Sustainable Development: From Concept and Theory to Operational Principles

Author(s): Herman E. Daly

Source: Population and Development Review, Vol. 16, Supplement: Resources, Environment,
and Population: Present Knowledge, Future Options (1990), pp. 25-43
Published by: Population Council
Stable URL: http://www.jstor.org/stable/2808061 .
Accessed: 03/09/2013 03:38

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp

.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.

Population Council is collaborating with JSTOR to digitize, preserve and extend access to Population and
Development Review.

http://www.jstor.org

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
SustainableDevelopment:From
Conceptand Theoryto
OperationalPrinciples

HERMAN E. DALY

THREE CONCEPTUALISSUES SEEM TO ME CRITICALfor clear thinkingabout eco-

nomicdevelopmentand the environment in thenextdecade. Afterstating
the threeissues briefly, I will elaborateeach one in turn,along with the
relationsamongthem.
The firstissue is whetherthe basic conceptualstartingpointof eco-
nomicanalysisshouldbe thecircularflowofexchangevalue, as itpresently
is, or theone-wayentropicthroughput ofmatter-energy. The latterconcept
is virtuallyabsentfromeconomicstoday,yetwithoutit it is impossibleto
relatetheeconomyto theenvironment. Itis as ifbiologytriedtounderstand
animalsonlyin termsoftheircirculatory system,withno recognition ofthe
factthattheyalso have digestivetracts.The metabolicflowis not circular.
The digestivetractfirmlyties the animal to its environment at both ends.
Withoutdigestivetractsanimalswould be self-contained perpetual-motion
machines.Likewiseforan economywithoutan entropicthroughput.
The second issue is to distinguish two dimensionsof thethroughput:
itsscale and itsallocation.The conceptofoptimalallocationamongalterna-
tive uses of the total resourceflow (throughput) must be clearlydistin-
guishedfromtheconceptofan optimalscale oftotalresourceflowrelativeto
the environment. Underideal conditionsthe marketcan findan optimal
allocationin thesenseofPareto.Butthemarketcannotfindan optimalscale
any morethan it can findan optimaldistribution. The latterrequiresthe
additonofethicalcriteria;theformer requiresthefurther additionofecolog-
ical criteria.The independenceofallocationfromdistribution is widelyrec-
ognized;theindependenceofallocationfromscale is notwidelyrecognized,
butis easilyunderstood.'In theorywhetherwe double thepopulationand
the per capita resourceuse rate,or cut themin half,the marketwill still
grindout a Paretooptimalallocationforeveryscale. Yet the scale of the
economyis certainlynota matterofindifference. A boat thattriesto carry

25

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
26 SUSTAINABLE DEVELOPMENT

too much weightwill stillsink even if thatweightis optimallyallocated.

Allocationis one thing,scale is somethingelse.We mustdeal withboth,lest
eventheefficiently allocatedweightoftheeconomysinktheenvironment.
Weneed something likea Plimsolllinetokeeptheeconomicscalewithinthe
ecologicalcarryingcapacity.In tryingto reducescale issues to mattersof
allocation(justgetthepricesright),economicshas greatlyobscuredtherela-
tionbetweenthe economyand theenvironment. While an optimalalloca-
tioncan resultfromthe individualistic marketplace,the attainmentof an
optimalscale will requirecollectiveactionbythecommunity.
The thirdissue,how to attainsustainabledevelopment, is alreadyun-
der intensediscussion.Followingthe reportof the WorldCommissionon
Environment and Development(OurCommon Future)the concepthas been
endorsedbytheUnitedNationsand all itsmanydevelopmentagencies,and
urgedupon all membercountries.Nevertheless thereremainsconsiderable
confusionas to the meaningof sustainabledevelopment.Underlyingthis
confusionis theunresolved,indeedunaddressed,issueofsteadystateversus
growthas the normal, healthyconditionof an economy. Economists'
growth-bound way ofthinking makesithardforthemto admittheconcept
ofthroughput ofmatter-energy, because itbringswithitthefirst and second
laws ofthermodynamics, whichhaveimplications thatareunfriendly tothe
continuousgrowthideology.The circularflowraisesno suchproblems.The
growthideologyis extremely attractivepoliticallybecauseitoffers a solution
topoverty withoutrequiring themoraldisciplinesofsharingand population
control.Also theobviousimplicationofrecognizing an optimalscale is that
growthshouldstoponce the optimumis reached-thatgrowthbeyondthe
optimumscale is "anti-economicgrowth,"thatis, growththatmakes us
poorerratherthan richer.Optimalallocationhas no such growth-limiting
implications.
The threeissuesI am raisingare notdifficult,
arcane,or esoteric-they
areno morethancommonsense-but itis hardforus to thinkclearlyabout
thembecausedoingso threatens theabsolutepriority ofgrowthas theNorth
Starofeconomicpolicy.Althoughthethreeissuesareseparabletheyarealso
clearlyrelated.Once throughput is recognizedas a fundamentaland indis-
pensableconcept,thenthequestionofitsoptimalscale withina finiteeco-
systemnaturallyarises, along with the recognitionthat the question is
differentfromthatofoptimalallocation.Once we facethequestionoflimit-
ing scale, we recognizethe collectiveor social natureof the task and the
ofleavingit up to theindividualismofthemarket,which can only
futility
deal with allocation.We also confrontthe problemof criteriaforoptimal
scale,themostobviousofwhichis sustainability. The discussionofsustain-
able development will notgetfarwithouttherecognition ofthroughput and
theproblemofitsscale.
Much confusioncould be avoided ifwe would agreeto use theword
"growth"to referonlyto thequantitative scale ofthephysicaldimensionsof

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
HERMAN E. DALY 27

the economy.Qualitativeimprovement could be labeled "development."2

Thenwe could speak ofa steady-state
economyas one thatdevelopswith-
outgrowing,justas theplanetEarth,ofwhichtheeconomyis an open sub-
system,develops without growing.Growthof the economic organism
means largerjaws and a biggerdigestivetract.Developmentmeans more
completedigestionand wiserpurposes.Limitstogrowthdo notimplylimits
to development.

