A steady-state economy is an economy with a fixed amount of physical wealth (capital) and a population that does not change in size. This type of economy does not grow over time. The term often refers to the economy of a single country, but it can also describe the economy of a city, region, or the entire world. In the early history of economic study, 18th-century economist Adam Smith introduced the idea of a stationary state. He believed that all national economies would eventually reach a state where they no longer grow.

Since the 1970s, the idea of a steady-state economy has been closely linked to the work of Herman Daly, a leading ecological economist. Daly’s concept includes analyzing how natural resources move through the economy, which makes it different from the earlier classical idea of a stationary state. Another difference is that Daly suggests that the government must take immediate action to create a steady-state economy by setting long-term rules to limit resource use. Classical economists, however, believed that economies would naturally reach a stationary state without government help.

People who oppose the steady-state economy often argue that using resources more efficiently, technological progress, and market systems can solve problems like resource shortages, pollution, or overpopulation. Supporters of the steady-state economy, on the other hand, say these arguments are not strong enough and that the need for a steady-state economy is becoming more important over time.

Definition and vision

Since the 1970s, the idea of a steady-state economy has been mainly linked to the work of Herman Daly, a leading ecological economist. Even his strongest critics acknowledge the importance of his contributions.

Herman Daly describes a steady-state economy as an economic system with a fixed amount of physical wealth (capital) and a fixed number of people (population). These fixed amounts are kept stable by using natural resources in a continuous flow. The fixed amounts resemble the "stationary state" concept from classical economics. The flow of natural resources is a new idea from ecological economics. Both the fixed amounts of capital and population should last as long as possible. More durable capital requires fewer natural resources to maintain. A durable population means people live longer, which is achieved through low birth and death rates. Greater durability improves the overall health of the environment.

Daly’s concept views the economy as a part of a larger, limited natural system with limited resources and fragile ecosystems. The economy receives valuable natural resources and sends out waste and pollution in a continuous, one-way process. Any part of a limited, non-growing system must eventually stop growing and remain stable. This idea contrasts with mainstream neoclassical economics, which often portrays the economy as a self-contained system where goods and services are exchanged endlessly between businesses and households, without direct interaction with the natural environment.

In the early 2010s, reviewers who supported Daly’s steady-state economy idea noted that while the concept is not yet politically achievable, it is possible for mainstream thinking and group efforts to move toward it in the future. A 2022 study (chapters 4–5) described reducing economic growth to reach a steady-state economy as a possible and likely positive step. The study concluded: "The case for a transition to a steady-state economy with low resource use and low emissions, first in high-income countries and later in rapidly growing economies, needs more serious attention and international cooperation."

Historical background

For many years, economists and other thinkers have studied how natural resources are limited and how growth has its limits. These discussions began with early economists in the 1700s and 1800s and continued through the ecological concerns that became important in the second half of the 1900s. These concerns led to the creation of ecological economics, a new field within economics.

During the classical period of economic thinking, economists like Adam Smith described how society develops. They focused on the limited amount of farmland compared to the growing population and wealth. Money from production was given to landowners, business owners, and workers as rent, profit, and wages. These groups often competed to increase their share of the money. Over time, as wealth grew, the rate of profit would fall, and eventually, investment would stop. At that point, the economy would reach a state where the population and wealth remained the same.

Adam Smith’s most famous book, The Wealth of Nations, published in 1776, helped shape classical economics in Britain. Smith argued that in a society with fair laws and rules, people acting in their own best interests would benefit everyone. This idea, called the "invisible hand," promoted a system of natural freedom and growth.

Smith believed that a nation’s wealth could grow, but not forever. He observed that countries could be in one of three states: growing, stable, or declining. For example, North America had growing wealth and higher wages than England, so it was in a "progressive" state. China, with lower wages and limited growth, was in a "stationary" state. Countries in decline, like some parts of India, faced poverty and hardship. Smith noted that as a nation became wealthier, profits would eventually fall, and growth would stop. He thought that no country had yet reached the point of full wealth and stability.

In the early 1800s, David Ricardo was the leading economist in Britain and a supporter of free trade. He is known for his idea of comparative advantage and the labor theory of value. Unlike Smith, Ricardo used abstract reasoning instead of relying on observations. This method became common in economics.

During the Napoleonic Wars (1803–1815), Britain’s trade with Europe was disrupted. After the wars, Britain’s Corn Laws, which protected landowners by making imported grain expensive, were strengthened. This upset workers and business owners, as high grain prices reduced wages and profits. Ricardo believed that Britain could avoid a stable state by increasing trade, but the Corn Laws limited this. He and others campaigned to repeal the laws, though they were not removed until 1846.

Ricardo’s ideas about limited land and class conflict influenced later thinkers, including Karl Marx.

John Stuart Mill was a major economist and thinker in the mid-1800s. His book Principles of Political Economy became a standard textbook. A supporter of free markets, Mill believed people should be free to pursue their goals without government interference. He also supported the "Greatest Happiness Principle," which aimed to maximize overall well-being.

Mill thought the stable state of society might be near. Unlike Smith and Ricardo, he believed this state could be positive, not negative. He argued that with proper policies, society could reach a stable, prosperous state.

