2. Accounting for the Wealth of Nations

Mainstream economic models, which typically exclude physical transactions between the economy and the biosphere, are incomplete: wastes, pollution, natural resource extraction, and use of ecosystem services are not included. When economic policy is informed by these incomplete models, unexpected negative outcomes can arise. In this chapter, we suggest that the reason for the incompleteness of mainstream economic models is that we incorrectly understand the economy through the outdated metaphor of the economy as a machine. We describe three eras of thinking about the economy, its relationship to the biosphere, and the metaphors that emerged during each era. We argue that as the world enters the age of resource depletion, it is time for a new metaphor: the economy is society’s \emph{metabolism}. We describe the metabolic processes of anabolism, catabolism, and autophagy and draw analogies to key economic processes: capital formation, energy production, and recycling. Based on the machine metaphor, today’s economic policies are unable to address important issues such as appropriate levels and types of capital formation, efficient energy production, wise use of recycling, and the appropriate scale of the economy relative to the biosphere. The problem is compounded by today’s national accounting, which fails to count many beneficial activities in GDP, simply because because GDP measures only what is produced. Thus, wise and beneficial long-term decisions that would that preserve or enhance natural capital (such as refraining from clearcutting forests) might, ultimately, reduce GDP. We conclude that navigating through the age of resource depletion will require expanded national accounting that captures robust, annual data on the entire portfolio of a nation’s wealth (manufactured and natural capital) in addition to data on national income (GDP). The chapter ends with a description of the structure of the rest of the book.