In a previous blog called The Energese Language I stated my intention to begin exploring the work of ecological systems thinker Howard T. Odum. One of the aspects of his work that appeals to me is his facility with using diagrams to express ideas and create insight into systems. In today's blog I'll focus on a diagram he used to explain the idea of natural capital. The diagram below comes from his The Emergy of Natural Capital article. The diagram is worth studying for awhile.

What I hope this diagram makes clear is how the wealth generated in our economic system is completely dependent upon the natural capital supplied by the environment. I don't think I could make this point any clearer than this diagram does.

Herman Daly has written a recent article called The Use and Abuse of the "Natural Capital" Concept in which he discusses some misconceptions surrounding the Natural Capital concept. One common misconception is evidenced in Dieter Helm's report The State of Natural Capital: Restoring our Natural Assets:

As the White Paper rightly emphasized, the environment is part of the economy and needs to be properly integrated into it so that growth opportunities will not be missed.

Here is Daly's observation on what is wrong with this statement:

If the Chairman of the UK Natural Capital Committee gets it exactly backwards, then probably others do too. The environment, the finite ecosphere, is the Whole and the economic subsystem is a Part – a completely dependent part. It is the economy that needs to be properly integrated into the ecosphere so that its limits on the growth of the subsystem will not be missed. Given this fundamental misconception, it is not hard to understand how other errors follow, and how some economists, imagining that the ecosphere is part of the economy, get confused about valuation of natural capital.

The field of ecological economics exists because there is so little mainstream recognition in economics of the overriding importance of natural capital in providing any wealth that we enjoy. Howard Odum was a pioneer in this field of ecological economics and I think it is worth noting in his diagram the need for "Payments for Restoring Natural Capital" and the use of these payments to reinforce "Nature's Work Producing Resources". Are we making "Payments for Restoring Natural Capital"? How should these payments be determined and who should pay?

If you want to further explore the complex issue of pricing natural capital then I would encourage you to watch George Monbiot's provocative lecture on Natural Capital called "The Price of Everything".