{"id":95114,"date":"2026-08-22T07:15:15","date_gmt":"2026-08-22T06:15:15","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=95114"},"modified":"2026-08-22T07:23:04","modified_gmt":"2026-08-22T06:23:04","slug":"profit-capitalism-and-much-more","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/08\/22\/profit-capitalism-and-much-more\/","title":{"rendered":"What is the economy for?"},"content":{"rendered":"<p class=\"p1\">I had the\u00a0<span style=\"box-sizing: border-box; margin: 0px; padding: 0px;\">pleasure of being a guest on\u00a0<a href=\"https:\/\/radhikadesai.com\/\" target=\"_blank\" rel=\"noopener\">Professor Radhika Desai\u2019<\/a>s Geopolitical Economy podcast for a discussion <\/span>earlier this week.<\/p>\n<p class=\"p1\">The discussion was based on open-minded inquiry into each other\u2019s positions, given that we had never spoken before, and I greatly enjoyed the exchange, which is available to view here.<\/p>\n<p class=\"p2\">Radhika suggested that she would invite me back so that we can discuss some of the issues that we touched upon in this exchange in greater depth. I am already looking forward to doing so.<\/p>\n<p><iframe loading=\"lazy\" title=\"YouTube video player\" src=\"https:\/\/www.youtube.com\/embed\/e5SxmAePGFc?si=H13jJsKK-YyF5OzC\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>My summary of our discussion is as follows:<\/p>\n<hr \/>\n<p>Earlier this week, I had the pleasure of joining Professor Radhika Desai on her Geopolitical Economy Hour for a wide-ranging discussion about accounting, economics, capital, GDP, sustainability and, ultimately, the question that I think economics too rarely asks: what is the economy for?<\/p>\n<p>Radhika began by asking about the perspective I bring to economics. I explained that mine is unusual because I have worked across several disciplines. I studied economics, trained as a chartered accountant, ran my own accounting practice, and later became a professor working in political economy, accounting and sustainability. That combination has shaped the way I think.<\/p>\n<p>Accounting matters because it determines what we record, what we ignore, and where we draw boundaries. Economics matters because those choices affect how we understand the economy as a whole. Tax is also part of that picture because taxation is not simply a mechanism for raising revenue. It is a social construct that plays a role within the macroeconomy.<\/p>\n<p>The discussion quickly moved to what I think is one of the great omissions from modern economic thinking: capital maintenance.<\/p>\n<p><strong>The missing concept in GDP<\/strong><\/p>\n<p>In accounting, income cannot properly be calculated unless there is first an idea of the capital that must be maintained. Put simply, if an organisation consumes the resources that allow it to continue operating, it cannot reasonably describe all of its apparent surplus as income.<\/p>\n<p>Historically, accounting used what was broadly called a physical capital maintenance concept. The aim was to preserve an organisation\u2019s capacity to produce. More recently, accounting has shifted towards financial capital maintenance, where the emphasis is much more clearly upon preserving and increasing financial value for shareholders.<\/p>\n<p>But the central point remains. Income can only be understood after deciding what must be maintained.<\/p>\n<p>GDP has no equivalent capital maintenance concept.<\/p>\n<p>That is an extraordinary omission. We measure economic activity, declare some of it to be income, celebrate increases in GDP as growth, and yet make no systematic assessment of whether the activity involved has depleted the resources on which future economic life depends.<\/p>\n<p>Those resources are much broader than machinery and buildings. They include natural resources, human skills, knowledge, wisdom, social capacity and the environment itself.<\/p>\n<p>That led us into the question of depreciation. Depreciation is part of capital maintenance, but it is not the whole of it. Accounting can recognise the wearing out of a machine, for example, but it is much less good at recognising the depletion of human capability or the destruction of natural capital.<\/p>\n<p>Radhika suggested that perhaps what I was describing might better be called investment maintenance. I could see the attraction of that terminology. Whatever phrase is used, the essential idea is stewardship. We have an obligation to maintain the resources on which both present and future generations depend.<\/p>\n<p><strong>Profit, extraction and the boundaries of accounting<\/strong><\/p>\n<p>That led naturally to a discussion about profit.<\/p>\n<p>I wanted to make an important distinction. What accounting calls profit is not always the same thing economically. In a small business or professional partnership, for example, apparent profit may simply represent the return to the labour and enterprise of the people who own and run it.<\/p>\n<p>That is very different from profit arising through extraction.<\/p>\n<p>Extraction can take the form of rent, the exploitation of labour, the exploitation of natural resources, or financial claims imposed upon productive activity. Modern accounting too often treats these very different things as though they were equivalent.<\/p>\n<p>The problem is made worse by the boundaries accounting chooses.<\/p>\n<p>We can place a financial value on claims to land because those claims produce rent. We can discount expected future rent streams and call the resulting figure the value of the land. But none of that provides anything to the land itself. Unless the soil, water and ecosystems on which production depends are maintained, the underlying resource is being depleted.