Environmental Engineering Reference
In-Depth Information
Total capital (our total assets) is divided into natural capital and humanmade capital.
Natural capital is defined as ecosystem services that are “the conditions and processes
through which natural ecosystems, and the species that make them up, sustain and
fulfill human life” (Daily 1997, 3). In this sense, there are many functions
of
natural
capital that support and enrich our lives in addition to providing various functions
for
humans (De Groot et al. 2002; Ekins et al. 2003). Natural capital has two dimensions:
nonrenewable and renewable. Although humanmade capital (e.g., technology or ma-
chinery) may reduce some of our needs for natural capital, ecological economists
contend that natural and humanmade capitals are ultimately complementary to each
other. Ecological economists termed this view as “strong sustainability,” and called
the conventional assumption of substitutability between natural and humanmade
capitals “weak sustainability” (Daly and Farley 2004). To wit, a house cannot be built
without land and lumber, no matter how many carpenters and hammers we employ.
These concepts of natural capital and strong sustainability clarify where we should
seek solutions for sustainability. If humans as a species are going to have a long and
happy life, the level of natural capital must be maintained over time. By definition,
the stock of nonrenewable natural capital is being depleted with our economic activi-
ties. The only way to maintain or even improve the level of natural capital is by devel-
oping renewable substitutes for nonrenewable natural capital while restoring and in-
creasing the stock of renewable natural capital. When faced with this reality, investing
money into the “recovery of damaged ecosystems” makes perfect economic sense.
Natural capital is a major extension of the concept of “land” from the classical eco-
nomic analysis where three types of stocks (land, labor, and humanmade capital) were
identified (Ekins, Folke, and De Groot 2003). Adam Smith viewed the flows of values
derived from these three types of stocks (rent, profit, and wages) as the original sources
of exchange value (Farber, Costanza, and Wilson 2002). With limited substitutability
among the different types of stocks, the value of a final product is primarily deter-
mined by the most scarce production input. In Adam Smith's time (the eighteenth
century), labor was the scarce factor, and he suggested a labor theory of exchange
value. Currently, it is the stock of natural capital that is being depleted and, as a result,
the availability of natural capital is increasingly the limiting factor in production that
will drive up the value of final products in the future. Restoring natural capital would
also make perfect economic sense in the eyes of the father of modern economics. This
point was elaborated further in detail by Aronson et al. (2006b) and Farley and Daly
(2006) in their dialogues advocating ecological restoration as an economic problem
(i.e., restoration of natural capital is restoring the limiting factor of production).
Another way that ecological restoration makes economic sense is as insurance. De-
spite the fact that rationality based on predictability is a basic tenet of neoclassical eco-
nomics, most of us understand the future is inherently unpredictable. Some of the
largest expenditures for a household in the United States are payments for various in-
surance premiums to reduce the chance of financial downfall due to future risk and
uncertainty. Inherent unpredictability of events has been recognized even in financial
trading where predicting uncertain futures is the core of the field. Taleb (2007) ar-
gued in his bestseller
The Black Swan: The Impacts of the Highly Improbable
that
