3. Socioeconomic System as Reproductions of Economy, Humans, and the Environment

This book, though placing importance on the view that the economy is a part of the earth’s ecosystem (Daly and Farley 2011), also takes into account the huge influence of the economy in the real world. Thus, it sees economy and the environment as parallel systems.

Investment in production goods is mainly covered by profits, purchase of consumption goods by wages, and purchase of maintenance services by rents, respectively. However, they do not completely correspond. For example, profits and rents are also used for luxury goods.

We refer, by the term “rent,” to the Ricardian rent, as well as various other forms of payment against the usage of the natural environment, including compensation for damages and newly introduced charge systems (e.g., tradable permits).

The approach of analyzing economic growth as capital accumulation dates back to classical scholars and was succeeded by the surplus approach, the post-Keynesian school, etc.

Daly and Cobb (1994) also point to the nature of money as a root of the tendency to grow, stating that “money has a tendency to foster the exponential-growth culture… This happens for two reasons. First, by virtue of the fact that money can be created out of nothing and can grow forever, we tend to think that wealth… can also do these things. Second, with the historical shift from simple commodity production (C–M–C^*) to capitalist circulation (M–C–M^*) that money brought about, our attention turned to abstract exchange value, the accumulation of which appears to be unlimited….”

Strictly speaking, when monetary circulation is taken into account, Say’s law cannot be presupposed and demand for products may play an important role in accumulation. The model in Fig 3.2, being focused on the circulation of goods and services, does not deal with this mechanism, for the sake of simplicity. It will later be analyzed in Chaps. 5 and 6.

There are different views on the substitutability of the natural environment, that is, ideas of “weak sustainability” and “strong sustainability.” The former considers that natural capital can be substituted by manmade capital and sustainability is maintained if more manmade capital is accumulated than the natural capital is exhausted, while the latter sees no or little substitutability (e.g., Daly and Cobb 1994). This chapter proceeds with a presumption that there is a certain but limited level of substitutability.

The concept of “environmental-resources-substituting goods and services (ESGS)” was initially presented by Okuma (2012). In the series of the System of Environmental-Economic Accounting (SEEA) that we will refer to in Chap. 4, SEEA 2003 used the concept of “environmental products,” meaning a wide range of products including environmental protection activities, natural resource management and exploitation activities, environmentally beneficial activities, and minimization of natural hazards (United Nations et al. 2003). Recently, the SEEA Central Framework has introduced the concept of the “environmental goods and services sector (EGSS),” meaning sectors producing goods and services for purposes of environmental protection and resource management. The concept of the “environmental protection expenditure account (EPEA)” also continues to be used, focusing on the field of environmental protection in presenting a methodology to analyze expenditures (United Nations et al. 2014). The concept of ESGS, in this book, is close to EGSS in its scope. It differs, however, in that it uses a theoretical and simple definition of “goods and services that substitute environmental resources,” and in that it enables a detailed analysis on expenditure-basis with referring to EPEA.

In this case, not the whole product but the additional cost is regarded as the ESGSs.

In this figure, the ESGSs used by human reproduction, as well as the costs accompanying them, are omitted for simplicity.