Section B The Theoretical Viewpoint about Economy on the Basis of Western Economy Growth Theory

1 About Resource Shortage

Resource shortage is closely related to that of human needs, which increase infinitely and multiply. In order to meet the needs, we should produce more products that need more resources, however, resources, in a certain time period, are often limited. Therefore, it is reasonable to say that the resources we have cannot fully meet the ones we need. What Economics studies is to find out the ways to solve this problem.

The shortage of the resource and the problem of distribution as well as utilization is the basis of the economic theory.

Adam Smith claims that the shortage of the resource can be reflected on the market price. Besides, the termination of the economic development lies on the allocation of scarce resources, instead of the dependence of the natural resource. Thomas Malthus also argues that the shortage of the natural resource can be changed into the shortage of the human resource via the value of exchange. What restrains the development of the economy is human power, not the influence of the environmental degradation. David Ricardo maintains that the shortage of the natural resource is reflected on the increase of the price in the market, while the relative shortage comes from the limit of the natural regeneration capacity. Jevons believes that unrenewable resources definitely restrain the development of the economy.

It is an undeniable fact that Marshall contributes a lot in the theory of resource shortage. He agrees with the point that resource shortage would cause the increase of the price, but disagrees with the idea that unrenewable resources definitely restrain the development of the economy. Different with Muler and Jevons, he assumes that the principle of diminishing returns can be applied into the issue of agricultural products, but it is unsuitable with limited mineral ones. However, this can be manifested on the high price in the market. Marshall's research has certain applicability although it does not take the influence of government intervention, market failure and the situation of production externalities into account. Like Muler, he also purports that natural resource can be used in productivity, human leisure and productive service.

From the time of Marshall to 1960s, people pay no attention on the shortage of natural resource and environmental deterioration, although the optimization growth theory of Ramsay and the depletion of resource economics of Harold have come up with Marshall's theory at the same time. Therefore, his creeds played an important role before 1960s.

On the early stage of 1960s, Barnett and Morse created their theory about natural resource shortage. They posit that natural resource will be scarce when and only when they are employed as the supplier of raw materials and energy. This viewpoint is proved by Narnett again in his coming research. Therefore, it is reasonable to argue that the traditional definition of natural theory is often restrained in those resources that used for production, which does not take the usage and consumption of the resource into consideration.

Based on the above analysis, it can be argued that the absolute scarce resources and the relative scarce resources are two main points in traditional shortage theory. What absolute scarce resources theory believes is that environmental quality will never change before the ultimate strength of natural resource, and the phenomenon of marginal costs rises as well as diminishing marginal return will never come. The limit of natural resource absolutely constrains the development of economy. When it comes to the top of such situation, the shortage of resource can influence the price via the rise of the cost. When this happens, the usage of all the natural resource will stop the development of the economy, which is out of the control of humanity. On the contrary, the relative scarce resources theory argues that there exists no relative scarce resource because environmental quality is changing. There only exists the relative shortage of quality. When we use natural resources, their quality will go down, and the quality of shortage will go up, raising the cost of unit production. Here, when the physical scarce resources change into the relative scarce resources through price, our economy system will search for another resource to replace such shortage resource, which can be reflected on the price. In other words, the rise of the cost will stimulate the development of technology, resulting in the appearance of the supplement resource with a better quality. The development of the economy will cause the relative shortage, instead of the absolute constraint.

In general, traditional economic research has a positive viewpoint on the long term influence of the shortage of the natural resource. They classify environmental function into productive type and service type. The function that environment accepts the discharge of pollution and provides leisure, comfort and living sustain is considered as the external exception, which has no relationship with those economic shortage problems. When the resources that provide productive service are deficit, the price will grow up, restraining the economic development and causing reflection of the economic system. That will revise the over development of the resource and slow down the degree of scarcity. As Williamzi points out, the improvement of the technology innovation and ratio of production can decrease the dependence of the natural resource, therefore, we can argue that the long-term shortage of resource will never threaten the economic development.

2 The Fable of the Bees and the Keynesianism

At the beginning of the 18th century, an English doctor named Mondiwell wrote a satiric poem “The Fable of the Bees” to tell a story about the history of the swarm of bees. Firstly, the bees pursuit a luxury life, and their extravagance flourishes the whole bees. However, after they change their lifestyle into an economical one, their glorious life fades away and they are defeated by the enemy lastly.