<\/p>\n<p>I gave the example of the drought conditions that I have seen this summer, with dry topsoil literally blowing away from fields near where I live. That is the destruction of productive capacity in plain sight. Yet conventional accounting does not recognise it in anything like the way it recognises financial assets.<\/p>\n<p>I have previously proposed sustainable cost accounting precisely to address this problem. If companies had to recognise the real cost of becoming environmentally sustainable, many would appear insolvent.<\/p>\n<p>The response I have sometimes received is that this proves the accounting method must be wrong.<\/p>\n<p>My answer is the opposite. If a company can only remain supposedly profitable by destroying the environmental systems on which it depends, then the accounting is revealing an economic reality that conventional accounts conceal.<\/p>\n<p>The same boundary problems appear throughout GDP.<\/p>\n<p>An oil spill can increase GDP because cleaning it up requires expenditure. Divorce can increase GDP because legal services and new households must be paid for. Financial engineering can inflate measured economic activity without necessarily creating anything of substance.<\/p>\n<p>At the same time, enormous quantities of unpaid work, much of it undertaken within households and disproportionately by women, remain excluded.<\/p>\n<p>In the UK, we are willing to impute hundreds of billions of pounds of supposed rent to owner-occupiers who do not actually pay rent to themselves. Yet we do not impute a value to the unpaid work undertaken within those same homes, nor properly recognise the depletion of the natural environment.<\/p>\n<p>These are political choices disguised as technical accounting conventions.<\/p>\n<p>Our discussion also touched on Ireland, where multinational profit shifting has dramatically inflated GDP without creating an equivalent increase in domestic prosperity. This is perhaps one of the clearest examples of the difference between financial form and economic substance.<\/p>\n<p>We also discussed Keynes and Marx. Radhika rightly emphasised that Keynes did not conceive macroeconomics as simply the sum of individual microeconomic decisions. Macroeconomics exists at a different level of social reality.<\/p>\n<p>That matters because modern economics has too often attempted to reconstruct macroeconomics from highly restrictive assumptions about supposedly rational individuals making standardised decisions. In doing so, it has lost much of what Keynes actually understood.<\/p>\n<p>We agreed that economics needs a much broader imagination.<\/p>\n<p>For me, that returns us to the original question.<\/p>\n<p><strong>What is the economy for?<\/strong><\/p>\n<p>My answer is that the economy exists to meet human needs and to enable people to thrive.<\/p>\n<p>Thriving is not simply about consuming more material goods. It includes care, education, culture, knowledge, relationships, creativity, wisdom and well-being.<\/p>\n<p>If achieving those things requires us to consume less of what is environmentally destructive, that does not represent failure. Much of what we currently call economic progress consists of encouraging people to consume things they do not need, often through an advertising industry whose role is to persuade people that they are inadequate without them.<\/p>\n<p>A better economy would place much greater emphasis on what we can do for each other.<\/p>\n<p>That requires a different concept of value, different systems of accounting, different economic boundaries and different measures of success.<\/p>\n<p>Radhika described this as revolutionary. I did not disagree.<\/p>\n<p>A revolution need not mean violence. At its most fundamental, it means turning and seeing the world differently. We need to stop accepting the shadows cast by the existing economic system and ask what actually creates and sustains value.<\/p>\n<p>If the pursuit of GDP growth destroys the capital on which life depends, then growth cannot be our objective.<\/p>\n<p>The task is instead to preserve and enhance the resources that allow people to meet their needs, to thrive, and to leave a viable world to those who follow us.<\/p>\n<p>That, ultimately, is what I think the economy is for.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>I had the\u00a0pleasure of being a guest on\u00a0Professor Radhika Desai\u2019s Geopolitical Economy podcast for a discussion earlier this week. The discussion was based on open-minded<br \/><a class=\"moretag\" href=\"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/08\/22\/profit-capitalism-and-much-more\/\"><em> Read the full article&#8230;<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[204,35,16,147,174,224,106,223,97],"tags":[],"class_list":["post-95114","post","type-post","status-publish","format-standard","hentry","category-economic-justice","category-economics","category-ethics","category-inequality","category-modern-monetary-theory","category-neoliberalism","category-politics","category-politics-of-care","category-tax-justice"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/95114","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=95114"}],"version-history":[{"count":5,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/95114\/revisions"}],"predecessor-version":[{"id":95121,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/95114\/revisions\/95121"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=95114"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=95114"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=95114"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}