When Adam Smith published The Wealth of Nations in 1776, the world was essentially empty from a human perspective, with fewer than one billion human inhabitants.[1] At that time, the planet had abundant "natural capital" of all kinds --for example, highly-concentrated metallic ores, oceans full of fish, continents covered with trees to absorb carbon dioxide from the atmosphere, and mysterious substances like petroleum oozing out of the ground spontaneously. The world of 1776 was short of HUMAN capital --techniques for extracting minerals from the deep earth, ships to catch fish efficiently, and machines to turn trees into lumber, for example.

Now, says economist Herman Daly, the situation is reversed.[2] Increasingly, natural capital is scarce and human capital is abundant.

• Today there is no shortage of huge ships to sweep nets through the oceans to harvest fish --but the fish themselves are disappearing.

• Chemical factories are abundant, producing a cornucopia of useful chlorinated chemicals, but there is a shortage of natural mechanisms to detoxify and recycle such chemicals. As a result, the entire planet is experiencing a buildup of chlorinated toxicants and scientists are discovering new harmful effects in wildlife and humans each year.

• Only recently, scientists concluded that the ecosystem's capacity to remove carbon dioxide from the atmosphere has been exceeded because of human activity. As a result, they believe, CO2 is building up in the air, pushing up the temperature of the planet. We are waiting now to learn the real consequences, but more droughts, floods, and major storms must be expected, we are told.

  In sum, natural capital --both sources and sinks --are becoming scarce on a global scale for the first time ever. The Earth is no longer empty. It is full, or nearly so.

Mainstream economists do not worry about shortages of natural capital because neoclassical economic theory assumes that human capital can substitute for natural capital. To a certain limited extent, this is true. When copper becomes too expensive for making telephone wires, we substitute glass in the form of fiber optic cables (which we make by manipulating sand with large quantities of energy and accumulated know- how). However, Daly argues, traditional economists have ignored the extent to which the usefulness of human capital depends upon the availability of natural capital. Daly asks, quite sensibly, what good is a sawmill without a forest, a fishing boat without fish and an oil refinery without oil? In truth, says Daly, natural and human capital complement each other --we need them both to sustain our economy and the natural systems that support us and the other creatures. This may seem obvious to most people, but to many traditional economists it still seems like heresy.

As we have seen (REHW #624), there are two kinds of natural capital -- those that renew themselves (e.g., fish, trees) and those that don't, at least not on a human time scale (e.g., copper deposits and petroleum).

How do you "improve" natural capital? Renewable natural capital can be replenished by not using it and by waiting patiently. Fish stocks will replenish themselves if we refrain from overfishing. The same is true of forests. In this new economic perspective, frugality, efficiency, and patience once again become prime virtues. As Daly says, for ecological economists, laissez faire takes on new, deeper meaning.

Somewhere in between natural capital and human capital is "cultivated capital" --fish ponds, tree farms, and herds of cattle, for example. Recent attempts to cultivate natural capital may provide some limited benefits. Tree plantations provide one of the services of a real forest --trees to cut --but they do not replace forest habitat or biodiversity. Fish farms do produce fish but they also require high- protein fish food, antibiotics to fend against disease, and some means of handling concentrated wastes. Clearly, cultivated capital has severe limitations, and it relies on natural capital for its limited successes.

The ultimate experiment in cultivated natural capital --or ecosystem management, as many modern engineers and scientists like to call it -- took place between 1991 and 1993 in the desert 25 miles north of Tucson, Arizona. Here, a group of scientists built a complex ecosystem covering 3.15 acres under an airtight glass cover and 8 of them tried to live in it for two years. The materially-closed system --nothing was supposed to go in or out during the two years --was intended to replicate a tiny Earth, complete with ocean, desert, grasslands, and woodlands. The experiment was called Biosphere 2 (the Earth is biosphere 1), and it was a stunning failure. From the beginning the Biospherians encountered "numerous unexpected problems and surprises."[3]

Fifty tons of oxygen disappeared mysteriously from the closed system, reducing oxygen levels to those typically encountered at an altitude of 17,500 feet --barely sufficient to maintain human consciousness. Carbon dioxide skyrocketed to levels that threatened to poison the humans as well. Levels of nitrous oxide --laughing gas --rose high enough to interfere with vitamin B12 synthesis, threatening the humans with brain damage. Finally, oxygen had to be pumped in from the outside to keep the Biospherians from suffocating.

