Ecological Economics Vs. Classical Economics

This paper explains, contrasts, and critiques ecological economics (EE) [1] and classical economics (CE). It examines the normalized assumptions from CE and some of the ways that EE can address salient critiques. It concludes by suggesting that to be effective EE needs a theoretical orientation.

EE focuses on the interconnectedness between nature, society, and the economy [2] (Lundgren, 2022). Its origins [3] are a reaction to the multiple failures of existing mainstream disciplines and its theoretical inspiration is derived from the laws of thermodynamics, specifically entropy or resource-based critiques of neoclassical economics [4] (ibid, Martinez p. 3, 2015).

EE sees the economy as being embedded in society which is in turn embedded in the biosphere (ibid, p. 18. Brown and Timmerman p. 2, 2015. Correa et al, 2022). EE highlights the unsustainability of our current system [5] and is concerned with the Earth’s carrying capacity, planetary boundaries (ibid), the biophysical limits of the economy, promoting human and planetary health (Martinez, p. 19, 2015), and the post-Keynesian perspective that sees sustainability as a macroeconomic problem (Martinez, p. 19).

EE calls for radical change [6] (Martinez, p. 26, 41, 2015) in society and the ways that we measure success (Correa et al, 2022) that go well beyond greening the economy.[7] EE seeks to escape the current standard model of economics (Brown and Timmerman, p. 10, 2015) and create a new structure of knowledge that incorporates social and environmental considerations (Røpke, 2020) to meet people’s basic needs, without transgressing planetary boundaries (Correa et al, 2022). As represented by the reconstructionist agenda, [8] this is a call for a systemic paradigm shift.[9]

EE is critical of CE metrics like GDP [10] in its place EE proposes a multidimensional framework [11] to measure planetary well-being (Brown and Timmerman, p. 2, 2015) and the flourishing of people (Correa et al, 2022). Because the complexity of the problems we face transcends individual disciplines (ibid) EE incorporates many diverse approaches [12] (Lundgren, 2022) to evaluate environmental, social, and economic performance (Correa et al, 2022).

In sharp contrast to EE, social and environmental considerations are not factored into CE (Martinez, p. 2, 2015). CE is a self-regulating system (Polanyi, p. 75, 2001) in which pricing is determined by market forces (Martinez pp. 2-3, 2015). It is defined by its focus on economic growth, free markets, and the spreading of market institutions to all aspects of life (ibid, p. 26). It is rooted in the motive of “truck or barter” in which human beings are thought to be motivated by “maximum money gains” (Polanyi, p. 71, 2001).

CE [13] has proven to be incapable of stopping or even acknowledging planetary and social harm. [14] It fails to understand that life is a collective enterprise where the economy is a function of the social order (Polanyi, pp. 56, 74, 2001), and production/distribution is driven by social organization [15] (ibid, p. 53).

CE contributes to inequity (eg pareto efficiency) [16] and avoids distribution issues thereby justifying inequality (Røpke, 2020), and the ongoing exploitation of poor nations (Correa et al, 2022). Although CE claims to base market law on “man in the state of nature,” [17] it ignores economic history and social anthropology (Polanyi, p. 47, 2001). It also ignores other critical issues [18] and is linked to many negative impacts.

Heterodox economics (HE) [20] differentiates itself from mainstream economics (ME) by acknowledging the complex relationships between economic activity, resource use, and social outcomes (Correa et al, 2022). Contrary to ME, EE puts externalities before internalities (Martinez, p. 2-3, 2015). While ME is monolithic, HE is comprised of a diverse array of thought that does not conform to orthodox standards. ME sees valuations as being reducible to a single standard [21] (ibid p. 10), while HE prioritizes multiple valuations including those related to public and planetary health (Correa et al, 2022). Unlike ME, HE sees human agency as having transformative power [22] and it also incorporates waste products (eg CO2, heavy metals) into system flows (Martinez p. 42, 3, 2015).

While CE, “pretends to give objective, value-free advice” it supports “the existing institutional structures” (Martinez, p. 41, 2015) through a set of “extraordinary assumptions” upholding the market economy (Polanyi, p. 45, 2001). This inspires a ubiquitous mindset [23] that drives multiple crises (Meadows, 1:10:30-1:10:39, 2019) and limits the kind of solutions we can envision (Correa et al, 2022).

