Beruflich Dokumente
Kultur Dokumente
Ecological Economics
By Joshua Farley
About the Author
Joshua Farley is a Fellow of the Gund Institute for
Ecological Economics and a professor in the Community
Development and Applied Economics department at
the University of Vermont. With economist Herman
Daly, he co-authored the foundation textbook Ecological
Economics: Principles and Applications (2003). He has
received several fellowships and has spent consider-
able time abroad, including several years at the School
for Field Studies’ Centre for Rainforest Studies in Far
North Queensland, Australia. Farley is a Fellow of Post
Carbon Institute.
Market systems
largely fail to account
for the impacts of
ecosystem degradation
on human welfare.
Market economies—in which the prices of goods and allocate resources appropriately. Confronted with this
services are determined by the interplay of supply and crisis, economists developed the field of macroeconom-
demand in voluntary exchanges—play a critical role in ics, which explained how governments could use mon-
the modern world. Market forces determine the quan- etary and fiscal policies 2 to keep economies healthy
tity of oil pumped, minerals mined, forests cut, and fish and growing.
caught. They determine the industries to which these
When macroeconomics emerged, however, practically
resources are allocated, how much labor and capital are
no one was aware of the coming challenges of global cli-
employed to convert them to market products, and who
mate change, peak oil, biodiversity loss, resource deple-
gets to consume those products.
tion, or overpopulation. Economists focused on the
In theory, competitive markets 1 allocate factors of pro- problem of how to convert seemingly abundant natural
duction—resources like energy, raw materials, land, resources into apparently scarcer economic goods and
labor, and capital—toward the most profitable goods services. Since then, production of economic goods
and services and, in turn, allocate the goods and services and services has increased more than eighteenfold in
toward those who value them the most, as measured the United States,3 and nearly as much in the world as
by their willingness to pay. The competitive markets a whole. We have learned that intact ecosystems pro-
described in textbooks in theory maximize monetary vide vital life-support functions upon which we, like all
value while ensuring that consumers are able to pur- other species, depend for our survival, and that human
chase market products as cheaply as they can be pro- activities threaten the planet’s ecosystems.
duced. What’s more, competitive markets achieve all
Unfortunately, market systems largely fail to account
this through a process based on free choice and decen-
for the impacts of ecosystem degradation on human
tralized knowledge, without centralized coordination.
welfare. The ecological and resource crises we currently
The Great Depression, however, revealed huge flaws face are orders of magnitude more serious than the Great
in market economic theory. Markets sometimes left Depression, as they threaten not only the economic sys-
vast numbers of skilled laborers unemployed, left tem but also human survival. We must develop a new
machinery idle, and left food to rot on farms while the type of economics that addresses these shortcomings
poor went hungry. The Great Depression helped econ- (see box 20.1 for a glossary of selected terms).
omists understand that sometimes markets required
government intervention to function well and to
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Ecological Economics
Box 20.1
Glossary
What Is Economics? Ecosystem goods and services: Ecosystem goods are biotic
Adapting our economic system to the twenty-first cen- (living) and abiotic (nonliving) raw materials provided by nature
that alternatively serve as elements of ecosystem structure.
tury’s interconnected sustainability crises demands
They are stock-flow resources (see below). Ecosystem services
that we understand precisely what economic systems are ecosystem functions of value to humans. They are fund-flux
are meant to achieve. One widely used definition of resources (see below).
economics is “the allocation of scarce resources among Excludability: A resource is excludable when one person
competing desirable ends.” 4 We use what we have to or group can prevent others from using the resource and is
create what we want. nonexcludable when this is not possible.
..First, what are the desirable ends of economic activ- occurrences of that event. Negative-feedback loops have a
dampening or stabilizing impact (i.e., they reduce the likelihood
ity? Until we decide what we want, we can’t possibly or impact of the event in the future), whereas positive-feedback
figure out how to get it. loops have an augmenting or destabilizing impact (i.e., they
increase the likelihood or impact of the event in the future).
..Second, what resources do we have at our disposal?
