In Greening of Capitalism, John A. Mathews contributes a thoughtful analysis to an intellectual space—environmental policy—not known for cool-headed, even-handed inquiry or rhetorical restraint. Mathews, a professor of competitive dynamics and global strategy at both the LUISS Guido Carli University in Rome and Macquarie University in Sydney, sets up his investigation by choosing a worthy implied interlocutor, Deirdre McCloskey. At the very beginning, Mathews writes:

I see this book as an imaginary dialogue with a fine economist, Deirdre McCloskey. Her current magnum opus on what she calls the virtues of capitalism, elaborated in text after text, adopts a strikingly original position that capitalism has been an unalloyed triumph for humanity and that so much of the opposition comes from a failure not just of imagination but also of appreciation of the evidence.

As a McCloskey co-author, this compelled me to dive right into the book. Mathews writes not to praise capitalism or bury it—rather, he writes to urge us to modify it where it seems to fail. When all is said and done, he proves himself a worthy adversary, but I think the theory and evidence are still on McCloskey’s side.

Greening of Capitalism is an ambitious effort. Where so many in the “end-is-nigh” literature are doing eschatology, Mathews works hard to do big-think social science by developing a perspective he causes “Schinskyan,” meaning “fundamentally Minskyan, blended with the flavor of Schumpeter, of Keynes, of Young, and of Holling.” He characterizes his ambitious undertaking as “neo-Schumpeterian” in that he emphasizes creative destruction, “neo-Gerschenkronian” in that he highlights the advantages of industrializing after leaders like the United States and Britain have shown in some senses what not to do, and “neo-Olsonian” in that he recognizes the importance of breaking through dense thickets of special interest groups in order to enact meaningful reforms. One might say that Greening of Capitalism is McCloskeyan: Mathews is asking big questions and bringing a lot of data and different perspectives to bear on them.

Path dependence as discussed by the economists Paul David and Brian Arthur is fundamental to Mathews’ analysis. He identifies the (Olsonian) forces keeping industrial economies dependent on fossil fuels and argues that “it will only be through smart state intervention in the economy” that industrializers will be able to avoid similar fates. Here is one of my main points of departure with Mathews’ argument. Some state interventions are better than others, but I’m deeply skeptical of governments’ abilities to choose the “right” technologies and the “right” industries. Throughout, many of his proposals sound like old-school industrial policy with a green collar.

In discussions of environmental issues, all roads should lead to Ronald Coase, who argued in his classic essay, “The Problem of Social Cost,” that secure property rights and low transaction costs can lead people to bargain to efficient outcomes. Surprisingly, Coase does not appear in the bibliography, and even Elinor Ostrom (who, following Coase and Hayek, showed how institutions and rules evolve to solve tragedies of the commons) gets scant treatment. These are contributions that must be met head-on: as John Nye wrote in these pages in 2008, ignoring general equilibrium effects and implicit Coasean bargains creates a “Pigou Problem” in that measured spillover costs from driving or some other activity may not reflect the kinds of bargains—indeed, some of which will be mediated by culture—that internalize these externalities. (See “The Pigou Problem,” Summer 2008.)

Beyond this, the externality problem is not a categorical problem recommending that we replace this technology (fossil fuels) with that technology (wind and solar) wholesale. If there is a problem, there is a problem at the margin. How far are we from the level of carbon emissions at which marginal social cost equals marginal social benefit? Do we need radical changes? Throughout, Mathews refers to “irreparable” damage and “inevitable” wars over increasingly scarce resources. Here, I think McCloskey is right—it is from a failure of (economic) imagination that Mathews and others draw these conclusions.

Resource peak? / The most intriguing part of the book, in my mind, is Mathews’ discussion of resource prices, including the famed bet between Julian Simon and Paul Ehrlich. Mathews writes, “Simon was writing and publishing prior to the literature on peak oil (and peak coal, peak everything else).” This strikes me as an odd claim because M. King Hubbert (of “Hubbert’s Peak” fame) did his foundational work in 1956 and predicted “peak oil” in the late 1960s. But never mind that. What really intrigues me is this passage:

There can be no expectation that the long-term trend in the price of coal (and other minerals) will be anything but upward—and I would be prepared to bet on this with Simon if he were still alive.

