Ecological Economics

The Major paradigm shift which is called for by Ecological Economics is the transition from understanding the Economy as the whole and the environment as a subsidiary, to understanding the Environment as the whole and the economy as a subsidiary.  The economy uses inputs from the environment and then produces outputs into the environment.

Here is the conventional model of the economy.

Unfortunately, the source of resources and energy would not be mentioned and neither would the waste, and absorptive capacity of the environment.

According to Herman Daly:
“Studying economics in terms of the circular flow without considering the throughput of
energy and resources is like studying physiology in terms of the circulatory system without ever mentioning the digestive tract.”

With the Ecosystem as part of the Economy, “The Ecosystem is merely the extractive and waste disposal sector of the economy.  Even if these services become scarce, growth can still continue forever because technology allows us to “grow around” the natural sector by substituting of manmade for natural capital, following the dictates of market prices.  Nature is, in this view, nothing but a supplier of various indestructible building blocks, which are substitutable and superabundant.  The only limit to growth, in this view is technology, and since we can always develop new technologies there is no limit to economic growth.  The very notion of “uneconomic growth” makes no sense in that paradigm.  Since the economy is the whole, the growth of the economy is not at the expense of anything else; there is no opportunity cost to growth.  On the contrary, growth enlarges the total to be shared by the different sectors.  Growth does not increase the scarcity of anything; rather, it diminishes the scarcity of everything.  How can one possibly oppose growth?”

from “Ecological Economics” by Herman Daly and Joshua Farley

This chart includes the second law of thermodynamics and the environment, (putting the economy in its place.)

It is important to understand the nature of our resources moving not in a circular flow but from low entropy to high entropy.

Source: Herman E. Daley, “Beyond Growth”, p. 49,1996.


The goal of an efficient economy would therefore be to find a sustainable level of “resource throughput” and recycle goods as much as possible, as is increasingly to goal of many cities such as Oakland.

© Herbie Girardet and Rick Lawrence, courtesy World Future Council


Economic growth and maximization of GDP seem foolish when considering the costs of growth.

The goal then of economies would change, and for this we can shift back to understanding human behavior, and attempting to value what is important to us.  Check out my human nature pages.  The neo-classical economists assume that humans are rational, self-interested and insatiable; and for this growth serves; but all of these assumptions have been proven wrong by modern sciences of the mind.


“All economic activity is dependent upon that environment and its underlying resource base of forests, water, air, soil, and minerals. When the environment is finally forced to file for bankruptcy because its resource base has been polluted, degraded, dissipated, and irretrievably compromised, the economy goes into bankruptcy with it.”

—Gaylord Nelson

“You show me pollution and I will show you people who are not paying their own way, people who are stealing from the public, people who are getting the public to pay their costs of production. All environmental pollution is a subsidy.”

— Robert F. Kennedy Jr.

“The economy is a wholly owned subsidiary of the environment, not the other way around.”
—Gaylord Nelson


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