Abstract
Mainstream economic models, which typically exclude physical transactions between the economy and the biosphere, are incomplete: wastes, pollution, natural resource extraction, and use of ecosystem services are not included. When economic policy is informed by these incomplete models, unexpected negative outcomes can arise. In this chapter, we suggest that the reason for the incompleteness of mainstream economic models is that we incorrectly understand the economy through the outdated metaphor of the economy as a machine. We describe three eras of thinking about the economy, its relationship to the biosphere, and the metaphors that emerged during each era. We argue that as the world enters the age of resource depletion, it is time for a new metaphor: the economy is society’s \emph{metabolism}. We describe the metabolic processes of anabolism, catabolism, and autophagy and draw analogies to key economic processes: capital formation, energy production, and recycling. Based on the machine metaphor, today’s economic policies are unable to address important issues such as appropriate levels and types of capital formation, efficient energy production, wise use of recycling, and the appropriate scale of the economy relative to the biosphere. The problem is compounded by today’s national accounting, which fails to count many beneficial activities in GDP, simply because because GDP measures only what is produced. Thus, wise and beneficial long-term decisions that would that preserve or enhance natural capital (such as refraining from clearcutting forests) might, ultimately, reduce GDP. We conclude that navigating through the age of resource depletion will require expanded national accounting that captures robust, annual data on the entire portfolio of a nation’s wealth (manufactured and natural capital) in addition to data on national income (GDP). The chapter ends with a description of the structure of the rest of the book.
Essentially, all models are wrong, but some are useful. [ 1, p. 424]
—George E. P. Box
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Notes
- 1.
The use of mechanical metaphor language in Chap. 1 was a deliberate decision to bring attention to the dominant metaphors of the day.
- 2.
Roughly speaking, 1850–1973, with pauses for the World Wars.
- 3.
Approximately, 1973–2003.
- 4.
From 2003 to the present.
- 5.
In this section, the term “national accounting” does not connote the Systems of National Accounts (SNAs) that are necessilarly financial in nature. Rather, we are using “national accounting” to indicate accounting of a variety of quantities at the national level in both physical as well as financial terms, including energy production and consumption, material extraction rates, and ecosystem services.
- 6.
It should be noted that there were local examples of resource constraints, such as caused population declines in the Maya [2].
- 7.
- 8.
Constant elasticity of substitution (CES) production functions also appeared in this era. CES productions functions have the form
$$ y = A { \left[ \delta_1 k^\rho + (1-\delta_1) l^\rho \right]} ^{\frac{1}{\rho}},$$where δ1 is the factor share for capital (k), \(\rho \equiv \frac{1}{1-\sigma}\), and σ is the elasticity of substitution between capital (k) and labor (l) [9]. Although the form of the CES model is different from the Cobb–Douglas equation, the functional relationship remains the same: output (y) is a function of manufactured capital (k) and labor (l) only.
- 9.
Natural resources, including energy, were, and still are, included in Systems of National Accounts as costs. They are counted in financial units (dollars and yen), not physical units (barrels, tonnes, and gigajoules).
- 10.
To this day, the US national accounts still do not include interactions between the economy and the biosphere.
- 11.
- 12.
This fallacious process is known as reification; the making (facere, Latin) real of something (res, Latin) that is merely an idea. Alfred Whitehead refers to this as the fallacy of misplaced concreteness [13].
- 13.
For example, the October 1973–March 1974 oil embargo against Canada, Japan, the Netherlands, the UK, and the US was a response to the US decision to supply arms to Israel during the Yom Kippur War.
- 14.
For example, the 1979 Iranian revolution disrupted oil supply.
- 15.
An isolated system is one that allows no material or energy transfers across its boundary, for example, a perfectly insulated flask. A closed system is one that allows energy but not materials to cross its boundary, such as a greenhouse. A open system, such as a lake, river or ocean, allows both material and energy transfers across its boundary.
- 16.
