Extending Capital to Nature, Reducing Nature to Capital

The Biden administration has announced it is inaugurating a program to incorporate the value of natural resources and ecological services into national income accounts.  The New York Times article reporting this development predictably portrays the response as divided between two camps: on the one side are environmentalists, who think this will lead to more informed decision-making, and on the other Republicans and business interests who fear it is just a stalking horse for more regulation.

For the record, here is one environmentalist (me) who thinks it’s a bad idea—not completely, but mostly.

Are the quality of our environment and the availability of natural resources crucial to our well-being?  Certainly.  Can these effects be captured by economic measurement?  Mostly no.  The monetary economy is, almost by definition, the realm of the fungible.  Money is what allows us to have more of one thing at the cost of less of another, and then to change our minds and switch back to what we had before.  Pizzas can be bought and sold for money.  School buildings can built for money.  So as a society we face a choice between different consumption categories, one that is reversible if attitudes shift.

What is fundamental about most natural resources is that they are not fungible.  If you destroy an old growth forest and use the proceeds to construct a highway—not to mention a high-end housing development in Sun Valley—you can’t turn around and liquidate the road to get the forest back.  And ecological services, critical as they are (they are often have literal life and death consequences), are not produced or consumed for money, which means they are outside the chain of exchange that generates the fungibility of the goods inside it.  The monetary value attached to them by economists is strictly notional, and it matters that no one will actually pay for their provision or receive income from it.

The wiser approach is to have parallel accounts, many of them, and measure the impacts on our well-being in units meaningful to them.  Let the fungible money economy be recorded as is, and keep close track of resource depletion, the loss of ecological services and pollution in easily understood metrics of their own.  Reducing nature to measures of monetary gains and losses drains it of what makes it different and intrinsically valuable. 

PS: I’ve written two books that develop this argument in different contexts, Markets and Mortality: Economics, Dangerous Work and the Value of Human Life (1996) and Alligators in the Arctic and How to Avoid Them: Science, Economics and the Challenge of Catastrophic Climate Change (2022).