have largely wasted 40 years since the systems scientists at MIT first published the book. Their message that exponential population growth and exponential material throughput growth of the economy on a finite planet is in conflict with the laws of physics and ultimately unsustainable remains fundamentally correct. However, few have thought about the implications for investment in a capitalist system that not only presumes no “limits to investment,” but views investment as essential to drive growth, which of course it is.

We need to contemplate something new and counter to our preconceived notions of economic success. It is very uncomfortable to consider, with no easy responses. The transition to a sustainable economy requires not only population stabilization, breakthroughs in resource productivity, and checks on material consumption, but also constraints on the quality and quantity of aggregate investment since investment drives the growth of material throughput that Limits to Growth warned us is in conflict with the fact of a finite planet.

Built into the DNA of finance is the goal of optimizing relatively short-term returns on investment, which, when successful, induces exponential growth in the aggregate stock of financial capital. When that expanding stock of financial capital is then reinvested, it spurs ever-increasing demands for natural resources and puts pressure on waste sinks. The contradiction between the finite scale of the biosphere and the endless growth of finance capital will be resolved either through crisis or, as advocated here, through foresight and remedial action. Shifting the economic system demands a fundamental transformation of finance, at least for the real investment decisions of the largest actors in the economy. We must view this profound shift as a critical national and global security priority that will require unprecedented intervention by governing institutions on the public’s behalf.

My essay “Limits to Investment” is to be released in conjunction with the re-launch of the Great Transition Initiative (GTI) by Tellus Institute in April. In its new phase, GTI serves as a formal journal of Great Transition studies, offering a series of essays, viewpoints, and reviews. We are honored that our colleagues at Tellus have chosen “Limits to Investment” as the opening Viewpoint, and have allowed us to share it in advance with our c

The true nature of the international system under which we were living was not realized until it failed. — Karl Polanyi

Read John’s full paper here.