Early Economists’ Views on Resources

It might look a little odd to start the explanation of resources economics from the Physiocrats, since they paid attention mostly to land, although they occasionally referred to other resources such as mines.

Yet, it must be noted that both resources in a broad sense and environmental resources were the basis of their argument, however implicit it might have been. Their fundamental idea is that the order of nature prevails and controls an economy. They were convinced that human beings cannot create value via economic activities against the natural order.

The primary result of this thinking is that land is the ultimate resource, which is able to produce surplus, and the basis of all the wealth owned by people. Hence, the value of all the produced materials was considered to intrinsically come from land and labour, not from precious metals as the mercantilists had contended. Agricultural activities were, therefore, the only source of value for them.

They were also interested in how the surplus produced by agricultural activities was distributed among social classes. In the exploration of the distribution process, Quesnay, the leading Physiocrat, analysed the interdependency of economic sectors by means of an economic table. This idea is akin to a study of reproducibility of an economy, which was inherited by classical economists as well as modern classical ones represented by Sraffa (1960). Reproducibility of an economy based upon land and labour as the essential sources of value is nothing but sustainability in a modern sense.

The classical economists started from the basic idea of value of the Physiocrats, but developed it in certain directions so that they could take into account the development of the industrial sector.

For the classical economists and the Physiocrats, neither environmental nor natural resources were as important as land or labour as the source of value. For those econo­mists in the early days, the natural environment as well as natural resources, apart from land, appeared to be available in abundance. Only a few economists contemplated the finiteness of the natural environment (see below).

The classical economists saw essentially only one natural resource as constraining production and population growth: arable land. Diminishing returns in agriculture were seen to put a limit to economic development and growth, which could only be overcome by improvement, that is, technical change, as it was contemplated by Ricardo in the Principles (1817 [1951]: ch. 2). Diminishing returns in agriculture were reflected in terms of differential rents paid to the proprietors of the more fertile plots of all the different qualities of land cultivated, whereas on the least fertile plot amongst them (so-called “marginal land”) no rent was paid.

If agricultural production was subject to diminishing returns, the limited amount of arable land would not sustain a growing population. This was the main point made by Malthus (1798). He derived from casual empirical observations that agricultural produc­tion did not grow as fast as population tended to grow, so that there was a tendency of overpopulation and misery. Malthus’s view was however proved wrong: agricultural production began to increase faster than population, thanks to improvements in agri­cultural technology.

Some aspects of Malthus’s pessimistic view, which led to the definition of economics as “the dismal science” (Carlyle 1849), were adopted by J.S. Mill (1848). He clearly noticed the exhaustible nature of some natural resources, although he somehow optimistically considered this as not causing any problem due to technical progress. At the same time he did not consider that an economy would grow forever: he argued that it was bound to eventually arrive at a stationary state someday, owing to the constraints of resources in a broad sense, whatever they might be. One of his remarkable views was that such a sta­tionary economy was not necessarily a bad thing, but might bring about real wellbeing of people. He thus dispensed with vulgar materialism, which became prominent in the course of the Industrial Revolution.

Another author who saw limits to economic growth was William S. Jevons (1865). In the midst of the Industrial Revolution, Jevons (1865) stressed that the economic pros­perity of Britain at that time depended heavily upon consumption of coal as an energy source (see Martinez-Alier 1987). Interestingly, he noticed that the Industrial Revolution presupposed essentially an energy revolution (see Wrigley 1988). Based upon this obser­vation, he opined that economic growth would be constrained by the production of coal, an exhaustible resource. His anticipation turned out to be wrong, also: coal has not been exhausted since his time and other natural resources have been found that can replace it. Contrary to his anticipation, coal is supposed to be available for the next 300 years.

In short, population growth, a lack of agricultural products owing to diminishing returns or a shortage of coal have not brought economic growth and development to a standstill. This is one of the reasons why resource and environmental constraints have not been taken into account in most economic analyses for a long time.

Also, Karl Marx (1894) did not worry about the natural environment as a potential constraint of economic development and expansion. Although he critically pointed out the environmental destruction, which a capitalist economy necessarily brought about, he seemed optimistic about a new classless society in which such destruction was sup­posed to be prevented, unlike in a capitalist economy. Furthermore, he believed that the progress of science would relieve human beings from environmental and resource constraints (Robinson 1989; Kula 1998).

A common feature of economists in the early days is that they were first and foremost concerned with the reproduction of a capitalist economy at a constant or upward- spiralling trajectory. Thus, income distribution and price formation, which guarantee reproducibility of an economy, were fully explored. In conditions of free competition, profits would be obtained according to a uniform rate on the capital invested in each sector. This idea can be generalized to cover the modern concept of sustainability in which environmental resources are explicitly taken into account.