Since they are based on tapping the capital of natural resources, human economies are parts of larger natural ecosystems and develop with these systems. In our utilisation nature, ecosystems provide materials and energy to maintain relations between human economies and the supply materials and energy for the production of goods and services. The economic process is a circular flow of money between families and companies. Families spend money on goods produced by companies and companies spend money to buy inputs for production, such as materials, energy, land, labour and capital. These inputs are owned by households, either directly or indirectly because they are vested in the State. This model, which was first used as the basis for economic theory by Adam Smith in the 1770s, concentrates on the total volume of the circular flow generated by demand and supply, which is described as the gross national product (GNP). GNP is the primary focus of the economic policies of nations. It is assumed that when GNP grows, human wellbeing increases; year on year growth of GNP is what keeps a democratic government in power through increases in jobs, wages and goods. The economic cycle is isolated from the environment because it is designed to continue regardless of changes in the environment.
For two centuries after Smith published his book ‘The Wealth of Nations’ the environment was simply an inexhaustible supply of raw materials and an infinite sink for wastes. In Smith’s model there are no ties between economics and environment. When sources of inputs are exhausted, others are discovered or new inputs are invented. In the 1970s it suddenly dawned on people that the production of wealth on the Smith model can only be sustained when economies are small in relation to the environment available for human growth and settlement. Flows of wastes from human production systems now rival the flows through some natural systems and many of the impacts are irreversible or are only remedied over a very long time. In this situation, reliance on the GDP as a major tool of economics is an obstacle because it just measures production for any purpose resulting from any activity. A nation encouraged to maximise GNP may do so by choosing to exhaust its natural resource capital, such as felling all its forests.
The simplest way of organising an economics that involves putting the enironment into accounting is:
- Measure the value of services provided by the economy and the environment
- Measure the specific costs of environmental deterioration due to depletion and pollution
- Keep track of environmental capital such as clean water and ecosystems
These measuements would enable the correction of GNP by subtracting from it depletion of natural capital. It would also be possible to balance theextraa benefits of increased consumption against the extra environmental costs.
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