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Macroeconomics and the Environment

Essays on Green Accounting

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.
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Chapter 4: Income, capital and wealth

Essays on Green Accounting

Salah El Serafy


Income is a difficult quantity to define and problematic to measure. Capital is even worse; and yet both are important concepts with which economists and accountants have to struggle. Their relevance to national accounting is obvious for they directly impinge on the estimations of the macroeconomic values that are read from national income. Controversy surrounds discussion of both quantities, and yet, the meaning of both concepts has been fairly clear for some considerable time. This is not to say that either of them, especially capital, is yet free from debate. Disputes have also surrounded a capital-related quantity, ‘wealth’, which has received much attention in environmental economic discussions of late. A source of some confusion is that wealth in classical economics often meant a flow of income. The recent popularity of the stock of wealth derives from the claim that it is superior to income as an indicator of welfare – a claim that can hardly be disputed. But welfare is not the primary reason, or even the reason, why national income is estimated.

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