Natural vs Man-Made Capital

by Joshua on March 6, 2009 · 8 comments

As we continue to fuel our all-important economic growth we begin to realize more and more that it has done all the good it can for us. In fact, it has started to become uneconomic growth; a growth that actually costs us natural capital (resources) and man-made capital (products). The costs of growth now outweigh the benefits.

Today’s neoclassical economists will have you believe that reduction of natural capital (resources) can be replaced with man-made capital. However, this is not true because in order to create man-made capital you require natural capital. Therefore, natural capital should be maintained as it is the limiting factor for man-made capital.

As Herman Daly puts it in this Scientific American article “Economics in a Full World“:

“For example, the annual fish catch is now limited by the natural capital of fish populations in the sea and no longer by the man-made capital of fishing boats. Weak sustainability [the neoclassical model] would suggest that the lack of fish can be dealt with by building more fishing boats. Strong sustainability [the ecological economics model] recognizes that more fishing boats are useless if there are too few fish in the oceans and insists that catches must be limited to ensure maintenance of adequate fish populations for tomorrow’s fishers.”

This difference between the natural and man-made capital relationship is a keystone to our sustainable, steady-state economy. Without placing value on the removal and use of resources we will inherently use them up to make man-made capital. Today’s (neoclassical) economists will tell you this is perfectly acceptable progress, in turn we create a pile of [worthless] man-made capital [stuff] in a resource-depleted world [wasteland].

For instance, the services of our pollinators is estimated to be a $57 billion dollars a year in savings. If these insects didn’t do the work, someone would have to in order to keep our system moving and people fed. Yet, this value is not calculated in our destroying of habitats, farm land, and other things we do that kill off pollinators. There are values to every ecological service, from CO2 sequestration by forests to water filtration by soil. The total value of mother nature’s ecological services is estimated at upwards of $71 trillion (with a T) a year.

Many ecological economists suggest taxing resource depletion to place a value on this cost, which has both negative environmental and economical impacts. A tax-break could then be conversely placed on restoring or replacing valued natural capital (replanting trees, restoring wetlands, et cetera). Accounting for this cost in our GDP by creating something similar to GPI (Genuine Progress Index) would further benefit our sustainability, as well as our understanding of the balance between natural and man-made capital.

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