What that poem says about “extravagance” was attacked at that time. The number of the council in Mid-Sykes had adjudged it as the “scum of a community that hinders public audio-visual”. However, 200 years ago, Keynes, enlightened by that poem, started Keynesian Revolution in economic history, which set up the modern macroeconomics and the theory of total demand.

Before 1930s, the Say's Law of Market was deeply believed by economist. Say is a French economist in the18th century, who puts forward the theory that supply determines demand, and supply creates demand, indicating that the over-production crime will never come true. However, it was overthrown by the termination of the English economic development in the 1920s, universal over-production as well as unemployment in the world in 1930s. Through criticizing the Say's Law, Keynes establishes his macroeconomics based on the analysis of the total demand.

He purports that, what determines the economic situation is total demand, instead of total supply. In other words, the total supply, determined by labor, money and technique, is fixed in short-term. What makes the final decision is total demand, which determines the level of short-term national income. The increase of total demand will result in the increase of the national income, and vice versa. What causes the crisis in 1930s is the shortage of total demand, or the effective demand, in Keynes words. Keynes contributes the shortage of effective demand into the decrease of the consumer demand and marginal capital effects as well as the investment demand. To solve this problem, he suggests stimulating the total demand via the government economic policies, including the policy of increasing government expenditure and the policy of reducing the rate of monetary. What Keynes focuses here is the fiscal policy.

In Keynes economics, the analysis of the total demand is the focus, which covers consumption, investment, government purchase and net exports. In short-term, the national income is determined by the total demand. Inflation, employment and economic cycle are all caused by its changes. When the total demand is insufficient, unemployment and recession will come, while the total demand is overloaded, the inflation and expansion will appear. Called demand management, such rule has been employed as political tools of fiscal policy and money policy. When the total demand is insufficient, we should adoptan expansive fiscal policy and money policy to stimulate the total demand. While the total demand is overloaded, we should adopt concretionary fiscal policy and money policy to constrain total demand. In that way, an economic stabilization with no inflation and no joblessness will be achieved.

The presence of the total demand theory is considered as a revolution in Economics, which changes our traditional ideas. For example, regarding the idea of how to treat economization, in our traditional ideas, economization is a virtue. However, in total demand theory, it means reducing consumption, which is an important part of the total demand. The reducing of the consumption means the reducing of the total demand, the result of which may cause the reducing of the national income and recession. Therefore, what is virtue to an individual is a crime to the society. This is called “the paradox of economization” in economist words, with the implied meaning“the fable of the bees”.

Keynes thinks highly of the increase of the consumption. In 1933, when England was in the recession, he appealed on BBC that housewives should consume more, which is regarded as “the action of saving the country”. He even makes a joke in “The Introduction of the Economics “ that people bury their money in the well if there is no way to use it, and later on, dig it out. Chen Daisun, a late economic professor of Beijing University claims, Keynes just uses his humor to encourage people to consume more, not really asking you to bury your money. Nevertheless, the point of Keynes himself and his theory is that to increase the demand can stimulate the economy.

So, is it right or wrong to deny the traditional economic viewpoint? We should make a concrete analysis of each specific question. No people will deny the rule that the purpose of the production is to consume, which, in return, promotes the production. The total demand of the Keynes aims at the decrease of the total demand in short-term. On such circumstance, it is of great necessity to stimulate the total demand. It is absolutely frugal to “wear the new clothes for three years, still keep it for another three years although it is old and sew it for three more years when it is worn out”, as the old saying goes. However, it may cause the shut-down of the textile industry. Besides, when China's economy is facing the demand deficiency, our government is seeking a new consumption hot spot, too. That said, Keynes' theory makes sense in this point.

However, such theory of stimulating the total demand is not a universal rule. At least in two circumstances, it is not suitable. First, when the total supply is already equal with or overwhelmed the total demand in the short term, the increase of the total demand will cause inflation. Second, in the long run, the growth of the economy is based on the capital structure, which comes from savings. This, to some degree, will decrease the consumption, and change the savings into another demand-investment demand. When this happens, economy makes sense.

