flowing through, can counter this process. They can create syntropy—order,
structure and patterns—by taking the necessary energy from connected systems.
This is how nature uses the sun’s energy for its evolutionary reproduction circuits—
and how humans use nature.
Yet, this fully baked physics did not make it into mainstream economic models.
The sources of energy remain invisible in mainstream economic models. Only the
prices of what is exchanged are tracked. In their classic textbook Ecological
Economics: Principles and Applications (2010) famous ecological economists
Herman Daly and Joshua Farley summarize the loss of information so brilliantly
that it is worth quoting at length:
What is it that is really flowing around and around in a circle in the circular flow vision? Is
it really physical goods and services, and physical laborers and land and resources? No. It is
only abstract exchange value, the purchasing power represented by these physical things.
The ‘soul’ embodied in goods by the firms is abstract exchange value. When goods arrive at
the households, the ‘soul’ of exchange value jumps out of its embodiment in goods and
takes on the body of factors for its return trip to the firms, whereupon it jumps out of the
body of factors and reincorporates itself once again into goods, and so on. But what
happens to all the discarded bodies of goods and factors as the soul of exchange value
transmigrates from firms to households and back ad infinitum? (Daly/Farley 2010: 28)
The real-world impact that the discarded bodies create lies beyond what is
captured by capital accounting. Mines, wells, fishing grounds or cropland are built
up and replenished according to their own logics. They are not simply available
because someone demands them and is willing to pay a price. Nor are their
capacities to absorb and store all the discarded bodies endless.
One estimate puts the total amount of extracted raw materials that end up as solid
waste at 12 billion tons per year, of which 4 billion tons are generated in OECD
countries alone (OECD 2014b: 10). The only way that such waste enters the
exchange value circle is in form of the cost of collecting it and storing it somewhere. What remains unaccounted for is how nature then deals with this output,
which might include gigantic garbage dumps, sealed radioactive containers, or a
field of plastic the size of Texas floating in the Pacific Ocean. Even more difficult to
account for, in particular in price signals, is non-material waste like emissions from
burning fossil fuels, the declining fertility of billions of hectares of soil, the seepage
of chemicals from agriculture into the earth and then into the oceans, destroying
coral reefs.
The first UN World Conference on Sustainable Development in 1992 in Rio de
Janeiro acknowledged that the management of ecosystems might need different
governance mechanisms than that of conventional markets. Thus, Rio created
conventions for tackling climate change, biodiversity loss and desertification. Still,
economic growth impacts are always of concern and already in the 1970s economists had engaged with nature by making it an input factor of production functions.
Somewhat as all the pleasure (output) to be had was stuffed into the abstract
container term of utility, 1970s economists simply expanded the term ‘capital’ to
include everything that could be used productively (input). Both are handily
measured in monetary terms, so that predictive models can be run.
3.2 How Mainstream Economics Views Nature and Its Governance
83
structure and patterns—by taking the necessary energy from connected systems.
This is how nature uses the sun’s energy for its evolutionary reproduction circuits—
and how humans use nature.
Yet, this fully baked physics did not make it into mainstream economic models.
The sources of energy remain invisible in mainstream economic models. Only the
prices of what is exchanged are tracked. In their classic textbook Ecological
Economics: Principles and Applications (2010) famous ecological economists
Herman Daly and Joshua Farley summarize the loss of information so brilliantly
that it is worth quoting at length:
What is it that is really flowing around and around in a circle in the circular flow vision? Is
it really physical goods and services, and physical laborers and land and resources? No. It is
only abstract exchange value, the purchasing power represented by these physical things.
The ‘soul’ embodied in goods by the firms is abstract exchange value. When goods arrive at
the households, the ‘soul’ of exchange value jumps out of its embodiment in goods and
takes on the body of factors for its return trip to the firms, whereupon it jumps out of the
body of factors and reincorporates itself once again into goods, and so on. But what
happens to all the discarded bodies of goods and factors as the soul of exchange value
transmigrates from firms to households and back ad infinitum? (Daly/Farley 2010: 28)
The real-world impact that the discarded bodies create lies beyond what is
captured by capital accounting. Mines, wells, fishing grounds or cropland are built
up and replenished according to their own logics. They are not simply available
because someone demands them and is willing to pay a price. Nor are their
capacities to absorb and store all the discarded bodies endless.
One estimate puts the total amount of extracted raw materials that end up as solid
waste at 12 billion tons per year, of which 4 billion tons are generated in OECD
countries alone (OECD 2014b: 10). The only way that such waste enters the
exchange value circle is in form of the cost of collecting it and storing it somewhere. What remains unaccounted for is how nature then deals with this output,
which might include gigantic garbage dumps, sealed radioactive containers, or a
field of plastic the size of Texas floating in the Pacific Ocean. Even more difficult to
account for, in particular in price signals, is non-material waste like emissions from
burning fossil fuels, the declining fertility of billions of hectares of soil, the seepage
of chemicals from agriculture into the earth and then into the oceans, destroying
coral reefs.
The first UN World Conference on Sustainable Development in 1992 in Rio de
Janeiro acknowledged that the management of ecosystems might need different
governance mechanisms than that of conventional markets. Thus, Rio created
conventions for tackling climate change, biodiversity loss and desertification. Still,
economic growth impacts are always of concern and already in the 1970s economists had engaged with nature by making it an input factor of production functions.
Somewhat as all the pleasure (output) to be had was stuffed into the abstract
container term of utility, 1970s economists simply expanded the term ‘capital’ to
include everything that could be used productively (input). Both are handily
measured in monetary terms, so that predictive models can be run.
3.2 How Mainstream Economics Views Nature and Its Governance
83