Entropicthroughputofmatter-energy
versusthe
circularflowofexchangevalue
NicholasGeorgescu-Roegen (1971) has pointedto "the standardtextbook
representation of theeconomicprocessby a circulardiagram,a pendulum
movementbetween productionand consumptionwithin a completely
closed system,"as proofof the mechanisticepistemologyof moderneco-
nomics.Thereis onlyreversible motion,a circularflow,and no recognition
ofirreversibleentropicchange.Thereis onlymechanicaltime,no historical
time.This does not mean thateconomistsdenyhistoricaltimeor the en-
tropylaw, but it does mean thattheycannotdeal with themat the most
basic conceptuallevelofeconomics,and have to introducethemin ad hoc
and unintegrated ways outsidethe structure of formalmodels-that is, as
externalities.
In additionto the inabilityof the mechanisticepistemologyto em-
braceirreversiblephenomena,therewas a practicalreasonforignoringthe
entropicthroughput. Economistsare interested in scarcity,and duringthe
formative yearsofeconomictheorytheenvironment was consideredan in-
finitesourceofrawmaterialsand an infinite sinkforwastematerials.There-
forethethroughput was notconsideredscarceand was naturallyabstracted
from.Onlyscarceitemsenteredintoexchange.Freegoods were appropri-
atedwithoutneed ofa transaction.Sinceexchangevalue flowedin a circle,
thecircularflowbecame theparadigmwithinwhich theeconomicprocess
was analyzed. Once the economyreachedthe scale at which throughput
itselfbecame scarce,thenthecircularflowvisionbecame economically,as
well as physically,misleading.It totallyobscuredthe emergingscarcityof
environmental services.The circularflowhas no beginningand no end, no
pointsof contactwith anythingoutsideitself.Therefore it cannotpossibly
registerthe costsof depletionand pollution,nor the irreversible historical
effectsinducedbytheentropicnatureofthethroughput.
The conceptofthroughput was introducedintoeconomicsbyKenneth
Boulding(1966) and more fullyelaboratedand integratedinto economic
theorybyGeorgescu-Roegen (I1971),who calleditthe"metabolicflow"and
emphasized the manifold consequences of its entropicnature. Others
(Kneese,Ayres,and d'Arge,1970) have paid respectto theconceptby em-

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
28 SUSTAINABLE DEVELOPMENT

phasizingtheimportanceof "materialbalances,"thusrecognizing thecon-

strainton the economicprocessof the firstlaw of thermodynamics, but
neglectingthatofthesecondlaw. The first law is consistent
withthecircular
flowvision:thesame indestructible buildingblocksofmatter-energy could
simplycycle fasterand fasteraround the production-consumption loop.
Nothinggetsused up. But thesecond law saysthatsomethingdoes indeed
get used up-not matter-energy itself,but its capacityforrearrangement.
Energyis conserved,but itscapacityto do workis used up. To myknowl-
edgeno economicstextbookhas addressedanyoftheseimportant contribu-
tions.Insteadtheyperpetuatethecircularflowvisionwithoutso muchas a
referenceto the conceptof throughput.3 Naturally,if the veryconceptof
throughput is notadmitted,itwill be impossibleto considertheissue ofits
optimalscale,a themeto whichwe now turn.4

Optimalallocationversus
optimalscale
Standardeconomicsconcernstheoptimalallocationofresources,whichin
thisbroadsenseincludeslabor and capitalas well as naturalresources.But
naturalresourcesarenotviewedas thecomponentsofan entropicmetabolic
flowfromand back to the environment. Rathertheyare seen as building
blocks thatare indestructible elementsin the circularflow.5Allocationof
theseelementsamong competinguses is the only questionraisedforstan-
dardeconomicsby itspartialrecognition ofthroughput. As mentionedear-
liera Paretooptimalallocationcan be achievedforany scale ofpopulation
and per capitaresourceuse. The conceptofeconomicefficiency is indiffer-
entto thescale oftheeconomy'sphysicaldimensions,just as itis indifferent
to thedistribution ofincome.Equityofincomedistribution and sustainabil-
ityofscale are outsidetheconceptofmarketefficiency. Yettheenvironment
is sensitiveto thephysicalscale oftheeconomy,and humanwelfareis sensi-
tiveto how well theenvironment functions.To optimallyallocateresources
at a nonoptimalscale is simplyto make the best of a bad situation.If the
economycontinuesto growbeyondoptimalscale, thenoptimalallocation
means simplyto make thebestof an ever-worsening situation.Thisanom-
aly is absentfromthecircularflowvision:iftheeconomyis an isolatedsys-
temwithno dependenceon its environment, thenit can neverexceed the
capacityoftheenvironment. Itsscale relativeto theenvironment is a matter
of completeindifference. But once we recognizethe centralimportanceof
thethroughput, we mustconcernourselveswithitsoptimalscale as well as
itsoptimalallocation.
Optimalscale of a singleactivityis not a strangeconceptto econo-
mists.Indeedmicroeconomics is aboutlittleelse.An activityis identified,be
it producingshoes or consumingice cream.A cost functionand a benefit
functionfortheactivityin questionare defined.Good reasonsare givenfor

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
HERMAN E. DALY 29

believingthatmarginalcostsincreaseand marginalbenefitsdeclineas the

scale oftheactivitygrows.The messageofmicroeconomics is to expand the
scale of theactivityin questionup to thepointwheremarginalcostsequal
marginalbenefits,a conditionthatdefinestheoptimumscale. All ofmicro-
economicsis an extendedvariationon thistheme.
When we move to macroeconomics,however,we no longerhear
about optimalscale. Thereis no optimalscale forthe macroeconomy,and
no costand benefitfunctions are definedforgrowthin scale oftheeconomy
as a whole. It simplydoes not matterhow manypeople thereare, or how
much theyconsume.But ifeverymicroactivityhas an optimalscale then
whydoes theaggregateofall microactivitiesnothave an optimalscale?IfI
am toldin replythattheconstraint on anyone activityis thefixityofall the
othersand thatwhen all economic activitiesincreaseproportionally the
constraints cancel out,thenI will invitetheeconomistto increasethescale
of thecarboncycleand thehydrologic cyclein proportionto thegrowthof
industryand agriculture. I will admit thatif the ecosystemcan growin-
definitely thenso can the aggregateeconomy.But untilthe surfaceof the
Earthbeginsto growat a rateequal to the rateof interest, one shouldnot
takethisanswertoo seriously.The totalabsence in macroeconomicsofthe
mostbasic conceptof microeconomicsis a glaringanomaly,and it is not
resolvedby appeals to the fallacyof composition.What is trueof a partis
notnecessarilytrueforthewhole, but it can be and usuallyis unlesssome
aggregateidentityor self-cancelling feedbackis at work. (As in the classic
example of all spectatorsstandingon tiptoeto get a betterview and each
cancellingout thebetterview oftheother;or in theobservationthatwhile
anysinglecountry'sexportscan be greaterthanitsimports,nevertheless the
aggregateof all exportscannot be different fromthe aggregateof all im-
ports.)Butwhat analogousfeedbackor identityallows everyeconomicac-
tivityto have an optimal scale while the aggregateeconomy remains
indifferent to scale?
In thecircularflowvisionthereis an aggregateidentity:totalexpendi-
turesequal totalreceipts;one person'sexpenditureis anotherperson'sin-
come. Costs and benefitsare conflatedin transactions.In circularflow
accountingwe add up transactions ratherthancomparecostsand benefits
at themargin,so thequestionofan optimalscale ofthecircularflownever
arises.It is thethroughput thathas an optimalscale. When growthpushes
scale beyondthe optimum,we experiencegeneralizedpervasiveexternal-
ities,such as the greenhouseeffect,ozone layerdepletion,and acid rain,
whicharenotcorrectable byinternalizationoflocalizedexternalcostsintoa
specificprice.
Probablythebestindexofthescale ofthehumaneconomyas a partof
the biosphereis the percentageof human appropriationof the totalworld
productsofphotosynthesis. Netprimaryproduction(NPP) is theamountof
solarenergycapturedin photosynthesis by primaryproducers,less theen-