Connection with other ideologies and movements

The idea of a steady-state economy is linked to other ideas, such as ecological economics and anti-consumerism, because it represents the goal of those ideas. These concepts do not aim to cause poverty but instead seek a level of consumption that benefits both people and the environment.

In an article titled "Economic de-growth vs. steady-state economy," Christian Kerschner combined the idea of degrowth—reducing economic growth—with Herman Daly's steady-state economy theory. He suggested that degrowth could be a way for wealthy, industrialized nations to move toward a globally fair steady-state economy. This approach would allow poorer countries to develop and join a worldwide steady-state economy that operates at a balanced, agreed-upon level of activity for a time. However, Kerschner noted that achieving a global steady-state economy may not be possible soon, even though such goals can inspire better ways to work toward them.

In 1977, Leopold Kohr wrote a book called The Overdeveloped Nations: The Diseconomies Of Scale, which focused on overconsumption. This book introduced the theory of overdevelopment, which argues that wealthy countries in the global north are too developed. This overdevelopment increases the environmental harm caused by humans and creates problems in both wealthy and less-developed nations.

Conceptual and ideological disagreements

There are many disagreements about the idea of a steady-state economy and the challenges of economic growth. These issues include the role of technology, whether using resources can be separated from economic activity (resource decoupling) and the rebound effect, the possibility of an economy that shrinks over time, whether capitalism can exist without growth, and whether moving some environmental limits to space might help.

In 2019, a study was published that reviewed efforts to achieve economic growth without harming the environment. It found that by 2019, these efforts had not been successful. The study did not provide clear answers about future attempts.

Herman Daly’s ideas about these issues are discussed throughout the text.

Technology is often described as the use of scientific methods to create goods or achieve social goals. Historically, technology has been developed to improve productivity and raise living standards. In economics, there is disagreement about how technology interacts with natural resources:

• In neoclassical economics, technology is seen as a factor of production, like land, labor, and capital. However, this view ignores the role of natural resources in production. In this view, technology is treated as a tool that works independently of natural resources. This idea is common in many mainstream economics textbooks.

• In ecological economics, technology is seen as a way to transform natural resources into products. Herman Daly argues that technology cannot be understood without considering the natural resources it uses. For example, engines need fuel, machines need electricity, and all equipment is made from materials. In physical terms, technology turns natural resources into goods, which eventually become waste and pollution, increasing disorder (entropy) in the world. This view is called "entropy pessimism."

From an ecological perspective, some argue that the disagreement is about whether neoclassical economists and others who believe in technology’s power should learn basic physics. From a neoclassical perspective, economist Robert Solow defended his earlier ideas in 1997, stating that physics alone has not stopped economic growth in industrialized countries.

Resource decoupling happens when less natural resource use is needed to produce goods and services. This is measured by the ratio of natural resource use to GDP. Relative decoupling occurs when resource use decreases while other factors remain the same. Absolute decoupling happens when resource use decreases even as GDP grows.

In the history of economics, William Stanley Jevons was the first major economist to study resource decoupling, though he did not use that term. In his 1865 book The Coal Question, Jevons argued that greater energy efficiency could lead to more, not less, energy use. He believed that lower energy costs would allow people to spend more on energy, outweighing efficiency gains. This idea is now called the Jevons paradox or the rebound effect. Jevons worried that Britain’s reliance on coal would decline, shifting global power to countries with more coal reserves.

In 2009, two studies addressed resource decoupling and the rebound effect:

• Ernst Ulrich von Weizsäcker, in Factor Five, argued that improving resource productivity, using renewable energy, and adopting green technology could lead to a "Green Kondratiev" cycle, increasing resource efficiency by 80%. He warned that efforts to improve efficiency often lead to higher overall consumption. To address this, he suggested recycling materials, creating funds from resource sales to prepare for future shortages, and taxing resource use to balance supply and demand.

• Tim Jackson noted that while energy use per unit of GDP decreased by 33% from 1970 to 2009, carbon emissions from fossil fuels rose by 80% during the same period. For key metals like iron, bauxite, copper, and nickel, resource use increased faster than GDP from 1990 to 2007. Jackson argued that economic growth often cancels out efficiency gains, and that relying on capitalism’s efficiency to solve environmental problems is unlikely to work.

Herman Daly suggested that the best way to improve resource efficiency and avoid rebound effects is to set limits on resource use through a government-managed cap-and-trade system.

Criticism

Economist Wim Naudé explains that Western economies are already showing signs of a situation similar to degrowth, which he calls the Great Stagnation. This period is marked by fewer new businesses, less innovation, less scientific research, and slower progress in research. During long periods of economic stagnation, the economy behaves like a zero-sum system, where one group’s improvement in well-being may cause another group’s loss, increasing the chance of conflict. Naudé refers to Thomas Piketty’s (2014) analysis, which shows that slow economic growth over time leads to greater inequality in how wealth is shared. Naudé argues that economic stagnation reduces a society’s ability to innovate and adapt, making it harder to develop the technological and organizational changes needed to avoid exceeding the Earth’s natural limits and to address climate change.