Historic Development of Environmental Focus in Economics

Our society has long been practicing a linear economy which is generally considered as

“converting natural resource into waste, via production” (Murray, Skene, & Haynes, 2017 p.

371). Linear economy becomes a process of use-and-dispose which deteriorates the environment from cradle-to-grave (Lacy & Rutqvist, 2016). The linear economy has long been recognized for its lack of consideration for depletion of natural recourses as well as the amount of waste generated (Murray et al., 2017). With the lack of focus of economic environmental considerations, and the increasing focus on sustainability, new ideologies and economic theories have emerged. Amongst these are the Malthusian theory, environmental economics, and CE.

Development of environmental economic thoughts begins with the Malthusian theory that emerged in the late 18^th century (Kula, 1997). The Malthusian theory reflected a concern of population growth exceeding agricultural growth, through predicting an exponential population growth whilst the food supply would only increase arithmetically. Malthusian argued for a solution where population control was either controlled positively or preventative. Positive in the meaning of famine and war, while preventative would include measures such as abortion and contraception. Neither of these solutions considered the reduction of individual consumption, due to more modest consumption patterns in the 18^th century (Kula, 1997). In 1850s, Henry Thoreau (Thoreau, 1854, in Kula, 1997) built on the economic thought of environmental preservation by being “highly critical of his country’s preoccupation with economic growth and consumerism” (Kula, 1997, p. 47). Thoreau (Thoreau, 1854, in Kula 1997) addressed his concern for the environment in regard to the industrial revolution and the technological progress. Furthermore, the late 19^th century saw the rise of the American conservation movement and their concern for permanent scarcity. Amongst the notions addressed by the doctrine was the “reckless behaviours towards natural resources such as polluting rivers, [and] excessive reliance on fossil fuel for electricity […]. Even if these deeds are dictated by the pressure of competition or cost-cutting, they cannot be condoned” (Kula, 1997, p. 48). Although this movement had a strong stance on the relationship of economic growth and the environment, it did not include any “economic analysis to study scarcity” (Kula, 1997, p. 50).

The 20^th century generated a string of movements and economic thoughts concerning environmental preservation. Amongst these theories was the theory of Environmental Economics (EE). The basis behind all economic theory is the Circular Flow Model (see figure 1), which illustrates the exchange of monetary value and nonmonetary products, in an opposite circular flow. Included in the model is the position of households, firms, a factor market, and an output market, holding all else constant. By holding all these factors constant, some of the factors excluded were technological advances, population growth, and labour productivity (Callan & Thomas, 2013).

Figure 1. The Circular Flow Model (duplicated from the illustration inCallan and Thomas, 2013, p. 3).

Figure 1 illustrated the circular flow in its simplicity. However, this model excludes the essential role of nature. EE embraces the factor of nature and found it necessary to review the circular flow model. The result of this process can be seen in figure 2, the Materials Balance Model (Callan & Thomas, 2013, p. 5).

Figure 2. Materials Balance Model (duplicated from the illustration inCallan and Thomas, 2013 p. 5).

The Materials Balance Model includes the extraction of natural resources from nature, where both households and firms return residuals back to nature in the form of gasses, industrial

Households Firms

Output market

Factor market

Households Firms

Output market

Factor

market

Nature

wastewater, or trash. Additionally, EE recognise that some of the residuals from both households and firms are being reused, recycled, and recovered back to production in the factor marked again. A further expansion and understanding of EE, is the role of the first and second law of thermodynamics. EE takes into account the theory that essentially all matter will eventually be released back into the environment in one form or another, and the energy will be converted and used for something else, although within limits (Callan & Thomas, 2013).

While CE is attentive towards the focus of resource flow, both to- and from the environment, EE is “concerned with identifying and solving the problem of environmental damage, or pollution, associated with the flow of residuals” (Callan & Thomas, 2013, p. 7). The theory classifies two different types of pollutants: either natural pollutants caused by a natural phenomenon (volcano eruption), or anthropogenic pollutants caused by humans (air pollution produced from cars). EE is predominantly concerned with the anthropogenic pollutants because these are the ones that can be accounted for and can be controlled to a certain extent (Callan &

Thomas, 2013). The similarity between the two concepts exists in the focus and concern for anthropogenic consequences on nature and natural resources. However, from our understanding CE focuses more on minimizing the influx of materials and products. Environmental economics on the other hand, seems to be more concerned with the optimal utilization and efficient use- and extraction of resources and production, to find an equilibrium between the supplier and the market demand. CE takes a more holistic approach on the importance of residual handling and resource extraction, while EE grasps the anthropogenic residuals from economic growth. Thus, we chose to focus on the concept of CE, and use our understanding of the notion to further explore the role of WM in a new economic setting.

The environmental movements and different economic theories have led to the development of the concept of CE. As a step forward in the direction of a green shift, CE is a concept with partial roots in real implementation. It summarizes the previous economic thoughts regarding the concern for the environment, as well as giving the parameters of the R’s as a guideline of how to attain a green shift. It is worth noting that this concept is still under construction, and the implementation is yet to be globally included.