Normalized CE assumptions include the idea that planetary well-being is impervious to human activity, as well as assumptions about unlimited resources, and unbridled growth [24] (Martinez p. 10, 2015). We are stuck on a ‘treadmill’ of uniform thinking and broken assumptions (Meadows, 8:58, 2019) that have infiltrated the systems that are trying to replace them (Brown and Timmerman, p. 3, 2015). CE Assumptions [25] dominate EE (Martinez, pp. 26, 28) and support a neoliberal market approach to environmental policy [26] (ibid p. 29).

EE’s confusing relationship with science has given rise to epistemological tensions [28] (Lundgren, 2022) and contradictions. [29] EE’s anything-goes approach has led Røpke to conclude that EE “is in danger of becoming a meaningless agglomeration of anything and everything” (Martinez, p. 27, 2015) and this is antithetical to knowledge building (ibid p. 33). Rather than create a meaningful epistemology [30] and methodology, pluralism has created “confusion and superficiality” which is condemning EE to “ultimate irrelevance” (ibid p. 32-33) that has led some to question its necessity [31] (Lundgren, 2022).

Pluralism leads to the incommensurability of values [32] (ibid, p. 18) and this leaves economists “without a theory of value” [33] (Røpke, 2020). This is a serious issue in a socially constructed world where values inform facts (Martinez, p. 26, 14 2015) that are integral to knowledge production (Lundgren, 2022). Social constructivism [34] shapes our values, frames our actions (Correa et al, 2022), and influences systemic change (Brown and Timmerman, p. 11, 2015).

EE can address pluralism and other problems by developing environmental appraisals, [35] ethical systems, [36] (Correa et al, 2022), and rethinking the anything-goes approach (Martinez, p. 43, 2015). EE can ‘disentangle’ the superficial and the shallow from the progressive and deep (ibid, p. 23) to create a rigorous theoretical structure, [37] (ibid, pp. 42-44) built around “strong bonding elements” [38] (ibid p. 473). Rejecting pluralist eclecticism and arbitrary openness can help EE develop “a unified methodological basis” that is a synthesis of multiple epistemologies (ibid, pp. 33-34).

EE must avoid the epistemic fallacy of ignoring ontology [39] by explicitly rendering ontology and merging it into epistemology (ibid p. 34-35). To create clear and accurate models (Meadows, 2:22 – 2:25, 2015), contributors need to be wary of falling prey to broken ontologies like technological fixes (ibid, 3:44).

Quantitative methods need to be reviewed (Martinez, p. 43, 2015) acknowledging the limit (power and scope) of traditional scientific knowledge [41] (ibid, p. 39). This is the basis for post-normal science [42] (Lundgren, 2022), which is related to critical realism. [43]

While EE should return to its core purpose [44] and focus on heterodox economics [45] it needs a new vision [46] that embraces systems thinking, complexity, interconnectedness, and holism. [47] It should also accept uncertainty and acknowledge that we may not always find the answers we seek (ibid, 13:52, Martinez, p. 37, 2015). Other efforts are also required to improve EE [48] including a community approach and ecological spirituality. [49]

Despite weaknesses, EE is a needed approach to dismantle standard economics. [50] We have only just begun to consider the implications of EE’s implementation (Brown and Timmerman, p. 2, 2015) but if EE is to move forward it must coalesce around a theoretical orientation.

End Notes

[1] EE is understood to be one field comprising various approaches (Lundgren, 2022). EE is not monolithic and there are different schools of thought with vastly differing agendas (eg implicit, explicit, and reconstructionist).

[2] This is particularly true of one school of thought in EE known as the implicit agenda

[3] EE is one of the first scientific communities to address sustainability from a multifaceted transdisciplinary perspective (Martinez, p. 1, 2015, Røpke, 2020). EE originated in the late nineteenth century (Martinez p. 15, 2015) and formally came into being in the late 1980s (ibid, p. 1). Books and journals began to appear in 1987, followed by conferences including the first world conference (ibid, p. 4). EE’s earliest institution was the International Society for Ecological Economics and the journal EE (1988 and 1999), following a series of conferences between systems biologists and economists (Røpke, 2004). Since then, several regional chapters have been formed (Lundgren, 2022). EE is represented by the International Society of Ecological Economics (ISEE) which defines itself as “a scientific society encouraging internal controversy and also a product of the environmental movement of the 1960s and 1970s in its different varieties.” (Martinez, p. 5, 2015). EE is now a thriving field of knowledge, (ibid, p. 1) that according to Spash is divided into three camps: New Environmental Pragmatism (NEP), New Resource Economics (NRE), and Social Ecological Economics (SEE) (Lundgren, 2022).

