Advances in Ecological Economics series
Chapter D.: Real-world economics
Well-established words can be misleading. In economics ‘production and consumption’ are such common terms that it is easy to forget that they do not really mean what they literally say. Physically we do not produce anything; we just use energy to rearrange matter into a more useful form. Production really means transformation of what is already here. Likewise, consumption merely reflects the disarrangement of carefully structured materials by the wear and tear of use into a less useful form – another transformation, this time from useful product into worn out product and waste. Of course one might say that we are producing and consuming ‘value’ or ‘utility’, not really physical things. However, value is always added to something physical, namely resources, by labor and capital, which are also physical things ultimately made from the same low-entropy energy and materials that go into products. Nor does the service sector escape physical dimensions. Services are always rendered by something or somebody. To abstract from physical dimensions and focus only on utility is to throw out the baby and keep the bathwater. If we were to speak of a ‘transformation function’ rather than a production function then we would naturally have to specify what is being transformed, into what, by the agency of what? Natural resource flows are transformed into flows of goods (and wastes) by the fund agents of labor and capital.
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