Macroeconomics and the Environment

Macroeconomics and the Environment

Essays on Green Accounting

Advances in Ecological Economics series

Salah El Serafy

Though scientists and environmentalists have long expressed concern over the rapid deterioration of the global environment, economists have largely failed to recognize the issue’s relevance to their field. Salah El Serafy argues for an increased focus on the economic aspects of environmental degradation, calling for a fundamental shift in how economists measure and discuss national income.

Chapter 5: Rent and royalty

Salah El Serafy

Subjects: economics and finance, environmental economics, international accounting, environment, ecological economics, environmental economics

Extract

In the literature on environmental economics there is a prevailing tendency to refer to surpluses realized in natural resource extraction as ‘rent’, sometimes specified as ‘resource rent’. In Solow’s (1974) seminal article on ‘The economics of resources or the resources of economics’ he used the more precise expression ‘scarcity rent’ to denote what I interpret as my user cost. But rent seems to be a common appellation used in the literature without reflection. There is nothing fundamental against such a language if taken as a broad-brush expression, but for economic analysis, and specifically for national accounting, it has spelled confusion. For economists ‘rent’ connotes income or value added and thus warrants being included in GDP. Chiefly since Ricardo, rent is taken as a surplus accruing to the owners of land employed as a factor of production and does not constitute a cost of the produce that the land yields. It can be determined only ex post after the value of the product had been set by the market, and it is the latter value that determines rent not vice versa. Marshall (1920), of course, extended the concept of rent and introduced the notion of ‘quasi rent’ applicable principally, but not exclusively, to machinery that becomes temporarily in short supply – an appellation later adopted by Keynes in his General Theory.

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