[4] As Georgescu-Roegen explained life is ‘negentropic’* (Martinez, p. 6, 2015).

[5] The socio-economic system “is not sustainable” (Meadows, 2:46, 2019). We are headed for a “crash” (ibid, 31:30), but we can avert this crash (ibid, 1:21:13-1:21:27, 1:24:56), if we respond to the ways biophysical reality imposes limits. We cannot sustain an economy that serves the wants of the few by forsaking the needs of the many (Erickson, 17:47-17:58, 2022). This calls us to rethink the way we do things (Brown and Timmerman, p. 3, 2015. Meadows, 1:01:31, 2019), and create new sustainable systems (ibid, 1:03:16. Røpke, 2020).

[6] EE is “a radically different form of social and economic organization than currently exists” (Martinez, p. 26, 2015), “far more radical than orthodox economics” (ibid, p 41).

[7] This is about more than internalizing externalities or tweaking economic growth by being more inclusive or making it ‘green’ (Correa et al, 2022). As Erickson says, “we need not a greener way, not a middle way but a new way” (Erickson, 7:06 – 7:14, 2022). We cannot pretend that we can build bridges from traditional economics (Martinez, p. 34, 2015), we need to change the “multi-level institutions governing economic and political processes” (ibid, p. 22).

[8] The reconstructionist agenda is one of three EE agendas, and it calls for a completely new form of scientific thinking that rejects the idea of separation from the natural world and refuses to employ hierarchical structures (Brown and Timmerman, p 7ff, 2015).

[9] Among other things, this paradigm shift must reduce demand (Meadows, 38:35, 2019) address inequity (ibid, 41:44, 2019), and combat the “mindset of growth” (ibid, 1:26:40, 2019). As Erickson said, “economic growth and environmental protection are fundamentally in conflict with one another,” (Erickson, 3:00-3:06, 2022) Meadows qualifies Erickson’s statement by saying, “it’s not that we should have no growth it’s that we should stop worshipping growth” (Meadows, 1:27:17- 1:27:28, 2019).

[10] CE implicitly calls for increasing GDP (Røpke, 2020), which is based on increased consumption (Brown and Timmerman, p. 1, 2015) and adverse health outcomes (Correa et al, 2022). The resistance to GDP is an acknowledgment that what we measure frames our understanding and our actions (ibid).

[11] Where classical economics tends to rely on metrics like GDP, ecological economics is engaged in a “search for alternative methods to conventional monetary valuation of environmental assets (and ability to acknowledge the plurality of human values)” (Martinez, p. 18, 2015).

[12] These diverse approaches include political philosophy, feminism, constructivism, and political economy. There are no strict criteria in EE as it encompasses both formalized institutions and informal institutions. This has led some to describe EE as more like a label or a brand. “]n ecological economics, people from different backgrounds can question other people’s approach, […] which is very rich from a point of view of developing new ideas” and innovation (Lundgren, 2022).

[13] Classical economics is an ill-grounded and quasi-scientific model that has proven to be incapable of stopping or even acknowledging planetary destruction (Brown and Timmerman, p. 2, 2015).

[14] It is worth noting that EE contends the market economy could not exist without social institutions and ecosystem services (ibid, p. 2).

[15] This includes a combination of reciprocity, redistribution (Polanyi, p 49, 2001), and householding (ibid, p 58) and their midpoints, symmetry, and centricity (ibid, p 52).

[16] The “efficient” allocation of scarce resources seeks Pareto efficiency, a situation in which nobody can be made better off without others being made worse off (Correa et al, 2022).

[17] CE’s claim that market law is based on “man in the state of nature” has been refuted by most modern ethnographers (ibid).

[18] Examples include energy, matter, entropy, and evolution.

[19] CE exploits both workers and the soil (Martinez p. 8, 2015), and cheap natural resources create the illusion that they are abundant (Martinez, p. 3, 2015). Negative impacts include the favoring of long-distance trade over local markets (Polanyi, p 61, 2001) and the core activities of CE (eg metal mining or extraction of fossil fuels, and private property linked to the profit motive) (Martinez, p. 13, 2015).