Keynes' theory breaks the myth that the market mechanism will improve itself, and stresses the important role of government in stabilizing economy.After World War Two, although many countries have made some mistakes in the regulation of the macro economy, they still try their best to make it work. At that time, the wavy degree of the economic cycle was smaller than before. The Great Depression of the 1930s never comes again to prove that point.

Before 1960s, Western developed countries canonized Keynes's theory of economic development determinism, which follows the way of traditional policy with high speed of economic development in industrialization. But that generates heavy environmental pollution and quality decrease, causing great cost to the Western countries. Facing with the increasing global problem of resource waste and environmental pollution, we should make a re-selection on the mode of economic development, thinking twice about how economic development can facilitate social welfare under the strain of environment and material.

3 About the Economy of the Resource

Economics has always been paying high attention to saving and the traditional economics studies the saving of monetary capital, including the saving of human capital and material capital.

For example, Boulding, an English economist, applied the systemic method into the analysis of relation between the economy and the environment in 1966. He divided the input and output of the economic development into raw material, energy and information. Because of the limited raw material, energy as well as the productive and consuming trash storage, economic system was regarded as a closed-loop system, like a shutter space. Therefore, what Boulding proposes is a reserve-typed, rehabilitated and welfare-oriented economic development on the purpose of establishing a kind of economy with material recycled feature, but without resource exhaustion and environmental pollution to replace the “single-process” one in the past.

Mishan analyzes the way of economy increase from the aspect of whether it could benefit human welfare. He assumes that economic development is a double-edged sword, which benefits human with more products, more education chances and more advanced technology, but does harm to them with more pollutions and more declines of environmental quality. Later on, he proposes his ideas of “Satiation”, holding the viewpoint that most of the western countries have already satisfied the minimum requirements of living, thus any increase of the economy would not bring the increase of constant social welfare, but could pose a negative impact on human health and happiness.

What makes Daly deny the increase of economy is similar with the “Satiation” of Mishan. First of all, there is no need to worry about the absolute shortage of the resource under the situation of small population and capital consumption. However, when the situation changes, the increase of the demand will exhaust natural resources, causing pollution. Second, different with the absolute demand that meets the basic human needs and the relative one that meets the better life, it is not worthy to increase the development of relative demand. So, he proposes his developing mode of steady-state economy, in order to keep the population and capital investment in a certain level and make sure the slowdown of the unrenewable resource consumption. Mishan and Daly's ideas have been discussed in many other researches.

Based on Mishan and Daly's research, Geogescu posits that thermodynamic theorem constrains the economic behavior, arguing that the energy and resource used in production and consumption can never be dismissed, instead, they only can shift. From order to disorder, they always shift from value to non-value, finally entering into the environment as rubbish. On the basis of the thermodynamic theorem, he elaborates a deep explanation on the finiteness of resources. He maintains that although the shortage of the resource and environmental pollution will be improved through the exploration of the new energy, the recycle of the rubbish as well as the technology of controlling pollution, it still needs the input of the additional energy. Therefore, he claims that Daly's viewpoint cannot resolve the issue fundamentally. For him, to solve the contradiction between economy and environment needs more durable productions and the use of solar power.

Another famous economist in England in 1970s was Schumacher, who proposed “miniaturization of the economy”. The huge production stimulates consumption, causing the problem of unrenewable resources shortage and pollution, which intensifies the contradiction between man and nature. On the basis of the coordination of mankind and nature, he appreciates the mode of miniaturization economy which is free, effective, creative and durable. Schumacher denies the high-speed urbanization and massive expansion of the production, as what it generates is endless disaster instead of social development. He assumes that small scattered industries are an effective way to protect environment.

Different with steady economic development mode that concerns more about resource shortage, Beckerman proposes to judge the economy development on the basis of delaminating the poor in both the developing and developed countries, because environment pollution is only a problem of management, which could slow down or eliminate by effective measures. From the point of eliminating poverty by developing economy, his ideas do not differentiate with environment luxury theory of Davis and Dez, who maintain that people worry about pollution when and only when their life level has reached a certain degree. Otherwise, paying more attention on it is luxurious. Therefore, since the aim of the developing countries is development, there is no need to think about environmental protection.