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
30 SUSTAINABLE DEVELOPMENT

ergyused in theirown growthand reproduction. NPP is thusthebasic food

resourceforeverything on Earthnot capable of photosynthesis. PeterVi-
touseket al. (1986) calculatethat25 percentof potentialglobal (terrestrial
and aquatic)NPP is now appropriatedby humanbeings.6Ifonlyterrestrial
NPP is consideredthe fractionrisesto 40 percent.Takingthe 25 percent
figurefortheentireworlditis apparentthattwo moredoublingsofthehu-
man scale will give 100 percent.Since thiswould mean zero energyleftfor
all nonhumanand nondomesticated species,and sincehumanscannotsur-
vivewithouttheservicesofecosystems, whicharemade up ofotherspecies,
itis clearthattwomoredoublingsofthehumanscale is an ecologicalimpos-
sibility,althougharithmeticallypossible.More thantwo doublingsexceeds
100 percent.Furthermore figureof 40 percentis probably
the terrestrial
morerelevantsincewe are unlikelyto substantially increaseour takefrom
the oceans. Totalappropriationof the terrestrial
NPP is only slightlymore
thanone doublingtimein the future.Perhapsit is theoretically possibleto
increasethe Earth'stotalphotosynthetic capacity,but the actual trendof
pasteconomicgrowthis decidedlyin theoppositedirection.
Assuminga constantlevel of per capita resourceconsumption,the
doublingtimeofthehumanscale would equal thedoublingtimeofcurrent
worldpopulation,which is on the orderof 40 years.Of courseeconomic
growthcurrently aims to increaseaverageper capitaresourceconsumption
and consequentlyto reduce the doublingtimeof the scale of the human
presencebelow thatimplicitin thedemographicrateofgrowth.
As growthincreasingly turnspreviouslyfreegoods intoscarcegoods,
thestandardsolutionis to imposepositivepriceson thenewlyscarcegoods.
Once a good has becomescarceitis important thatithavea positivepricein
orderto be properlyallocated. But thereis a priorquestion:How do we
know thatwe werenot betteroffat thepreviousscale when thegood was
freeand itsproperpricewas zero?In bothinstancesthe priceswereright.
But thatdoes not mean thatthe scale was right.Furthermore, thenew ex-
changevalue createdwhen previouslyfreegoods become scarcereflects a
cost,nota benefitas currentlyreckoned.The classicaleconomistLauderdale
recognizedthatprivaterichescould expand while publicwealthdeclined.
This perversitywill occurwheneverformerly abundantobjectswithgreat
use value,butno exchangevalue,becomescarceand thusacquireexchange
value. Althoughscarcityis necesssaryforvalue in the sense ofmeasurable
exchangevalue, "thecommonsenseofmankindwould revoltat a proposal
foraugmentingwealthby creatinga scarcityof any good generallyuseful
and necessaryto man."7The revolthas been slow in coming,butletus hope
thatLauderdalewas right.
Some economistsarguethatfuturesmarketsand presentvalue maxi-
mizationautomaticallydeal withthescale issue because thecostsofexces-
sivescale aremerelythefuturecostsofthepresentuse ofresources.Buteven
in a single-periodanalysisin which no futureis assumed,thereis stillthe

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
HERMAN E. DALY 31

possibilityof exceedingoptimalscale by sacrificing currentecosystemser-

vices thatare worthmorethan the currentextraeconomicproductwhose
productionrequiredthesacrificeofthoseservices.It is truethatmanyofthe
costsofincreasingscale do fallon thefuture. Butneitherpresentvalue maxi-
mizationunder assumptionsof perfectknowledgeand foresight, nor an
imaginaryfuturesmarket,is adequate fortakingaccount of these future
costs (Page, 1977).8 If Archimedeshad had a fulcrumand a long enough
leverhe could have movedtheEarth.But an abstractprincipleis no substi-
tuteforan operationalprocedure.
Optimalallocationat least has a definition, howeverrestrictive and
limiteditsrelevancemaybe. Buthow do we defineoptimalscale?Thisques-
tiondemandsnot only much greaterknowledgeof carryingcapacityand
ecologicalrelations,but also much clarification and deeperunderstanding
ofourown purposes.Many economistsavoidthescale questionbyrejecting
theconceptofcarrying capacityon thegroundsthatitis notclearlydefined.
Butby thatcriterion theyshouldalso refuseto talkabout "time,"one ofthe
mostdifficult conceptsto define.Some say timeis absolute,otherssay it is
relative,stillothersinsistthatit is pureillusion.Even "money"shouldnot
be spokenof,sincewhat is reallymoney,MI or M2? or MIA? One of the
temptations of debate is to demand an unreasonablestandardofprecision
forconceptsthathave troublesomeimplicationsforone's position,while
beingless demandingin thecompanyofconceptsknownnotto raiseimpo-
litequestions.But thereis one thingwe know about the optimalscale: it
mustat leastbe sustainable.So forthetimebeingwe can devoteour practi-
cal policiestowardsustainability, while we puzzle overthe deeper philo-
sophicalissuesofoptimalscale.
One further criterionforoptimalscale,suggestedindirectly byPerrings
(1987), is thattheeconomybe small enoughto avoid generating feedbacks
fromthe ecosystemthatare so noveland surprising as to rendereconomic
calculationimpossible.Perringsbeginswiththefirstlaw ofthermodynam-
ics, pointingout thatan increasingthroughput (exactionsand insertions in
his language)provokesevergreaterfeedbacksfromtheenvironment (exter-
nal costs)as the scale of exactionsand insertionsgrows.Since we do not
understandtheecosystemverywell, thefeedbacksfromitprovokedby our
actionscome as surprisesto us. These surprisesare nearlyalwaysunpleas-
antones, sincerandominterference in a complexsystemnearlyalwaysdis-
ruptsthe functioning of the system,and since our welfaredependson the
properfunctioning of the system.Noveltyand surprisebeginto outweigh
thecalculatedprojectionsofthecostsand benefitsoftheincreasingscale of
our activities.We can reactto thisloss ofpredictability in twoways: (1) in-
crease the of
sphere controlso as to internalizethe "surprises"(Boulding's
imageof the spaceman economyin which the entirelifesupportsystemis
plannedand controlled-thatis, everything is economyand nothingis en-
vironment, leadingto what we mightcall "full-worldeconomics");or (2)