[20] Sometimes referred to as pluralist economics.

[21] This single standard is related to reductionism in science. Such atomistic conceptions of liberty are an impediment to reimagining our economy (Brown and Timmerman, p. 11, 2015).

[22] Heterodox economics accepts the “transformative power of human agency with emergent properties arising from a dynamic interconnected process of multi-layered social interactions…informed by insights into social reality” (Martinez p. 42, 2015).

[23] “Everybody including me has all the wrong habits” (Meadows, 1:10:30-1:10:39, 2019).

[24] We need to make fundamental changes, starting with the “mindset of growth” (Meadows, 1:26:40, 2019).

[25] Assumptions related to market systems and prices, commodifying, quantifying, and pricing Nature.

[26] This approach is known as the explicit agenda (Brown and Timmerman, p. 3, 2015) and a school of EE known as New environmental pragmatism has been accused of being “unreconstituted neoclassical economics” whose emphasis on “market systems and prices” and commodifying, quantifying and pricing Nature” dominate ecological economics (Martinez, pp. 27-28).

[27] EE supports scientific values (Lundgren, 2022), but opposes traditional scientific disciplinary structures. While it attacks science, it does not provide a clear theory of science and its ontological suppositions are vague (Martinez, p. 37,42).

[28] These tensions can be attributed in part to EE’s amorphous borders (ibid, p. 15, 32) and lack of theoretical rigor (ibid, p. 29).

[29] The contradictions arise due to transdisciplinarity, methodological pluralism, and the pursuit of pragmatic conceptual rigor (ibid, p. 18). The pursuit of a quantitative approach also contradicts the original purpose of EE, namely finding “new ways of conceptualizing and counting the impacts of economic and policy decisions on ecological systems and processes” (ibid, p. 30).

[30] Epistemology – A term meaning “theory of knowledge,” which gets at how we know about the social world that lies behind all theoretical approaches. (Frampton, Kinsman, Thompson, Tileczek, 2006).

[31] “The scientific dimension of the question of pluralism in ecological economics is thus not only an epistemological question of whether pluralism is a necessity, but also a question of weighing the value of consistency against the value of novelty” (Lundgren, 2022).

[32] incommensurability of values refers to a diverse array of standards of value with no common measure (Martinez et al, pp. 473-474, 2015).

[33] “Economists are left without a theory of value. There is no relevant way to establish economic commensurability between different goods as they have no mutual biophysical quality, and consensus on the worth of the goods from a human perspective is impossible to achieve. Market prices should not be considered relevant measures of value as they emerge as historical constructions that are influenced by both past and present inequalities” (Røpke, 2019).

[34] Social constructivism eschews an objective vision of human societies and sees reality as socially constructed which implies “adopting the vision that biophysical limits are dependent on social preferences,” (Martinez, p. 18). The implication is that “reality may differ from how humans conceive it” (Martinez p. 37). As explained by Correa et al, “people’s interests and worldviews are not given but are shaped by social context” (Correa et al, 2022). According to world systems theory (among others), systemic change is influenced by social constructions (Brown and Timmerman, p. 11, 2015). Those who view scientific facts as social constructions deny that the goal of science is to find facts (Martinez, p. 34, 2015).

[35] Environmental appraisal methods favor social and communicative action to tackle the incommensurable value dimensions (ibid, p 84).

[36] These ethical systems should draw on environmental justice, ecological politics, and social concerns (Brown and Timmerman, p. 10, 2015). Ethics should be grounded in a worldview of humanity’s place in nature (ibid) and ‘value pluralism’ that includes traditional environmental knowledge (Martinez, p. 20, 2015).

[37] EE must adopt “a more rigorous approach and establish a theoretical structure” (ibid, pp. 43-44).

[38] Strong bonding elements: including environmental justice, analytical philosophy, deliberative methods, anthropology, human ecology, theoretical paradigms, methodological tools, ecosystem services, energy, socio-environmental conflicts, political ecology, and limits to growth (ibid, pp. 475-476).

[39] Ontology – Assumptions relating to how the social comes into being that inform all theories and ways of writing the social (Frampton, Kinsman, Thompson, Tileczek, 2006). Martinez describes ontology as “what constitutes reality” (Martinez, p. 34, 2015).