It must be said that the effort to include energy as anything other than a cost of production remains outside the economic mainstream even today.
- 17.
- 18.
The Constant Elasticity of Substitution (CES) production function can be augmented with energy in several ways, depending upon the desired nesting of energy (e) relative to the other factors of production (capital, k, and labor, l) [23, 25]. Three options exist, but a common approach is:
$$ y = A \: {\left\{\delta{\left[ \delta_1 k^{-\rho_1} + (1-\delta_1)l^{-\rho_1} \right]} ^{\rho/\rho_1} + (1-\delta) e^{-\rho} \right\} } ^{-1/\rho}.$$ - 19.
Again, we are using the term “national accounting” not in the sense of SNA but rather in the sense of data collected at the national level.
- 20.
As opposed to financial units (currency). Physical units include barrels of oil, tonnes of coal, and gigajoule energy values.
- 21.
The depiction of the economy in Fig. 2.2 can be classified as a perpetual motion machine of the second kind: it perfectly converts energy resources into useful output without generating any entropy, in violation of the second law of thermodynamics.
- 22.
See England [31] for a starting point.
- 23.
- 24.
We note that several areas of the literature speak to the items in this list. Materials flow analysis (MFA) and economy-wide materials flow analysis (EW-MFA) stress the importance of material intake by the economy. (see Sect. 3.5.) The input–output (I–O) method highlights the effects of internal exchanges of material and information with economies. (see Chap. 7.) Life-cycle assessment (LCA) techniques focus attention on otherwise-neglected wastes. (see Sect.7.8.) Net energy analysis (NEA) predicts that energy resource scarcity reduces energy return on investment (EROI) and increases energy prices. (see Sects. 1.5 and 4.3.) The energy input–output (EI–O) method gives prominence to energetic costs of internal material and energy flows. (see Chap. 7.) And, thermodynamic control-volume modeling describes transient behavior and system transformations. (see Chaps. 3–6.)
- 25.
The Greek root of metabolism (metabol\={e}) means “change.”
- 26.
The field most closely associated with the metabolism metaphor is materials flow analysis (MFA). To be fair, materials flow analysts clearly acknowledge that materials flow into the economy (minerals and ores, especially), in part, for the purpose of building up stocks of technical infrastructure (buildings), livestock, and people [37, p. 116]. However, there is little emphasis on quantifying levels of material stock in Materials Flow Analysis, as its name implies. In fact, the equations in MFA [37, Eq. 1] are almost always written as
$$ \mathrm{inflow} = \mathrm{outflow} + \mathrm{accumulation,}$$reflecting the focus on material inflow to the economy. In this book, similar equations (see Eq. 3.2) are written as
$$ \mathrm{accumulation} = \mathrm{inflow} - \mathrm{outflow,}$$thereby focusing on accumulation of stocks within the economy.
- 27.
For the purposes of this discussion, our focus is on metabolic processes as they occur in eukaryotic animal cells (cells with a nucleus containing genetic material), thereby avoiding complexities associated with organisms that also perform photosynthesis.
- 28.
Despite the recent change allowing new car purchases by individuals, astronomical import taxes mean that Cuban streets remain populated with vintage 1950s autos [41].
- 29.
See Sect. 1.3.2 for a discussion of depletion of a nonrecyclable natural resource, oil.
- 30.
On a per-unit-mass basis, Kleiber’s Law becomes
$$\frac{\dot{Q}}{m} = q_{0} m^{-1/4},$$(2.6)from which it can be seen that larger organisms (larger mass, m) consume less energy per unit mass (\(\dot{Q}/m\)), and smaller organisms consume more energy per unit mass.
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Heun, M., Carbajales-Dale, M., Haney, B. (2015). Accounting for the Wealth of Nations. In: Beyond GDP. Lecture Notes in Energy, vol 26. Springer, Cham. https://doi.org/10.1007/978-3-319-12820-7_2
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