What biophysical economics is not

IN SHORT:

Biophysical economics is not an attempt at reforming macroeconomics. It seeks neither to throw out all that mainstream economics says about markets and incentives or taxation and regulation, nor to propose an ‘energy theory of value’. Rather, it aims to provide a more comprehensive view of the interactions of the economy and the natural world so as to make better informed policy decisions.

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IN MORE DETAIL:

Biophysical economics is not a ‘school of economic thought’. Rather, it may be seen as a ‘line of thought’ or a ‘perspective’ that provides an alternative view of the economy and how it works, rooted in a biophysical reading of the economic process. Some disagreements may exist between the proponents of this alternative view, which are legitimate and constitute an integrant part of its further elaboration and advancement.

Biophysical economics is not – or not primarily – an attempt at reforming macroeconomics. The state of macroeconomics has been widely debated within the economics profession since the 2008 financial crisis and subsequent global recession, which the vast majority of economists failed to foresee and even to comprehend. This debate has primarily focused on the significant conceptual flaws and blind spots of dominant macroeconomic models exposed by the crisis, in particular their inability to correctly factor the role of debt and of the financial sector, and hence to model and forecast financial instability and its macroeconomic effects, or their inability to factor the bounds of rationality in economic decision-making. Biophysical economics is not intent on taking part in this debate, even if it may contribute to it. Biophysical economics provides an alternative view of the economic process, which cannot be captured simply by incorporating energy into existing production functions or amending its weighting in existing macroeconomic models.

Biophysical economics is not new. The term itself was coined in the 1920s by US mathematician, physical chemist and statistician Alfred J. Lotka (1880-1949), and the biophysical reading of the economic process has also at times been called differently, e.g. ‘thermoeconomics’ or ‘bioeconomics’. Its roots can be traced to the 18th-century Physiocrats, the first organized school of economic thought, which had as its main principle that natural resources, and fertile agricultural land in particular, were the source of value creation and material wealth. The perspective further developed in the 19th century with the discovery of the laws of thermodynamics and the first attempts at using thermodynamics and energy flows to explain social and economic development. It expanded in the 20th century with a growing body of work devoted to the analysis of the role of natural resources in human affairs, and particularly in economic production. In addition to Alfred Lotka, notable authors included Nobel laureate in chemistry Frederick Soddy (1877-1956), political scientist and sociologist W. Fred Cottrell (1903-1979), geologist and geophysicist M. King Hubbert (1903-1989), mathematician, statistician and economist Nicholas Georgescu-Roegen (1906-1994), and ecologist Howard T. Odum (1924-2002). In more recent years, biophysical economics has become based on a growing body of research, led in particular by physicist and economist Robert U. Ayres (born 1932) and systems ecologist Charles A.S. Hall (born 1943).

Biophysical economics is not a variant or a synthesis of ‘energy economics’, ‘resource economics’ or ‘environmental economics’, which apply mainstream economic principles to energy, resource or environmental issues respectively. Biophysical economics may appreciate and use some of their components or outcomes, but proposes a radically different interpretation of how the economy fundamentally operates.

Biophysical economics is not a variant or subset of ‘ecological economics’, even if it shares some of its theoretical underpinnings. Like ecological economics, it is a trans-disciplinary field that sees the human economy as a subsystem of the global ecosystem, and accepts that there are biophysical limits or constraints to the throughput of resources from the ecosystem, through the economic subsystem, and back to the ecosystem as wastes. Like ecological economics it recognizes that the human economy is a complex system, whose analysis at all space and time scales conveys significant and irreducible uncertainty and in which certain processes are irreversible and affect the functioning of the system. However, it differs from ecological economics in its objectives and focus. Ecological economics aims to improve and expand economic theory by integrating the earth’s natural systems, human values and human health and well-being, with the ultimate goal of advancing towards ‘sustainability’ with a high quality of life for all of the earth’s inhabitants (both humans and other species) within the material constraints imposed by its natural systems. To this end it focuses primarily on the preservation of natural capital through the valuation and pricing of ‘ecosystem services’, and on the advancement of ‘environmental justice‘. Biophysical economics, on the other hand, focuses primarily on the central role of the flows of energy and matter through the economic system, and therefore on the role that entropy and depletion play in its functioning and prospects.

Biophysical economics is not aimed at framing an overall, global and all-encompassing response to the problems that result from the existence of biophysical constraints to economic activity and growth. It does not endorse, advocate or promote political ideologies or movements. Instead, biophysical economics aims to contribute to the development of proactive, adaptive, realistic and implementable policies designed to foster long-term economic and societal resilience, based on a sophisticated understanding of the underlying systems, and that fully acknowledge the associated constraints as well as uncertainties.

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