Fund-flux resource: A fund is a specific configuration of stock-
..Third, what are the physical and institutional flow resources (see below) that generates a flux of services
at a given rate over time. The fund is not transformed into the
characteristics of those resources relevant to their
services it provides, and the services cannot be stockpiled.
allocation?
Market economy: A system of allocation in which the prices of
We must answer these questions before deciding what goods and services are determined by the interplay of supply and
demand in voluntary exchanges.
types of mechanisms for allocating resources will help
us achieve our economic goals. Market firms: Businesses that produce market products.
Market products: Goods and services that are bought and sold
in markets.
What Are the Desirable Ends
of Economic Activity? Open-access resource: A good or service for which no property
rights exist.
Many people would agree that the central desirable
end of economic activity is a high quality of life for this Rivalry: A resource is rival when use by one person leaves less
available for others to use and is nonrival when this does not
and future generations. Conventional economists argue occur.
that humans are insatiable, and therefore economics
Stock-flow resource: A resource that is physically transformed
should focus on endless economic growth and ever- into whatever it is used to produce, can be stockpiled, and the
increasing consumption. Considerable evidence, how- rate of use of which can be controlled.
ever, suggests that humans are in fact satiable—there
is a point beyond which increasing consumption does
not make us better off. For 90 percent of human his-
tory, we were nomadic hunter-gatherer tribes and faced goods and services.6 Advertising leads us to believe that
starvation if we accumulated more than we could carry we can satisfy these needs through material consump-
in our search for food; insatiability was maladaptive.5 tion, and when we fail to satisfy them, we mistakenly
Indeed, quality of life depends on the satisfaction of a believe it is because we are not consuming enough.7
wide variety of human needs, which include subsistence,
An economic system designed to sustain a high qual-
reproduction, security, affection, understanding, par-
ity of life across generations must satisfy at least three
ticipation, leisure, spirituality, creativity, identity, and
requirements:
freedom, very few of which are closely related to market
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Ecological Economics
When ecosystems provide raw materials, they act as protection from ultraviolet light, flood regulation, solar
stocks that are physically transformed into other prod- photons, and pollination, are inherently nonexcludable
ucts; they are used up, not worn out. Think of forests as a physical characteristic. Markets are only feasible for
being converted into timber, or fossil fuels being trans- excludable resources.
formed into carbon dioxide and waste heat. Ecosystem
A final critical characteristic is “rivalry.” A resource
goods are “stock-flow” resources. Stock-flow resources
is rival when one person’s use of the resource leaves
can be used up at the rate we choose and can also be
less available for others to use. A resource is “congest-
stockpiled.
ible” when it is rival but fluctuates between scarce and
When ecosystems provide services, in contrast, they abundant (“abundant” means enough is available for
act as funds, agents of transformation that are not all desired uses, and no competition is necessary). All
themselves physically transformed in the act of pro- stock-flow resources and hence all ecosystem goods are
duction. A fund is a particular configuration of stock- rival, but so are many ecosystem services. When a rival
flow resources capable of generating a flux of valuable resource is scarce, there is competition for use. If use is
services. Ecosystem services are “fund-flux” resources. not rationed, the resource is likely to be overused, like
When a forest regulates water flows, it remains a for- the waste absorption capacity for carbon dioxide (for
est. Fund-flux resources are provided at a given rate example, if carbon dioxide is emitted faster than the
over time, and cannot be stockpiled. Ecosystems can ecosystem can sustainably absorb it), or oceanic fish-
transform oxygen, carbon, minerals, and sunlight into eries (for example, if a fishery is depleted faster than
a given amount of ecosystem goods and services per it can replenish itself). The market price mechanism
day, and human-made capital and labor can transform is one form of rationing because it allocates use of a
these into a given amount of economic product per day. resource to whoever is willing to pay the most.