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
32 SUSTAINABLE DEVELOPMENT

decreasethescale of human interference to such a levelthattheecosystem

can functionon "automaticpilot" (Boulding'simage of the cowboyecon-
omy in which nearlyeverything is environment, and sinksare automati-
cally recycled into sources without any planning by the cowboy-
"empty-world economics"). Our abilityto centrallyplan economiesdoes
not inspireoptimismabout the likelihoodof our success in the vastly
moredifficulttaskofplanningtheecosystem.One ofthemaincriteriaforan
optimalscale,therefore,is thattheeconomybe smallenoughto avoidunman-
ageable interference with the "ecological invisiblehand" or automatic
pilot.Ecologicallaissez fairerequiressocial controlof the scale of the eco-
nomicsubsystem.

Sustainabledevelopment
The value ofsustainability
is so basic thatitis usuallytacitlyassumedin our
economicthinking.Sustainability is builtintotheveryconceptofincome.
J.R. Hicks(1946: 172) definedincomeas themaximumamountthata per-
son or a nationcould consumeoversome timeperiodand stillbe as well off
at the end of the periodas at the beginning.Hicksfurther arguedthatthe
practicalreasonforcalculatingincomeis to have a guideto how muchwe
can consumeyear afteryearwithouteventuallyimpoverishing ourselves.
Incomeequals maximumsustainableconsumption.
Lack ofa precisedefinition of "sustainabledevelopment"is notwith-
out benefit.It has allowed a considerableconsensusto evolvein supportof
the main idea thatit is both morallyand economicallywrongto treatthe
worldas a businessin liquidation.Ifdevelopmentis to be themajorpolicy
goal ofnations,thenitshouldmean somethingthatis generalizablebothto
all membersofthepresentgenerationand to manyfuturegenerations.The
popularityof the notionof sustainabledevelopmentderivesfromthe in-
creasingrecognition thatpresentpatternsofeconomicdevelopmentare not
generalizable.Presentlevelsofper capitaresourceconsumptionunderlying
the economiesof the UnitedStatesand WesternEurope (whichis what is
generally'understood bydevelolpment) cannotbe generalizedto all currently
livingpeople, much less to futuregenerations, withoutdestroying the eco-
logical sources and sinks on which economic activitydepends.9 The
BrundtlandCommissionReport(WorldCommissionon Environment and
Development,1987) was wise not to foreclosetheemergenceof thisvague
butimportant consensusby insistingon a preciseanalyticaldefinition from
theoutset.
Butthetermis now in dangerofbecomingan emptyshibboleth.For
example,manypeople in the developmentcommunitywho use the term
cannot specifywhat is being sustained in sustainable development-
whethera levelofeconomicactivityor a rateofgrowthofeconomicactivity.

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
HERMAN E. DALY 33

Some, therefore, have become impatientwith the concept and want to

abandonit.Thatwould be a greatmistake.Afterall we do nothavea precise
definitionof moneyeither,but we certainlycannotabandon the concept.
Nor is incomea preciseconcept,yetin practicalaffairswe can hardlydo
withoutit. Even thoughwe mustnot expectanalyticalprecisionin reason-
ingwithdialecticalconcepts,it is nevertheless possibleand verynecessary
to clarifythe notionof sustainability and to offera fewfirstprinciplesof
sustainabledevelopment.
Two termsare frequently used moreor less synonymously: "sustain-
able growth"and "sustainabledevelopment." EarlierI suggestedthefollow-
ingdistinction: that"growth"referto expansionin thescale ofthephysical
dimensionsof the economicsystem,while "development"referto qualita-
tivechangeof a physicallynongrowingeconomicsystemin a stateof dy-
namic equilibriummaintainedby its environment. By this definition the
Earthis notgrowing,butitis developing.Anyphysicalsubsystem ofa finite
and nongrowingEarth must itselfalso eventuallybecome nongrowing.
Thereforethe termsustainablegrowthimpliesan eventualimpossibility,
whilethetermsustainabledevelopmentdoes not.Itis development thatcan
have theattribute ofsustainability,
notgrowth.Whatis beingsustainedis a
level,nota rateofgrowth,ofphysicalresourceuse. Whatis beingdeveloped
is thequalitativecapacityto convertthatconstantlevelofphysicalresource
use (throughput) intoimprovedservicesforsatisfying humanwants.
The conceptof sustainability is by no means new in economics,al-
thoughthe word is. As noted earlier,sustainability is implicitin Hicks's
definitionofincomeas themaximumamountthata personor community
could consumeoversome timeperiodand stillbe as well offat theend of
theperiodas at thebeginning.Remainingequallywell offmeansmaintain-
ingcapitalintact,or maintainingthewealthand populationofthecommu-
nity. Growth in Hicksian income is by definitionsustainable. Any
consumptionthatis not sustainablecannotbe countedas income.Exploit-
ingrenewableresourcesat a profit-maximizing sustainableyieldis an appli-
cationoftheHicksianconceptofincometo resourcemanagement.
How, then,can therebe a problemoflack ofsustainability ifthatno-
tionis implicitin theveryconceptofincome?The problemis thatthecapital
we have endeavoredto maintainintactis manmade capitalonly.Thereis
also theimportant unappreciatedcategoryofnaturalcapital-
butrelatively
naturalstocksthatyield flowsof naturalresourcesand serviceswithout
whichtherecan be no production.'0 In practicewe do notmaintainnatural
capitalconstantin theprocessofproduction,and consequentlythenetna-
tionalproductgeneratedis notHicksianincome.The presentSystemofNa-
tionalAccountstreatsreceiptsfromliquidatingnaturalassets as income,
thusgivingcountriestheillusionthattheyarebetteroffthantheyreallyare.
Whyhas naturalcapitalbeen leftout of our accounts?Thereare two
mainreasons.