Tropical birds disappeared after the first freeze. A native species of Arizona ant somehow found its way into the enclosure and soon killed off all other soft-bodied insects. As the ants proliferated, creatures as large as snakes had to hide from them or be eaten alive. All seven species of frogs went extinct. All together, 19 of 25 vertebrate species went extinct. Before the two years was up, all pollinators went extinct, so none of the plants could reproduce themselves. Despite unlimited energy and technology available from the outside to keep the system functioning, it was a colossal $200 million failure. The scientists concluded, "No one yet knows how to engineer systems that provide humans with the life-supporting services that natural ecosystems produce for free. Dismembering major biomes [ecosystems] into small pieces, a consequence of widespread human activities, must be regarded with caution.... the initial work in Biosphere 2 has already provided insights for ecologists--and perhaps an important lesson for humanity."[3]

Thus we know that cultivated natural capital has an exceedingly limited capacity to provide the benefits that nature's own natural capital provides. We would be fools to count on replacing nature's bounty with something of our own invention. The Earth is our only home and we must protect it.

Non-renewable capital cannot be "improved" --it can only be preserved. Thus to the extent feasible, our economy should shift over to renewable resources, to be used at a rate set by nature's rate of renewal. Non- renewable resources should be left alone, or they should be liquidated thoughtfully to provide future humans with a stream of income. For example, arguably, dwindling petroleum supplies should be invested in "solar breeder" facilities --factories that make photovoltaic solar cells. The product of such a factory could be used to power the construction and operation of more factories to manufacture more photovoltaic cells, to make more factories to make more photovoltaics, and so on, providing the next generation with a legacy that allows them to tap into the endless flow of the sun's energy.

What public policies might help us make the shift to using renewable resources at sustainable rates?

1. Stop counting the consumption of natural capital as income. (See REHW #516.) Depletion should never be treated as income. It would be like burning the furniture to heat the house, congratulating ourselves on the resulting warmth. It will be short-lived. As preposterous as it may sound, most nations, including the U.S., presently treat depletion of their natural capital as if it were income, so far as national accounts are concerned --a major accounting error. Depletion is a cost, not a benefit. (The same is true of pollution --in calculating Gross Domestic Product [GDP] we count pollution, pollution illnesses, and anti-pollution expenditures as benefits, not costs. This is clearly wrong and wrongheaded but the nation's economists still endorse such a system --a sad commentary on the state of economic "science" today.)

2. Tax labor and income less, and tax throughput more. We will always need governments to
   • protect the weak from the strong and tyrannical;

   • provide a safety net for those plagued by bad luck;

   • protect the commons (such as the atmosphere) from thoughtless or predatory individuals and businesses;

   • level the playing field for individuals and businesses (making sure, to the extent possible, that people start life with equal opportunity, and that the competitive envi-ronment for businesses is preserved against monopolies and oligopolies).

   The present tax structure encourages businesses to substitute capital and throughput (energy and materials) for workers. Throughput depletes resources and creates pollution, so our tax structure discourages what we want (jobs and income) and encourages what we don't want (depletion and pollution). This is backwards.

   After we shift over to "green taxes" --which encourage jobs and income and discourage depletion and pollution --we will still need an income tax but not primarily to provide revenue for government. We will need an income tax chiefly to reduce inequalities in income and wealth because huge inequalities undermine the main goals of a democracy: equal opportunity, a real voice in the decisions that affect your life, and a sense of shared ownership (a "stake") in the community.

3. Move away from the ideology of global economic integration by free trade, free capital mobility, and export-led growth. Instead, move toward a more nationalist orientation that seeks to develop domestic production for internal markets as the first option, embracing international trade only in those instances where it is clearly more efficient.

Herman Daly emphasizes this point again and again: free trade as conceived by the current generation of political and economic leaders will be disastrous because it is destroying the power of national governments to control the destiny of their people. "To globalize the economy by erasure of national economic boundaries through free trade, free capital mobility, and free, or at least uncontrolled, migration is to wound fatally the major unit of community capable of carrying out any policies for the common good," Daly writes.[4]

--Peter Montague
(National Writers Union, UAW Local 1981/AFL-CIO)

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1. Herman E. Daly, Beyond Growth (Boston: Beacon Press, 1996). ISBN 0- 8070-4708-2.

2. Joel E. Cohen, How Many People Can the Earth Support? (New York: W.W. Norton, 1995), pg. 76. ISBN 0-393-31495-2.

3. Joel E. Cohen and David Tilman, "Biosphere 2 and Biodiversity: The Lessons So Far," Science Vol. 274 (November 15, 1996), pgs. 1150-1151. And see William J. Broad, "Paradise Lost; Biosphere Retooled as Atmospheric Nightmare," NEW YORK TIMES November 19, 1996, pg. C1. See also Peter Warshall, "Lessons From Biosphere 2: Ecodesign, Surprises, and the Humility of Gaian Thought," Whole Earth Review (Spring 1996), pgs. 22-27.

4. Daly, cited above in note 1, pg. 93.

Descriptor terms: sustainable development; economics; herman daly; beyond growth;

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