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The Heterodox Theory of Social Costs The Heterodox Theory of Social Costs K. William Kapp’s heterodox theory of social costs proposes precautionary plan- ning to preempt social costs and provide social benefits via socio-ecological safety standards that guarantee the gratification of basic human needs. Based on arguments from Thorstein Veblen, Karl Marx, and Max Weber, social costs are conceptualized as systemic and large-scale damages caused by markets. Kapp refutes neoclassical solutions, such as bargaining, taxation, and tort law, unmasking them as ineffective, inefficient, inconsistent, and too market- obedient. The chapters of this book present the social costs of markets and neoclassical economics, the social benefits of environmental controls, development planning, and the governance of science and technological standards. This book demon- strates the fruitfulness of the heterodox theory of social costs as a coherent framework to develop effective remedies for today’s urgent socio-ecological crises. This volume is suitable for readers at all levels who are interested in the theory of social costs, heterodox economics, and the history of economic thought. K. William Kapp (1910–1976) was a German-Amer ican economist, one of the founders of Ecological Economics, a leading contributor to the institutional eco- nomics movement, and author of The Social Costs of Business Enterprise. Sebastian Berger is a Senior Lecturer of Economics at the University of the West of England, winner of the 2009 Helen Potter Award (Association for Social Economics), and trustee of the Kapp Foundation. Routledge advances in heterodox economics Edited by Wolfram Elsner University of Bremen and Peter Kriesler University of New South Wales Over the past two decades, the intellectual agendas of heterodox economists have taken a decidedly pluralist turn. Leading thinkers have begun to move beyond the established paradigms of Austrian, feminist, Institutional- evolutionary, Marxian, Post Keynesian, radical, social, and Sraffian econom- ics—opening up new lines of analysis, criticism, and dialogue among dissenting schools of thought. This cross- fertilization of ideas is creating a new generation of scholarship in which novel combinations of heterodox ideas are being brought to bear on important contemporary and historical problems. Routledge Advances in Heterodox Economics aims to promote this new scholarship by publishing innovative books in heterodox economic theory, policy, philosophy, intellectual history, institutional history, and pedagogy. Syn- theses or critical engagement of two or more heterodox traditions are especially encouraged. 1 Ontology and Economics 5 Heterodox Macroeconomics Tony Lawson and his critics Edited by Jonathan P. Goldstein Edited by Edward Fullbrook and Michael G. Hillard 6 The Marginal Productivity 2 Currencies, Capital Flows and Theory of Distribution Crises A critical history A post Keynesian analysis of John Pullen exchange rate determination John T. Harvey 7 Informal Work in Developed Nations 3 Radical Economics and Labor Edited by Enrico A. Marcelli, Frederic Lee and Jon Bekken Colin C. Williams and Pascale Jossart 4 A History of Heterodox 8 The Foundations of Economics Non- Equilibrium Economics Challenging the mainstream in the The principle of circular and twentieth century cumulative causation Frederic Lee Edited by Sebastian Berger 9 The Handbook of Pluralist 17 Technological Change and Economics Education Network Effects in Growth Edited by Jack Reardon Regimes Exploring the microfoundations of 10 The Coming of Age of economic growth Information Technologies and Torsten Heinrich the Path of Transformational Growth 18 The Foundations of A long run perspective on the Evolutionary Institutional 2000s recession Economics Davide Gualerzi Generic institutionalism 11 Cultural Economics and Theory Manuel Wäckerle The evolutionary economics of 19 Re- Thinking Economics David Hamilton Exploring the work of Pierre William M. Dugger, Bourdieu William Waller, David Hamilton, Edited by Asimina Christoforou and Glen Atkinson and Michael Lainé 12 The Cultural and Political Economy of Recovery 20 Networks of Institutions Social learning in a post-disaster Institutional emergence, social environment structure and national systems of Emily Chamlee-Wright policies