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
34 SUSTAINABLE DEVELOPMENT

First,the scale of the economy(populationtimesper capita resource

use) relativeto theenvironment used to be negligible,and consequentlynat-
ural capitalregeneration was eitherautomaticor perceivedas unimportant
because itwas nota limitingfactor.Between1950 and 1986 thescale ofthe
worldpopulationdoubled (from2.5 to 5.0 billion),while thescale ofgross
worldproductand fossilfuelconsumptioneach quadrupled.The physical
presenceof the economywithinthe ecosystemwas not negligibleeven in
1950 and is certainly notso now. The humanlydirectedflowsofmatterand
energythrough theeconomyrivalin magnitudetheflowratesofmanynatu-
ralcyclesand fluxes.As previously notedhumanbeingsnow appropriate 40
percentofterrestrial netprimaryproductivity. In thepastthelimiting factor
in economicdevelopmentwas the accumulationof manmade capital.We
are now enteringan era in which the limitingfactorwill be theremaining
naturalcapital.The notionoflimiting factors implieslessthanperfect substi-
tutability betweenthem-that is, thatfactorsare to some extentcomple-
mentary. Thisleads us to thesecondreasonfortheneglectofnaturalcapital.
Neoclassicaleconomictheoryhas taughtthatmanmade capitalis a
near-perfect substitutefor naturalresources,and, consequently,for the
stockofnaturalcapitalthatyieldstheflowofthesenaturalresources.Evenif
thisassumednear-perfect substitutability weretrue,itwould stillbe neces-
saryto maintaintotalcapital (manmadeplus natural)intactin calculating
Hicksianincome-thatis, theexhaustionofnaturalcapitalwould stillhave
to be offset bytheaccumulationofan equivalentvalue ofmanmadecapital.
Even thisis not done. Moreover,substitution in economictheoryis revers-
ible,whilethesubstitution ofmanmadefornaturalcapitalis frequently irre-
versible. Contraryto neoclassical assumptions,natural and manmade
capitalaremorecomplementsthansubstitutes, withnaturalcapitalincreas-
inglyreplacingmanmadeas thelimiting factorin development.
Maintainingtotalcapitalintactmightbe referred to as "weak sustaina-
bility,"in thatit is based on generousassumptionsabout substitutability of
capital fornatural resources in production.By contrast"strongsustainabil-
ity" would requiremaintainingboth manmade and naturalcapitalintact
separately,on the assumptionthattheyare reallynot substitutes but com-
plementsin mostproductionfunctions.For example,themanmadecapital
represented by a sawmillis worthlesswithoutthe existenceofthecomple-
mentarynaturalcapital of a forest.In the strongsustainability case, eco-
nomic growthwould requirethe increaseof whichevertype of capital is
limitingat the margin.At the currentmarginin many countries,natural
capitalis limiting forsutainabledevelopment, yetitis routinelysacrificed for
moremanmadecapitalundertheprevailingmodel ofunsustainabledevel-
opmentbased on nationalaccountsthattreatconsumptionofnaturalcapi-
tal as income.
We mightdistinguish a thirdconceptofsustainability thatI would la-
bel "veryweak sustainability." Some authors(e.g., Pezzy,1989) definesus-

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
HERMAN E. DALY 35

tainabilityas the maintenanceof a constant(or non-declining)level of

utility. Whatis beingsustainedin thisinstanceis a psychicstateratherthan
a physicalstate.This subjectivist definition incorporates psychologicalsub-
stitution in the utilityfunctionas well as technologicalsubstitution in the
productionfunction.In thisview we can learnto enjoymorefullytheser-
vices of manmade capitalrelativeto the servicesof naturalcapitaland re-
main equally happy as the formeris continuallysubstituted forthe latter
(the"Disneylandeffect").The appeal to economistsofthesubjectivist view
is thatit allows sustainability so definedto fitdirectlyintothe discounted
utility-maximizing theoreticalframeworkof neoclassicaleconomics.The
overwhelming operationaldisadvantageis thatitdefinesone imprecisecon-
cept (sustainability) in termsof somethingevenless definable-utility, nay,
discounted,future, aggregated "
utility. It is betterto aim at something more
operationalby retainingthephysicalapproachoftheecologist.It is impos-
sibleforthepresentto bequeathhappinessor utilityto thefuture.The only
thingthatcan be passed on is naturaland manmade capital (also knowl-
edge,althoughthathas to be taughtand learned,notjust bequeathed).The
physicalapproachcan providea definitionofsustainability thatcan be im-
posed as a constraint on themaximizationofutilityin neoclassicalmodels.
Sustainability shouldnotreferto a psychicstate,but ratherto a stateofthe
biophysicalworld,namelya conditionofdynamicequilibriumbetweenthe
physicaldimensionsoftheeconomyand thelargerenvironment ofwhichit
is an open subsystem. In thisview themajordeterminant ofsustainability is
likelyto be thephysicalscale oftheeconomicsubsystem relativeto thecon-
tainingecosystem.
An operationalapproachto sustainability thatdoes nothingeon reso-
lutionofthesubstitutability questionis to adjustnationalaccountsso as to
arriveat a closerapporoximation ofHicksianincomethanthatgivenbynet
nationalproduct.One way to do thisis to subtractfromnetnationalproduct
two categoriesof expenditurethatmeasurenonsustainableactivities.First,
subtractan estimateof the value of naturalcapital depreciation.Second,
subtractan estimateof defensiveor regrettably necessaryexpenditures
made to protectourselvesagainsttheunwantedside effects ofotherproduc-
tion.12
The main idea ofHicksianincomeis capturedin thedefinition ofsus-
tainabledevelopmentofferedby the BrundtlandCommissionas develop-
mentthat"meetstheneedsofthepresentwithoutcompromising theability
offuture generations to meettheirown needs."'3Two questionswill arisein
any attemptto make this definitionoperational.First,the "needs of the
present"requiressome distinctionbetweenbasic needs and extravagant
wants.Ifneedsofthepresentincludean automobileforeach Chinesefamily
of three,thensustainabledevelopmentis impossible.Sustainabledevelop-
mentis about sufficiency as well as efficiency. Second, the "abilityof the
future generationstomeettheirown needs" maybe interpreted as requiring