[40] Examples of broken ontologies include those we find in models that are overly reliant on technology (Røpke, 2020) or call for freer markets (Meadows, 3:12-3:14, 2015). These technological fixes have, “dominated the search for solutions to environmental problems) (Martinez, p. 22, 2015). Our models wrongly tell us that “what we need to implement is more technology and better freer markets and then that will solve our problems” (Meadows, 3:12-3:14, 2015).

[41] Specifically, the claim that the scope and power of science have been exaggerated leading to censorship (Martinez, p. 39, 2015) however, Martinez also suggests that EE should be at least partly empirical (ibid, p. 43, 2015).

[42] EE is a post-normal science that implies we cannot know truth or reality although it explicitly states that this “does not mean that humans may construct their own reality at will” (ibid, p. 36-37). Post normal science is an approach that is neither reductionist nor constructivist, it is the midpoint between postmodern nihilism and modernist single truths (ibid, pp. 39-40). It is a synthesis of realism and weak constructivism and (ibid, p. 42). However, “The idea that all reality is socially constructed conflicts with the status given to the Laws of Thermodynamics, as scientific realizations of biophysical reality, that are central to the conceptualization of what is wrong with economics” (ibid p. 36-37)/

[43] The stratified ontology of critical realism acknowledges that we cannot demonstrate truth, but it also acknowledges the possibility of an underlying reality (Martinez, p. 39-40).

[44] Seeing the economy and the environment as one integrated system (Meadows, 12:25, 2015), the economy must be understood as embedded in nature, but without reductionism (Martinez, p. 39, 2015). It should be noted that Meadows does not wish to do away with reductionism altogether (Meadows, 1:05:21, 2019). We need a new relationship with the natural world (law, governance, finance, ethics, and religion). This means we must abandon “neoclassical fantasies” and embrace the interconnected nature of things including our place in nature. (Brown and Timmerman, p 4ff, 2015).

[45] Ecological economics should provide a new economic approach with a biophysical foundation based on ideas from heterodox economics. (Røpke, 2020). Heterodox economics challenges the assumptions of classical economics including ethics and this can provide guidance for the creation of new economic systems that embed planetary limits.

[46] A new vision (Meadows, 1:01 – 1:22, 2015) requires letting go of strictly scientific methodologies (ibid,4:43- 4:48) and ignoring the taboo (Martinez, p 31) against sharing our hopes and dreams (Meadows 10:38, 2015). We must not be deterred by “being labeled naive idealist” and “unrealistic” (ibid, 11:03). Meadows said, “statements from the deepest level of the heart and soul…probably is the missing element” (ibid, 13:19-13:24). Meadows qualified this statement by excluding “self-centered visions” (ibid, 20:21-20:26) and adding that these visions should be “honed by rationality” (ibid, 17:42 -17:43).

[47] Holism is the theory that parts of a whole are in intimate interconnection, such that they cannot exist independently of the whole, or cannot be understood without reference to the whole. Holism is often applied to mental states, language, and ecology and it reflects the understanding that the whole is more than the sum of its parts (ibid,11:42-11:54).

[48] Informed by “insights into social reality” EE must challenge false beliefs (Martinez, p. 42, 2015), critique mainstream approaches (ibid, p. 27, Lundgren, 2022), and examine the nature and origins of markets (Polanyi, p 58, 2001) while being wary of CE’s assumptions (Correa et al, 2022). Efforts to improve EE must also grapple with how scientific reductionism reduces the natural environment to its physical characteristics, while constructivism denies biophysical constraints on social life (Martinez pp. 39-40, 2015).

[49] This is a collective and even a spiritual effort. Everybody needs to be involved (Meadows, 1:19:23-1:19:30, 2019) as community consensus decision-making (ibid, 1:11:04-1:11:11) can help us to make cultural commitments to protect the resource base (ibid, 53:19-53:24).that may involve rediscovering sacredness (Martinez, p. 9, 2015) and instilling “a sense of reverence for the natural systems and life-support systems” (Meadows, 1:14:21- 1:14:37, 2019).

[50] “Ecological economics as a radical movement is required today, more than ever, in order to criticize and change the social organizations and institutions that spread false beliefs about economic, social, and environmental reality” (Martinez, p. 42, 2015).

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