While fund-flux resources such as labor and capital are
A resource is nonrival when one person’s use does not
worn out over time, ecosystem fund-flux resources are
leave less for others to use. Examples include street-
spontaneously renewed by solar energy.
lights, climate stability, and many other ecosystem
Another critical characteristic is excludability. A resource services. Knowledge has the special property that it
is “excludable” when one person or group can prevent often improves through use—for example, James Watt
others from using the resource. Excludability is not developed a better steam engine by taking apart and
an inherent characteristic of a resource, but rather the understanding an older, inferior one. Because non-
result of institutions protecting private or common rival resources are not depleted through use (though
property rights. Most ecosystem goods have been made they can be destroyed by abuse) and hence are not
excludable; for example, trees, land, oil fields, and min- scarce, once they exist it is inefficient to ration them.
eral deposits typically have owners. Some ecosystem ser- Take as an example a clean, cheap solar alternative
vices can also be made excludable; for example, the waste to fossil fuels. A patent makes the knowledge behind
absorption capacity for greenhouse gases in Europe is the technology excludable, allowing it to be sold at a
now a tradable commodity resource as established by price. While this creates incentives for markets to pro-
the European Union Emission Trading System.11 A duce the knowledge, it also rations use to those willing
resource is “nonexcludable” when one cannot prevent to pay, thus reducing use. If the price is high enough,
others from using it, in which case markets provide countries may continue to burn coal, worsening global
no incentives to pay for its use, production, or protec- climate change. Paradoxically, the economic value of
tion, threatening overconsumption and underprovision. knowledge is highest at a price of zero, in which case
Many ecosystem services, such as climate regulation,
Table 20.1
Resource Allocation Matrix: Possible Combinations
of Rivalness, Scarcity and Excludability
Markets allocate
resources based on the
principle of one dollar,
one vote, and future
generations have no vote.
value is actually what we want to maximize. If an price increases in a positive-feedback loop. The result is
American is willing to pay more for corn to make etha- a speculative bubble. Eventually, the bubble pops, and
nol for her oversized sport utility vehicle (SUV) than a falling prices decrease speculative demand in another
malnourished Mexican can afford to pay for tortillas, positive-feedback loop. The more wealth that concen-
then converting corn to ethanol maximizes monetary trates in the hands of a few and the more the financial
value. Markets allocate resources based on the principle sector finances speculation, the more money is available
of one dollar, one vote, and future generations have no for speculation and the worse the resulting instability.
vote. Markets are guided by the preferences of living In the past decade, speculative bubbles in information
individuals weighted by their purchasing power. technology, real estate, oil, food, and financial instru-
ments have destabilized the global economy. Without
Furthermore, markets rely on negative-feedback loops:
extensive regulations on speculation and the financial
As resource scarcity increases, prices rise, signaling
sector, destabilizing positive-feedback loops can over-
consumers to consume less and suppliers to supply
whelm the stabilizing function of market price signals.
more or develop substitutes. Prices balance supply with
demand. However, the supply of low-entropy matter- Finally, when markets allocate ecosystem goods
energy and land is fixed. When the price of nonrenew- toward the production of market goods and services,
able resources like fossil fuels or minerals increases, we this degrades the capacity of the ecosystem to gener-
may extract in-ground stocks more rapidly to temporar- ate nonpriced ecosystem services. There is no price
ily increase current supply, but at the expense of future change to signal rising scarcity. While markets can
supply. If we extract renewable resources like timber allocate ecosystem structure among different mar-
or fish more rapidly in response to a price increase, ket goods to maximize their monetary value, they are
we may actually decrease their capacity to reproduce, unable to determine how much of that structure should
again reducing future supply. It is also extremely diffi- be conserved to provide vital, nonmarketed ecosys-
cult to develop substitutes for fossil fuels, land, or criti- tem services. Our economic system requires mecha-
cal ecosystem services. nisms, ideally cooperative and democratic, that limit
ecosystem conversion, resource extraction, and waste
Price signals could still balance supply and demand
emissions to an ecologically sustainable scale before
through their effect on consumption. However, as oil,
permitting market allocation.