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
36 SUSTAINABLE DEVELOPMENT

eitherstrongor weak sustainability-thepervasiveissue of substitutability

surfacesagain.
At what level of communityis sustainability to be sought?Interna-
tionaltradeallowsone countryto draw on theecologicalcarryingcapacity
ofanothercountry, yetbothtogether mightbe sustainablein theirsymbiotic
relationship.How does trade affectsustainability definedat the national
level?Thisbringsus againto thequestionofcomplementarity versussubsti-
tutabilityof naturaland manmade capital.If we followthe path of strong
sustainability(naturaland manmade capital are more complementsthan
substitutes)then thiscomplementarity mustbe respectedeitherat the na-
tionalor at the international level. A singlecountrymay substituteman-
made fornaturalcapitalto a veryhighdegreeifitcan importtheproductsof
naturalcapital(i.e., theflowsofnaturalresourcesand naturalservices)from
othercountriesthathaveretainedtheirnaturalcapitalto a greaterdegree.In
otherwords,thedemandsofcomplementarity can be evadedat thenational
level,butonlyiftheyare respectedat theinternational level.One country's
abilityto substitutemanmade fornaturalcapital depends on some other
country'smakingtheopposite(complementary) choice.
Thereare strongtheoreticaland commonsensereasonsforbelieving
thatnaturaland manmadecapitalarecomplements.Naturalresourcestocks
yielda flowofinputsthatis physicallytransformed by stocksofmanmade
capitaland laborintoa flowofproductoutputs.A greatdeal ofsubstitutabil-
itymayexistbetweenlabor and manmadecapital(thetwo agentsoftrans-
formation),or between the various resourceflows(thatwhich is being
transformed). Butthemainrelationbetweenwhat is beingtransformed and
theagentoftransformation mustbe one ofcomplementarity, notsubstitut-
ability.Otherwisewe couldbuildthesame wooden housewith,say,halfthe
lumberand twiceas manysaws and carpenters.Ofcourseone could substi-
tutebrickorfiberglass forlumber,butthatis thesubstitution ofone resource
flowforanother,notthesubstitution ofmanmadecapitalstockfora natural
resourceflow.The agentof transformation cause) and the sub-
(efficient
stance being transformed by it (materialcause) must be complements.'4
Also we shouldnot forgetthe obvious factthatproductionof capitalitself
requiresnaturalresources-theproductionof the "substitute"requiresthe
verythingbeingsubstituted for.And finally,ifcapital reallywere a near-
perfectsubstitutefornaturalresources,thennaturalresourcesmustalso be a
near-perfectsubstitute forcapital-but ifthatweretrue,whybotherto accu-
mulatecapitalin thefirst place? Forthesereasonsstrongsustainability is the
fundamentalconcept.Weak sustainability is an optionfora singlecountry
onlyin thecontextof a setof tradingcountrieswhich takentogether meet
the conditionsof strongsustainability. Consequentlywe must distinguish
closed fromopen economyconceptsof carryingcapacity.In the formera
countrymustdraw only on itsown ecosystemforeverything. In the latter
drawingon otherecosystemsand economiesis permitted as longas imports

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
HERMAN E. DALY 37

are paid forby currentexports.Subsidiesand continuingunpaid debtsare

excluded,thoughinternational tradeis permitted.'5
Sustainabledevelopmentultimatelyimpliesa stationarypopulation.
Penultimately, however,possibilitiesremainof substitution betweenpopu-
lationsize and resourceuse per capita,sinceitis reallytheproductofthese
two factorsthatis limitedby biophysicalconstraints. Sustainability is com-
patiblewith a largepopulationlivingat a low levelof per capita resource
use, or witha smallpopulationlivingat highlevelsofresourceuse per cap-
ita. For manycountriesresourceconsumptionlevelsare below sufficiency,
yetecologicalcarryingcapacityhas alreadybeen exceeded (e.g., in Haiti
and El Salvador).In such cases populationcontrolis a precondition rather
thanan ultimateconsequenceofsustainabledevelopment.
Sustainabledevelopmentdoes not implyconstanttechnology, nor is
theconceptrenderedunnecessaryby technologicalprogress.New technol-
ogycan havepositiveor negativeeffects. Technologies thatincreaseresource
productivity will reducethe pressureon naturalcapitalstocksto yieldin-
creasingflowsofnaturalresources.Technologies thatincreasetheproductiv-
ityof manmade capital and labor frequently requireprocessinga greater
flowofresources,and thustendto reduceresourceproductivity in theinter-
ests of raisingcapital and labor productivity. Historically, technological
progresshas favoredcapital and labor productivity at the expense of re-
sourceproductivity (e.g., decliningenergyproductivity in agriculture re-
sulted fromgreateruse of energyper unit of labor and capital, with a
consequentincreasein labor and capitalproductivities). Sustainabledevel-
opmentimpliesa different directionoftechnicalprogress:one thatsqueezes
moreserviceper unitof resource,ratherthan one thatjust runsmorere-
sourcesthroughthe system;one that is efficiency-increasing ratherthan
throughput-increasing; one thatdoes not sacrificenaturalresourceproduc-
tivity,and, ifnecessarywill sacrificelabor or capitalproductivity instead.
Thissortofprogresswill be politicallydifficultdue to the tie between mar-
ginalproductivity and incomeforall factors.In industrialsocietylaborand
capital are much strongersocial classes than landlords(resourceowners).
Naturallyeach class prefersthose technologiesthatincreaseits own mar-
ginalproductivity and income.Atone timethelandlordwas dominantand
preferred technologies(and largepopulations)thatincreased
labor-intensive
the marginalproductand rentof land. Todaythe politicaldemise of the
landlordhas leftland (resources)withouta social class to championits
higherpriceand productivity. Resourcestendto be used lavishlyin thein-
terestsoflaborand capitalproductivity. Thisworksagainstsustainability.
The mostobviousprincipleofsustainabledevelopmentis thatrenew-
able resourcesshould be exploitedon a sustained-yield basis. The choice
amongmanylevelsofsustainedyieldcan be made on thecriterion ofprofit
maximization.In generaltheprofit-maximizing levelat which to maintain
theexploitedstockswill not correspondto the biologicallymaximumsus-