Simon, who passed away in 1998, is not here to make such a bet, but I am. I hereby offer to revisit the Simon–Ehrlich bet with Mathews, but with a couple of small twists. First, we replicate the Simon–Ehrlich bet exactly with $200 each worth of copper, chromium, nickel, tungsten, and tin, and with settlement 10 years after the bet begins. Second, if Mathews is game, we do another bet with energy resources. I propose a $1,000 basket containing $200 each worth of crude oil, coal, heating oil, gasoline, and natural gas. Finally, I propose that we (or our estates) re-settle the bet every 10 years to capture 20-year, 30-year, 40-year, and so on horizons. Simon himself said that his victory over Ehrlich involved a great deal of luck as his predictions were all over very long terms. There are and have been many 10-year periods over which Simon would have won and many 10-year periods over which Ehrlich would have won. Revisiting the bet every 10 years would be a way to better examine which theory is more broadly correct over ever-longer horizons. Should I win, I would ask Mathews to donate the difference between the commodity baskets’ prices and $1,000 to the Cato Institute, publishers of Regulation. Should I lose, I will donate the difference to the research and education organization of Mathews’ choice.

In this light, the book’s weakest arguments are those based on supposedly exhaustible energy and resources. I agree that resource wars are a legitimate public policy concern, but not because we are “running out” of resources in any meaningful sense. Rather, they are a concern because most policymakers are dealing with deficient underlying theory. McCloskey argued that having a rich resource endowment (of coal, for example) didn’t cause the Industrial Revolution for two reasons. First, the coal had been there for millennia and only became a resource in the last few hundred years (hence, it wasn’t a fundamental cause). Second, coal can be imported. Resources like oil, minerals, and so on can be bought and sold in world markets. It’s not clear to me that “energy independence” is important or meaningful, and the fact that one can trade for oil or anything else means that going to war over it is simply tragic and wasteful. Mathews argues that having to import oil creates “a disastrous dependence,” but again, I’m not at all clear on why “energy independence” is such an important political goal while (say) “coffee independence” isn’t.

Beyond fossil fuels / I agree with Mathews that burning fossil fuels is a serious environmental problem, but I think the problem is not too much capitalism, but too little. The largest petroleum concerns in the world are state-owned oil companies and governments generally own power grids and regulate power companies. Mathews notes that it is illegal to build private power lines across public streets. That restriction seriously limits the development of a private market in energy at the local level where one might imagine decentralized networks of power-generating entrepreneurs slowly weaning people off fossil fuels. Furthermore, given that burning coal to produce power generates pollution, monopoly pricing for energy would have the salutary effect of reducing—perhaps sharply—the amount of energy that gets produced while spurring people to economize on energy-consuming production processes.

A lot of the book is comfort food for people (like me) who enjoy TED talks, and Mathews offers a message that is fundamentally hopeful. While there is certainly an enormous amount of waste in directed environmental policy, the idea of a world without fossil fuels is tantalizing. Furthermore, I’m optimistic because of our surfeit of tech zillionaires with gobs of money to throw at things like backing up the planet.

Mathews extols the virtues of “a green development strategy involving circular economy initiatives (e.g., recycling, turning wastes into inputs),” but he does not specify exactly where there are big bills on the sidewalk that no one is picking up. Industrial history—as for example in the Chicago meatpacking industry and in the development of Kingsford Charcoal out of Henry Ford wondering what to do with the scrap wood produced in auto manufacture—is a history of turning trash into treasure. Here again the relevant questions concern incentives at the margin: do we need a wholesale replacement of the entire economic system or are there places where rights are poorly defined and enforced?

Mathews calls for “a revolution in economic thinking … to match the revolution in economic practice,” but I’m not convinced this is necessary. There doesn’t seem to be much in Greening of Capitalism that good old-fashioned price theory can’t handle. If anything, the problems he identifies emerge from stubborn refusals on the part of policy makers and others to internalize the lessons that price theory can teach us.