Saturday, September 14, 2013

A defining moment

A couple days ago I was looking for a concise definition of an ecosystem for a class. As a first stop, I checked with Wikipedia, and what I found seemed reasonable:
An ecosystem is a community of living organisms (plants, animals and microbes) in conjunction with the nonliving components of their environment (things like air, water and mineral soil), interacting as a system. These biotic and abiotic components are regarded as linked together through nutrient cycles and energy flows. As ecosystems are defined by the network of interactions among organisms, and between organisms and their environment, they can come in any size but usually encompass specific, limited spaces (although some scientists say that the entire planet is an ecosystem).
To contrast it with an economy, if you go to Wikipedia's entry for that term, you learn that:
An economy consists of the economic system, comprising the production, distribution or trade, and consumption of limited goods and services between two agents, the agents can be individuals, businesses, organizations, or governments. Transactions only occur when both parties agree to the value or price of the transacted good, commonly expressed in a certain currency.
Hmm, that seems both a little opaque and a little too much assuming a market, to the exclusion of other ways of doing things that do actually exist. Fortunately, the words "economic system" were a link, to another Wikipedia page, which explains that:
An economic system is a system for producing, distributing and consuming goods and services, including the combination of the various institutions, agencies, consumers, entities (or even sectors as described by some authors) that comprise the economic structure of a given society or community. It also includes how these various agencies and institutions are linked to one another, how information goes between them, and the social relations within the system (including property rights and the structure of management). A related concept is the mode of production.
That's more useful, but it occurred to me that, with appropriate substitutions, their definition of an ecosystem could also serve pretty well as a definition of an economy:
An economy is a collection of human organizations (households, companies, governments, and associations) in conjunction with the natural resource base, interacting as a system. These human and non-human components are regarded as linked together through flows of matter and energy, coordinated by social norms, money, contracts, and regulations and law. As economies are defined by the network of interactions among human groups, and between human groups and natural resources, they can come in any size, but we often measure economies bounded by the borders of nation-states (although globe-spanning links have existed for centuries, and have grown much stronger since World War II).
The funny thing is, after years of chipping away at the work of melding macroeconomics with an ecological perspective, it was just a few days ago that a thought drifted through my mind, and I realized I finally had a concise definition of what it is I've been trying to do:
The economy is a biophysical process by which we provision ourselves, subject to physical laws and following ecological principles. Economics, properly understood, is the study of the social structures that control and coordinate that biophysical process.
Oddly enough, my adaptation of Wikipedia's definition of an ecosystem ends up as something like an extended version of the definition I'd come to only a couple of days earlier.

The business about it being a biophysical process is simply a reflection that any economic action has physical consequences or prerequisites. If you bought a TV, a whole series of physical actions happened, with resources being pulled out of the ground, being transformed using energy derived from other resources that have been pulled out of the ground, put on a ship, brought to the store, etc. In macroeconomics we focus on somewhat abstract aggregates of spending: consumption expenditure, investment expenditure. But every time money is laid out, something physical either already happened or is now going to happen.

This doesn't mean that economics is ecology. That's what the second sentence is for: What makes it economics is the focus on the social structures of control and coordination.

Nor does it mean that you can never do economics without taking environmental factors into account. For one thing, microeconomics can generally ignore them (unless of course you're doing environmental economics).

And there can be situations in macro where the physical environment responds in familiar ways to the actions your society undertakes, in which case you can actually ignore the environment.

But macroeconomics is the study of the system as a whole, the study of the process by which a society produces its total output. And environmental factors are a fundamental part of that process. If you don't understand how they're linked, you're going to get things seriously wrong when environmental conditions start changing.

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