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
38 SUSTAINABLE DEVELOPMENT

tainableyield. For wild stocksit will be greater(assumingrisingcosts of

capture);forcultivatedstocksitwill be less (assumingrisingcostsofmainte-
nance). Onlywith constantcostswill the maximumbiologicalyieldcoin-
cidewiththemaximumeconomicprofit.
A majorproblemforsustainabledevelopmentis how to treatnonre-
newableresources, whichbydefinition haveno sustainableyield,at leaston
timescalesrelevantto humanexperience.A way ofhandlingthisproblemis
suggestedin an ingeniousarticleby Salah El Serafy(1989). He dividesnet
receiptsfroma nonrenewableresourceintoan incomecomponentthatcan
be consumedannually,and a capitalcomponentthatmustbe investedan-
nuallyin a renewableassetthatyieldsa rateofreturnsuchthat,at theend of
thelifetime ofthenonrenewableresource(reservesdividedbyrateofdeple-
tion),a new renewableassetwill have been builtup to thepointat whichit
can yielda perpetualstreamequal to the income componentof the now-
depletednonrenewableresource.A somewhatsimilarprinciplewas sug-
gested by the economistJohn Ise in the 1920s, namely to use up the
nonrenewableresourceat such a ratethatitspricewill be equal to theprice
of its nearestrenewablesubstitute.In otherwords, resourcesshould be
pricedaccordingto theirlong-runreplacement costs.El Serafy'sruleis more
closelyorientedto the operationalproblemsof properincome accounting
ratherthanpricing,and does notrequiretheidentification ofa specificlong-
run renewablesubstitute.It does implicitlyassume, however,thatsome-
thingusefulin therealworldis capable ofgrowingat a rateequal to therate
of discountused in calculatingthe incomecomponent.That something,it
would seem,mustbe some renewableresourceservice,thatis, thebiologi-
cal growthrateofrenewableresourcesplus thetechnologicalrateofgrowth
oftheproductivity of all resources(nottheproductivity oflabor or capital,
butofresources).Also theanalysisassumesa chosenor givenrateofdeple-
tion,whichis oftentakenby economistsas thatwhichis to be determined.
El Serafy'smethoddoes not answerthe traditionalquestionofwhat is the
optimalrateofdepletion,but rathertellsus how muchwe can sustainably
consumeand how much we mustinvestof receiptsfroma nonrenewable
resourceunderdifferent discountrates,depletionrates,and reserves.It sets
theguidelinesforexploitingnonrenewableresourcesundera regimeofsus-
tainabledevelopment.
If we take sustainabledevelopmentas our guidingprinciple,then
theprojectswe financeshould,ideally,each be sustainable.Wheneverthat
is not possible (e.g., nonrenewableresourceextraction)a complementary
projectshouldinsuresustainability forthetwo takentogether. A portionof
the receiptsfromnonrenewableextractionshould be investedin a renew-
able assetin an annual amountsuchthat,giventherenewableassetgrowth
rateand thelifeexpectancyofthenonrenewableasset,theformer will pro-
vide a permanentincomestreamequal to thepartofthereceiptsconsumed
annuallyfromthelatter.Thisis thebasic principleunderlying theEl Serafy

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
HERMAN E. DALY 39

method,just discussed,only hereit is applied at the projector microlevel

ratherthanat themacrolevelofnationalincomeaccounting.
Also, ifprojectsmustbe sustainable,thenit is inappropriate to calcu-
latethebenefits ofa sustainableprojector policyalternative bycomparingit
withan unsustainableoption-thatis, by usinga discountratethatreflects
ratesofreturnon alternative uses ofcapitalthatarethemselvesin themajor-
ityofcases unsustainable.Forexample,ifa sustainablymanagedforest that
can yield4 percentis judged uneconomicin comparisonwith a discount
rateof6 percent,whileon closerinspectionthe6 percentdiscountrateturns
out to be based on alternative uses ofcapitalthatare unsustainable(includ-
ingperhapstheunsustainableuse ofthatsame forest), thenclearlythedeci-
sionboilsdown to sustainableversusunsustainableuse. Ifwe have a policy
ofsustainabledevelopmentthenwe choose thesustainablealternative, and
thefactthatithas a negativepresentvalue at an unsustainablediscountrate
is irrelevant.The discountratemustreflect therateofreturnon alternative
sustainableuses ofcapital.The efficiency allocationrule(maximizepresent
value) cannotbe allowed to subvertthe verygoal of sustainabledevelop-
mentbyapplyingan unsustainablediscountrate(i.e., a discountratebased
on alternative uses ofcapitalthatareunsustainable).
Sustainability ofan investment projectis a benefit.In generalan extra
benefitusuallyrequiresan extracost. A policyof sustainabledevelopment
means thatwe are willingto pay thatcost,at leastwithinreason.The pre-
cedingdiscussionsuggeststwo alternative ways of evaluatingprojectsin a
regimeofsustainabledevelopment.The firstis a halfwaymeasure,thesec-
ond is morecomplete.(1) When evaluatingsustainableprojects,use a dis-
countratethatexcludesnonsustainableprojectsfromthealternative uses of
capital.Likewise,investments in nonsustainableprojectsshould be evalu-
atedon thebasis ofa discountratereflecting onlyalternative nonsustainable
projects.Allocationbetweenthesetwo broad categories,not addressedby
thissplittingofthediscountrate,remainsundetermined. (2) A betterway is
to pair unsustainableprojectswith compensatingsustainableones and
countonlytheincomecomponentofreceiptsin calculatingrateofreturnon
all projects.The singlediscountratewould thenmeasuretherateofreturn
on alternative projects,all ofwhich (beingpaired)are sustainable.16 Perhaps
the "pairing"of projectsneed not be explicit.Countingonly the income
componentin calculatingthe rateof returnon unsustainableprojectsmay
be sufficient,on the assumptionthatthecapitalcomponentis investedin a
sustainableprojectwitha growthrateequal to thediscountrateused in sep-
aratingtheincomeand capitalcomponents.

Summaryand conclusions
The major conceptualissue we mustresolvein thinkingabout economic
developmentand the environmentoverthe nextdecade is to integrate
the

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
40 SUSTAINABLE DEVELOPMENT

one-waythroughput pointof economicanalysis,even

as the basic starting
morefundamentalthanthecircularflow.Nextwe mustdistinguish clearly
theproblemoftheoptimalallocationofthethroughput fromthatofitsopti-
mal scale. Our attention will thennaturallybecomefocusedon limitingthe
scale to an optimal,or at least sustainablelevel,therebygivingthe discus-
sionofsustainabledevelopmenta firmer theoreticalfoundation.Fromthere
we can beginto investigate operationalprinciplesof sustainability, such as
thosediscussedhereand summarizedbelow.
(1) The main principleis to limitthehuman scale to a levelwhich,if
not optimal,is at least withincarryingcapacityand therefore sustainable.
Oncecarrying capacityhas been reachedthesimultaneouschoiceofa popu-
lationleveland an average"standardofliving"(levelofper capitaresource
consumption)becomesnecessary.Sustainabledevelopmentmustdeal with
sufficiency as well as efficiency,
and cannotavoidlimiting scale. An optimal
scale would be one at which the long-runmarginalcostsof expansionare
equal to thelong-runmarginalbenefitsofexpansion.Untilwe developoper-
ationalmeasuresof the cost and benefitof scale expansion,the idea of an
optimumscale remainsa theoretical formalism, but a veryimportantone.
The followingprinciplesaim at translatingthis generalmacro-levelcon-
straintto themicrolevel.
(2) Technologicalprogressforsustainabledevelopmentshouldbe ef-
ficiency-increasing ratherthanthroughput-increasing. Limitingthe scale of
resourcethroughput would inducethistechnological shift.
(3) Renewable resources,in both theirsource and sink functions,
should be exploitedon a profit-maximizing sustained-yield basis and in
generalnotbe drivento extinction, sincetheywillbecomeevermoreimpor-
tantas nonrenewableresourcesrunout. Specifically thismeansthatharvest-
ing rates should not exceed regeneration rates,and thatwaste emission
shouldnotexceedtherenewableassimilativecapacityoftheenvironment.
(4) Nonrenewableresourcesshouldbe exploitedat a rateequal to the
creationof renewablesubstitutes.Nonrenewableinvestmentsshould be
pairedwithrenewableinvestments, and theirratesofreturnshouldbe cal-
culatedon thebasis of theirincomecomponentonly,since thatis what is
perpetuallyavailableforconsumptionin each futureyear.Ifoccasionallya
renewableresourceis to be depletedin a nonrenewablefashion(partially
divested),thenthe same pairingruleshould apply to it as fora nonrenew-
able resource.Thus the mix of renewableresourceswould not be static;a
compensating renewableinvestment would be made foreverydivestment.
Perhapsthereare otherprinciplesofsustainabledevelopmentas well,
and certainly thoselistedaboveneed tobe refined, clarified,and made more
consistentbetweenthe microand macrolevels.But thesefourare bothan
operationalstarting pointand a sufficientpoliticalchallengeto thepresent
order.Willthosenationsseekingsustainabledevelopmentbe able to opera-
tionalizea conceptfromwhichsuch "radical"principlesfollowso logically?