In 1980s, acid rain and climate change had become a global problem, expanding resources shortage and threatening human living and development. Therefore, to control the environmental pollution caused by industry becomes a hot global issue. The report “Our Own Future” submitted to WCED in 1987 suggested that we should reduce industrial pollution, rather than economizing resource. Nevertheless, the tough point is the accumulation of pollutants. Although we control the production of many pollutants, improve part of the quality of environment, the accumulating problem is still serious. The relation between the pollutant accumulation and the capacity of environment to absorbing waste is a hot topic. Siebert's research reveals that while environment is a constant for the capacity of absorbing waste, it is the limit of economic growth. Another scholar assumes that there exist two relations between capacity of environment and pollutant accumulation. One is that the capacity of absorbing and degrading pollutant would increase with the pollutant accumulation, while the other indicates that the capacity of absorbing and degrading pollutant has no relation with the pollutant accumulation. Although the first one would never threaten the economic development, the second one might affect it when the pollutant accumulation exceeds over certain degree.

The function of technology in resource economy is another hot topic in the development of economics. Rosenberg defines technological progress as the one including the process of production mode change. Kuipers and Net jes used neo-classical mode to make a proposal that if the speed of the pollution control technology surpassed the speed of labor force growth, the harmony between economic growth and pollution control would come true. Likewise, Zebert believes that the progress of the pollution control technology can solve the problem between economic growth and environmental pollution. In 1989, Net jes conducted a deep analysis about economic and technical environment coordination. He argues that the decrease of the unit output pollutant would grow up the cost of marginal processing, while the progress of technology could slow down such situation, which means that it is possible to reduce the pollution degree of output without increasing output pollution control costs. Besides, economy would develop harmoniously when the speed of the pollution control surpasses the minimum value that is defined by the elasticity coefficient of output growth and pollutant treatment cost.

There is no doubt that the progress of technology would do harm to the environment. The increasing complexity and expansion of technology make its potential hazard invisible. The toxic emissions and radioactive contamination of industry might be undetected for a long period of time. In fact, technological innovation could be divided into environmental friendly type and environmental harmful type according to the impact of technology to environment. The industrial revolution in the18th, the 19th, and the 20th contributes to a sharp increase in resources consumption, generating an expansion in pollution. This makes us believe that environmental friendly mode should be the feature of technology progress. The environmental friendly technology should be the guide of the modern technology. We could divide environmental friendly technology into two types, the type of resource-saving and the type of resource-producing. The former, such as solar power, wind power, hydraulic power and superconducting technology aims to decrease the unit output of energy consumption, while the latter is to increase the recycle of the natural resources. Therefore, technology is means to solve the global problems.

On the basis of economics, the progress of technology plays a fundamental role in economic environment coordination, which can be regarded as the objective necessity. Usually, economists define such economy as the one with the features of capital productivity and production, consumption, wage growth rate constant and the state of steady growth. Due to the limitless of the resource, some economists define the steady state economy with the feature of capital output, production, consumption stability. Tinbergen purports that such situation can be obtained through the technology innovation in the consumption of resource productivity increase. Therefore, if capital or recycle recourse could be placed in the situation of unrenewable recourse, the progress of technology is not the requirement of economic and environmental coordination. However, it requires two preconditions. First, such placement must be definite. Second, a physical balance could be achieved between recycle recourse and human usage. Actually, the population of the world is changing and increasing, such condition will never be satisfied. The ecological technology progress is indispensable for maintaining the personal income, consumption and production. Without it, sustainable economic development will never come true.

The viewpoints of domestic scholar on resource economy include two domains: saving and intensity. Pi Jiancai (2005)'s understandings are more significant in that he believes that the saving in economics entails two representatives, one being the saving of production cost and another being the exchange cost. While the first one belongs to marginal type, which is on the second range because minimization of the production cost should be constrained in a certain organization, the second one belongs to organized type, which plays an important role since the pursuit of exchange cost minimization should be under the control of the best organization. To solve marginal problem, we can combine the ways of voluntary and mandatory, however, to solve organized problem, we must move further in the reform of economic system and political system. Saving entails double meanings in this point. First, it is relative to the waste. Second, it requires the reduction of energy, resource needs in economic progress. In other words, we should employ less energy and recourse in production and consumption to create more wealth, trying our best to make the best use of the rubbish. Such saving requires the transformation of the economic growth ways and technology innovation so that we can promote economic and social progress in an all-round way. The two meanings of saving are internally unified, hence both of them should be taken into consideration.