Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist

The chapter uses a theater metaphor to show how naming a play’s cast shapes the story, relating it to how society will naturally shape itself to how people name and describe economic theories. Paul Samuelson’s 1948 Circular Flow diagram placed households and business at center stage, depicting banks, government, and trade as outer loops. The diagram, popularized by Bill Phillips’s MONIAC hydraulic computer, underpinned national income accounting but left society and Earth out of the picture. This framing, along with the later omission of energy and material flows, predetermined the economic narrative.

In 1947, the Mont Pelerin Society, including Friedrich Hayek and Milton Friedman, began writing a neoliberal script. Neoliberalism promotes deregulation, free markets, and reduced public spending. Implemented in the 1980s by Margaret Thatcher and Ronald Reagan, their agenda promoted the market as efficient, business as innovative, and the state as incompetent. This sidelined the household, the commons, society, and the Earth. The 2008 financial crisis, however, shattered the claim that finance is infallible.

A new model, the Embedded Economy, nests the economy within society and the living world.