Chapter 3: Is Human-Made Capital an Adequate Long-run Substitute for Natural Capital?
INTRODUCTION Consideration of the critical role played by natural capital is not a recent phenomenon. Concern about impending resource scarcity was expressed as far back as 1798 by Thomas Malthus (Malthus, 1798 ). Since then, the economic importance of natural capital has been revisited many times. Perhaps the ﬁrst large-scale empirical analysis was undertaken by Barnett and Morse (1963). Using the unit cost of extractive resource output as a principal measure of resource scarcity, Barnett and Morse concluded that natural resources generally became more plentiful in the USA over the period 1870 to 1957.1 Without trying to deny the signiﬁcance of Barnett and Morse’s contribution, Smith (1978) later revealed the theoretical and empirical limitations of their approach. Similar criticism emerged elsewhere raising serious doubts about the use of resource prices and unit extraction costs as resource scarcity indexes (e.g., Daly, 1979 and 1996; Brown and Field, 1979; V.K. Smith, 1979; Slade, 1982; Hall and Hall, 1984; Norgaard, 1990; Bishop, 1993; Lawn, 2000). Following the ‘limits to growth’ concerns in the late 1960s and early 1970s, two alternative approaches were undertaken to reassess the importance of natural capital in sustaining real output – one by Meadows et al. (1972) and another by Nordhaus and Tobin (1972). In what is often referred to as the Club of Rome Report, Meadows et al. employed ‘doomsday models’ to investigate the ecological limits to growth and the potential for technological change to remove such limits. They concluded that, left unchecked, humankind would soon deplete the...
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