Ambivalent Joint Production and the Natural Environment

This chapter has three objectives: it introduces the reader to the issue under study (section 1.1), it specifies the scope and method of analysis (section 1.2), and it gives a preview of the argument (section 1.3).

In this chapter, I want to give an empirical introduction into the complexity of economy-environment interactions as established by ambivalent joint production. I shall present a selection of exemplary environmental problems caused by joint production. In the study of these problems important characteristic features of the phenomenon of joint production will turn out to be crucial for an understanding of economy-environment interactions. The features identified here will then be at the center of attention in the subsequent analysis in the remainder of this work. At the same time, the examples illustrate that many important environmental problems have their origin in some process of joint production.

Thermodynamics is the branch of physics that describes the transformation of energy and matter. It deals in very general terms with systems which are characterized by a large number of constituents. Because of its general and ubiquitous nature, thermodynamics is a very useful concept to describe all kinds of processes in the world, in particular human economic activity.¹ It is of special importance for resource extraction, the use of these resources by economies, and the impact of their diffusion into the environment by production and consumption activities. All of these are transformation processes of energy or matter; hence, thermodynamics is appropriate to be considered a basic concept for understanding the material basis of economy-environment interactions.

This chapter is crucial for the argument in that it builds the bridge between physics and economics. From the last chapter it has become obvious that thermodynamic concepts, properly applied, may contribute to a deeper understanding of how the human economy and the natural environment interact and how environmental problems arise from economic action.

The classical¹ era falls in the time of the beginning industrialization. Agriculture is still the predominant form of producing national income for most European countries. As agriculture seems to be an exemplar of joint production, it is not surprising that in the writings of the mercantilists and physiocrats numerous cases of joint production are reported.² Yet, at the same time, and first in England, the Industrial Revolution takes place, making industrial production and mining (for coal and ores) an ever more important aspect of the economic life. This dramatic change is clearly reflected in the works of the classical economists. Adam Smith (1723–1790), the pioneer among them, still bases his reasoning on an abundant set of examples entirely taken from a pre-industrial world: agriculture, hunting, fishing and mining By the end of the classical period industrialization is a fact. Accordingly, Karl Marx (1818–1883), one of the late classical economists, draws his examples from a society in which industrial production dominates and in which capital goods become more and more important (cf. section 6.2).

This chapter deals with the works of Johann Heinrich von Thünen, Karl Marx and William Stanley Jevons. To bring together in one chapter three authors as different as von Thünen, Marx and Jevons might be unusual from the perspective of the history of economic thought. For, Marx is a strictly classical economist, von Thünen marks the transition from classical to neoclassical thinking, and Jevons is usually held to be one of the founding fathers of marginal theory. Also, their respective works are very different as far as method, focus and scope are concerned. However, from the perspective employed throughout this study — a perspective that focuses on ambivalent joint production and its interrelation with the natural environment — all three of them seem to reach very similar conclusions. In contrast to Mill, these three authors when dealing with the role of demand stress one particular aspect of joint production, namely that joint production may be ambivalent; that is, joint outputs may not only be wanted goods, but may be unwanted and even harmful. Interestingly, all three revert to examples of environmental pollution when illustrating their claim.

The classical approach to value and distribution was openly declared to be insufficient around 1870 in the so-called “marginalist revolution”,¹ which is commonly associated with the works of William Stanley Jevons (1871), Carl Menger (1871) and Léon Walras (1874/77). At the end of this “revolution” stood Alfred Marshall’s Principles of Economics ([1890]1925) which established the so-called neoclassical explanation of value.

The historical survey carried out in chapters 5 to 7 has explored the role that the analysis of joint production, and in particular ambivalent joint production, has played in the history of economic thought starting from the classical authors up to the establishment of modern general equilibrium theory. The starting point for this study was the question, why does modern economic theory in its mainstream not explicitly deal with joint production?

The study of empirical aspects in Part I as well as the historical survey in Part II have shown that the phenomenon of joint production is extremely heterogeneous and that there are many different aspects in the phenomenon which are important for a discussion of the origins of environmental pollution in the act of production. Ambivalence of joint production has been identified to be crucial in this context. However, so far this work still lacks a clear and concise definition of “joint production”. Instead, I have used the term in a rather loose sense based on the preliminary definition 1.1. The very same holds for the term “ambivalent” joint production.

In the previous chapter the notion of ambivalent joint production has been introduced and discussed in detail. However, the question of what makes the joint outputs as far as their character is concerned a good or a bad has only been answered in a very general and, thus, rather abstract way. In parts A and B of this work when speaking of wanted or unwanted outputs it has always been assumed that the character of outputs is somehow immediately obvious. Yet, this is a gross simplification. Consider once again the example of sulfuric acid, presented in section 2.4. Is sulfuric acid wanted or unwanted, that is, a good or a bad? The example suggests that the answer is far from being immediately obvious, but rather depends on many aspects. For example, preferences for certain products, resource endowment, conditions of production and available technologies, perception and valuation of environmental problems, as well as the actual amounts produced at one point in time all have an influence on the valuation of sulfuric acid. As a matter of history, as the various determinants have changed over time, so has the valuation of sulfuric acid. At some times, the substance has been primarily perceived as a bad which is damaging to the natural environment, and at other times sulfuric acid has been considered as a scarce factor of production for the chemical industry.

The laws of thermodynamics have been employed in chapter 4 to deduce some fundamental statements about production. However, the view of chapter 4 was essentially a static one. Nevertheless, the laws of thermodynamics, in particular the Entropy Law, establish at the same time a certain temporal structure of production. Generally, the notion of entropy allows to understand how time-irreversibility, the so-called ‘arrow of time’, finds its expression in the evolution of different kinds of systems. This has been discussed in section 3.3 above.

In chapter 9 we have seen that the observer’s knowledge is crucial for his choice of a representation of the system to be analyzed. This feature, and the relationship between the state of knowledge and the valuation of outputs, have been studied in the framework of a total analysis in chapter 10. With this cause for ambivalence being extensively discussed, I now want to analyze one particular consequence of a situation in which goods and bads are jointly produced at the same time. One of the important properties of the production possibility set Y usually assumed is that Y be convex. However, joint production of goods and bads may put at risk this property. This will be demonstrated in this chapter. At the same time, some consequences of a non-convex production possibility set for both economic theory and environmental policy are outlined.

The laws of thermodynamics imply that all production is joint production. However, while thermodynamics allows to make statements about the quantities of inputs and outputs involved in the process of production, it cannot give a satisfactory answer to the question of the inputs’ and outputs’ value. As far as the latter is concerned, it has been shown that the character of joint outputs as goods, free goods or bads hinges on the economic context of production and, in general, depends on many different factors. As one or more of these factors change over time, the character of a joint output may also change over time. What has been a bad at some point in time may turn into a good, or vice versa. Furthermore, the preception of outputs as goods, free goods or bads may change with the observer’s knowledge about the output, e.g. its environmental impact or alternative uses for it.