land, or resource prices increase in response to scarcity,
speculative demand may also increase, leading to further
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Open-Access Regimes
currently faces two critical and conflicting thresholds. efficient solar technologies are unlikely to share
The first is an economic threshold. Without fossil information with their competitors. Patents on
fuels, existing technologies could not satisfy the basic other products and processes essential to devel-
needs of 7 billion humans. If we reduce fossil-energy oping the new technology further slow down
consumption below some minimum level, perhaps research.18
40 percent of current use, our economy is likely to col-
5. Patents on knowledge ration access, and carbon-
lapse. The second is an ecological threshold. If we fail
neutral energy technologies must be widely
to reduce carbon emissions by at least 80 percent, run-
adopted if they are to prove effective. The chal-
away climate change may cause agriculture and hence
lenges we confront are too serious for such
civilization to collapse. Bridging the gap between these
inefficiencies.
two critical thresholds requires new, more environmen-
tally benign technologies, including solar energy. With the same resources, publicly funded scientists
would work cooperatively toward producing technolo-
Solar energy itself is inherently nonexcludable and non-
gies that provide and protect public goods and meet
rival16 at the global level, as the capture of photons by
the needs of the poor, sharing knowledge to speed the
one nation leaves no fewer for others. Since photon
rate of advance. Once developed, technologies would
flows from the sun are fixed, applied knowledge in the
be open access, leaving others free to use and improve
form of new technologies largely determines how much
the product without worrying about patent infringe-
we can capture and how cost effectively we can do so.17
ment. Open-access technologies would be more widely
Knowledge actually improves with use. One policy
adopted and more quickly improved upon without
option, patents, makes knowledge an excludable market
worries of patent infringement and thus far more likely
good, in which case prices create an incentive for pro-
to address global problems. Cooperation would appear
ducing knowledge but simultaneously ration its use and
to be inherently more efficient than competition in
create artificial scarcity. A more efficient alternative, for
developing the new knowledge required to solve soci-
at least five reasons, is cooperative production of knowl-
ety’s most pressing problems.
edge (e.g., through public funding and open-access use):
A central objection to cooperative supply of open-
1. The most serious problems we face today include
access knowledge is the problem of funding. However,
threats to climate stability and other critical eco-
whether through market prices or taxes, citizens will
system services, most of which are public goods.
ultimately pay the costs of new technologies, as well as
Markets provide no direct incentives to invest in
the costs of climate change, and both are likely to be
technologies that provide or protect public goods.
lower with public funding of research. Unfortunately,
2. In spite of the peak-oil threat, energy companies the ideological assumption that markets are always
are reluctant to invest in alternate technologies more efficient than government undermines the politi-
that will substitute for fossil fuels and drive down cal will required for adequate public funding. Another
the value of their existing investments. objection is that, at the international level, we lack the
institutions necessary to force countries to contribute,
3. Though every dollar spent on meeting the needs
leading to the threat of some countries “free-riding” on
of the poor is likely to have a greater net impact on
the efforts of others. However, when countries free-ride
welfare than a dollar spent satisfying the wants of
by using carbon-free energy technologies, the country
the rich, the latter is more profitable.
that supplied that technology also benefits. Given the
4. Information improves through sharing. However, nature of knowledge, the free-rider is likely to develop
scientific teams competing to be the first to patent
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Ecological Economics
improvements, which would then be available to the current system of money creation is highly pro-cyclical,
original supplier. enhancing inherent economic instabilities.19
The goals of an economic paradigm define the desir- The solutions to our most serious problems will require
able ends toward which economic production should be cooperation. But economists have long maintained that
allocated. Our dominant economic goal for well over a humans are by nature purely self-interested. They have
century has been simple: increased consumption. But argued that institutions based on cooperation are not
consumption is only one of many human needs con- feasible and have championed more “realistic” mar-
tributing to quality of life. Moreover, endless economic ket solutions to channel unavoidable self-interest into
growth is not only impossible, it is not even ultimately socially optimal outcomes.