Shuanping Dai 13 The Foundations of Institutional Economics 21 An Ecosystem Approach to K. William Kapp Economic Stabilization Edited by Sebastian Berger and Escaping the neoliberal wilderness Rolf Steppacher Rodrick Wallace 14 Alternative Theories of 22 The Economic Crisis in Social Competition and Institutional Context Edited by Jamee K. Moudud, Theories, policies and exit Cyrus Bina and Patrick L. Mason strategies 15 In Defense of Post- Keynesian Edited by Pasquale Tridico and and Heterodox Economics Sebastiano Fadda Responses to their critics Edited by Frederic S. Lee and 23 Trust and Economics Marc Lavoie The co- evolution of trust and exchange systems 16 The US Economy and Yanlong Zhang Neoliberalism Alternative strategies and policies 24 The Heterodox Theory of Social Edited by Nikolaos Karagiannis, Costs Zagros Madjd- Sadjadi and K. William Kapp Swapan Sen Edited by Sebastian Berger This series was previously published by The University of Michigan Press and the following books are available (please contact UMP for more information): Economics in Real Time A theoretical reconstruction John McDermott Liberating Economics Feminist perspectives on families, work, and globalization Drucilla K. Barker and Susan F. Feiner Socialism After Hayek Theodore A. Burczak Future Directions for Heterodox Economics Edited by John T. Harvey and Robert F. Garnett, Jr. Are Worker Rights Human Rights? Richard P. McIntyre The Heterodox Theory of Social Costs K. William Kapp Edited by Sebastian Berger First published 2016 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2016 K. William Kapp; selection and editorial matter, Sebastian Berger The right of K. William Kapp to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patent Act 1988. The right of the editor to be identified as the author of the editorial matter, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Kapp, K. William (Karl William), 1910–1976. The heterodox theory of social costs / by K. William Kapp ; edited by Sebastian Berger. pages cm 1. Externalities (Economics) 2. Economic development–Social aspects. 3. Economic development–Environmental aspects. 4. Welfare economics. I. Berger, Sebastian. II. Title. HB846.3.K37 2015 330.1–dc23 2015005413 ISBN: 978-1-138-77547-3 (hbk) ISBN: 978-1-315-77375-9 (ebk) Typeset in Times New Roman by Wearset Ltd, Boldon, Tyne and Wear In Memoriam Frederic S. Lee This page intentionally left blank Contents Preface xi 1 Introduction 1 2 The planned economy and international trade 22 The problem of economic calculation 22 The critique of the economic calculus based on market prices 27 3 Social costs and social returns—a critical analysis of the social performance of the unplanned market economy 35 Project outline 35 Preface 1 36 Preface 2 37 Preface addendum 39 Chapter 1: The inadequacy of modern economic analysis 39 4 Social costs of free enterprise 45 5 Social returns—a critical analysis of the social performance of the unplanned market economy 52 Table of content 52 Collective needs and social returns 53 The importance of social returns in the formulation of international policies 55 Transportation and social returns 64 Social returns and multiple-purpose projects 75 6 Towards a new science of political economy 84 Conclusions and implications 84 The social inefficiency of the unplanned market economy 84 x Contents The normative- apologetic character of orthodox and neoclassical equilibrium economics 88 7 Social costs and social benefits—a contribution to normative economics 94 Problems of definition and classification 94 The objective character of social costs and social benefits 98 Quantification and evaluation 104 Social costs and social benefits: their implications for public policy and economic development 111 8 Discussion between Professor Shibata and Professor Kapp by The Economist 119 9 Towards a normative approach to developmental and environmental planning and decision- making 129 10 Should the development process itself be seen as representing a kind of economic system in newly developing economies today? 134 11 Environmental control and the market mechanism 142 Effluent charges, taxes, and penalties 144 Liability laws and property rights 145 12 Energy and environment: inadequacy of present science and technology policies 150 Reactive planning vs. normative planning
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