desirable. Per capita consumption in the United States
However, numerous studies in evolutionary biology
as measured by gross national product (GNP) has more
have convincingly established that, while selection
than doubled since 1969, with little detectable change
within a group leads to the evolution of self-interested
in people’s self-expressed levels of happiness and satis-
behavior, selection between groups favors coopera-
faction with life as a whole. 21 A recent study commis-
tive behavior—the success of the human species actu-
sioned by French president Nicolas Sarkozy concluded
ally results from cooperation. 24 Indeed, most human
that GNP is not an adequate measure of economic
cultures have evolved mechanisms that punish purely
well-being. 22 Recent studies of the Canadian and
self-interested behavior, thus promoting cooperation. 25
English economies conclude that economic growth is
Behavioral economists have firmly established that
not required to improve quality of life. 23
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Ecological Economics
people care about others and about fair outcomes and, of life. Money could be spent into existence for
together with institutional and political economists, the production of public goods during economic
have shown that certain institutions promote coopera- downturns to stimulate the economy and could
tive behavior that can lead to effective solutions to the be loaned into existence at zero interest for the
types of problems we now confront. 26 One common production of important market goods as neces-
element of such institutions is social punishment of sary. No loans would be available for specula-
selfish behavior. 27 Competitive markets appear to be a tive investments, thus dampening a pernicious
rare example within human cultures of an institution positive-feedback loop. A steady-state, no-growth
that rewards selfish behavior. economy would favor a steady-state money supply,
in which case money spent into existence should
Some specific institutional changes are necessary to
later be recaptured in taxes in a countercyclical,
bring our economic systems back in line with both our
stabilizing system. 29
biologically inherited values and our long-term sustain-
ability needs: 3. We need a new Bretton Woods-type agreement
for the international economy. The first Bretton
1. We must create institutions that protect, enhance,
Woods agreement was created in 1944 to rebuild
and declare common ownership of those resources
the international economic system after the Great
created by nature or by the shared efforts of
Depression and World War II. It established global
society. One option here is to specifically assign
institutions like the International Monetary Fund
property rights to common-asset trusts that man-
and the International Bank for Reconstruction
age common assets for this and future generations.
and Development (which later became a part of
The scale of institutions should be determined
the World Bank Group) to promote stable growth
by the natural distribution of asset benefits, from
of the global market economy. A new agreement
the local watershed level for water regulations to
must be created in response to the current ecologi-
the global scale for management of carbon emis-
cal and resource crises, and it must promote the
sions. For rival common assets, such as waste
cooperative provision of nonrival and nonexclud-
absorption capacity and fisheries production, the
able resources, the stable contraction of the market
annual increment could be rationed through use of
economy, the convergence of global consumption
market mechanisms in a cap-and-auction system,
levels, and the improvement of global quality of
with the resulting revenue accruing to the trust. 28
life. As a simple example, the new Bretton Woods
Nonrival assets such as information would not be
could create the infrastructure for investing
rationed, but the trust would invest in their provi-
revenues from a global carbon-commons trust in
sion and protection.
open-access, renewable energy technologies. 30
2. The right to create and destroy money must be
removed from the financial sector and restored
to the public sector, which should then use it to Next Steps
enhance the public good. Specifically, this would The challenges of developing a post-carbon economy
require 100 percent reserve requirements for the are formidable, but so are the resources available. Per
private financial sector, which would no longer capita GNP in the United States has more than dou-
be able to loan money into existence. The goals bled since 1969, 31 which suggests that if the United
of the public financial sector would be ecological States dedicated half its GNP to solving the problem,
sustainability, just distribution, and the efficient its citizens could still sustain a 1969 standard of living.
allocation of resources toward maximizing quality
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9 Robert M. Solow, “The Economics of Resources or the 22 Joseph E. Stiglitz, Amartya Sen, and Jean-Paul Fitoussi,
Resources of Economics,” American Economic Review 64, Report by the Commission on the Measurement of Economic
no. 2 (May 1974), 1–14; Julian Simon, The Ultimate Resource 2 Performance and Social Progress, Commission on the
(Princeton: Princeton University Press, 1996); Wilfred Measurement of Economic Performance and Social Progress
Beckerman, Small Is Stupid: Blowing the Whistle on the (CPMEPSP)Issues Paper (Paris: 2008).
Greens (London: Duckworth, 1995).
Photo Credits
Page 4, Oneonta Creek cbna Daniel Lerch.
Acknowledgments
Cover art by Mike King. Design by Sean McGuire. Layout by
Clare Rhinelander.
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