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
 HERMAN E. DALY 41

Or will they,ratherthan face up to populationcontrol,wealthredistribu-

tion,and livingon income,revertto the cornucopianmythof unlimited
growth,rechristened as "sustainablegrowth"?It is easierto inventbad oxy-
moronsthanto resolverealcontradictions.

Notes

Theviewsexpressedin thisarticlearethoseof ber), plus the reductionfromthe photosyn-

theauthorand shouldin no way be attributed thetic potential due to degradation of
to the WorldBank or any otherinstitution. ecosystemscaused by humans. The latter
Theauthoris indebtedforhelpful comments to reflectsdeforestation, paving
desertification,
S. Davis,S. El Serafy,P. Ehrlich,R. Goodland, over,and human conversionto less produc-
P. Knight,and R. Overby.Earlierversionsof tivesystems(suchas agriculture).
partsofthispaperwerepresented at a confer- 7 Lauderdale(I1819:44).lam indebtedto
enceon development and environment, spon- GeorgeFoyforthisreference.
soredbytheItalianMinistry oftheEnvironment,
8 Presentvalue maximizationattempts
Milan,March1988.
overtime.But
to allocateresourcesefficiently
1 An example of the consequencesof once intergenerational time periods are en-
non-recognition of the distinctionbetween countered we escapethedomainofallocation
scale and allocationcan be found in Daly and mustspeakinsteadofdistribution. Differ-
(1986). A similardistinction is made byD. W entgenerations people. Dividing
are different
Pearce(1987),who developstheidea ofan ec- the resourcebase among different people is
ologicallyboundedeconomyand arguesthat distribution; dividingit amongdifferent uses
sustainabilitycannot be derived fromthe forthe same groIlp of people is allocation. The
marketmechanism. former is a matterofjustice,the latterof ef-
2 Thisdistinction is nottheresultofany ficiency.Presentvalue maximization(dis-
idiosyncratic redefinition.It is explicitin the counting) ovei intergenerational time
dictionary's firstdefinition of each term.To conflates allocationand distribution.
growmeans literally"to increasenaturallyin 9 This lack of generalizabilitycan be
size by the additionof materialthroughas- seen fromthefollowing back-of-the-envelope
similationor accretion."To develop means "to calculation,based on thecrudeestimatethat
expand or realizethe potentialities of; bring theUnitedStatescurrently uses 1/3ofannual
graduallyto a fuller,greater, or betterstate" world resourceflows(NationalCommission
(The AmericanHeritageDictionaryof the English on Materials Policy, 1973). If the United
Language). States,with 1/21of the world'spopulation,
3 Sometextsexplicitly announcein bold consumes1/3of the world'sresources,then
printthat"theflowofoutputis circular,self- we would need to increaseworld resources
renewing,and self-feeding." See Heilbroner sevenfoldto provideeveryonewith the cur-
and Thurow(1981). rentUS levelofresourceconsumption. Thisis
4 A recenttreatiseby CharlesPerrings simplearithmetic sinceUS percapitaresource
(1987) is an importanttheoreticalcontribu- consumptionis seven timeshigher(1/3 di-
tion toward integrating the concept of vided by 1/21)than that of the restof the
throughput and thelaws of thermodynamics world.
withstandardeconomics. But eventhe sevenfoldincreaseis a gross
underestimate oftheincreasein environmen-
5 For a more extendeddiscussion,see talimpact,fortworeasons.First,becausethe
Daly (1985). calculationis in termsof currentflowsonly,
6 Thedefinition ofhumanappropriation withno allowancefortheincreasein accumu-
underlying thefiguresquotedincludesdirect latedstocksofcapitalgoodsnecessaryto pro-
use by human beings(food,fuel,fiber,tim- cess and transformthe greater flow of

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
42 SUSTAINABLE DEVELOPMENT

resourcesintofinalproducts.Some notionof can, withinlimits,be appliedto treesin a for-

the magnitudeof the extra stocks needed estorfishin a pond,as longas we remember
comesfromHarrisonBrown's(1970)estimate thatthereis a limitto thenumberoftreesin a
thatthe "standingcrop" of industrialmetals forestand the numberof fishin a pond-
alreadyembodiedin theexistingstockofarti- while thereis no limitto how much money
factsin thetenrichestnationswould require therecan be in thebank. Butto discountutil-
more than 60 years' production of these ity-a psychicexperiencethatcannotbe ac-
metalsat 1970rates.Second,becausethesev- cumulated or saved, and which has no
enfoldincreaseof net, usable mineralsand naturaltendencyto growin any case-is to
energywillrequirea muchgreaterincreasein commitWhitehead's fallacy of misplaced
grossresourceflows,sincewe mustmineever concreteness. Furthermore, to aggregatethis
less accessibledepositsand lowergradeores. futurepsychicexperienceacross individuals
It is thegrossflowthatprovokesenvironmen- beforediscounting itbya nonexistentnatural
talimpact. growthrateis to lose touchcompletelywith
10 Naturalcapital may be divided into anypossibility counterpart
of a real-world to
marketedand nonmarketednaturalcapital. thepaper-and-pencil operation.
The former yieldsthe flowof pricednatural 12 This and otherways of adjustingthe
resources;the latteryields the fluxof un- nationalaccountsare discussedin Ahmad,El
pricednaturallife-supportservices.The term and Lutz(1989).
Serafy,
is a bit awkwardbecause capital has tradi-
tionally been defined as produced (man- 13 WorldCommissionon Environment
made) meansofproduction. The term'land" (1987:8).
and Development
in earliertimesmeantsomethingequivalent (1971:224-
14 See N. Georgescu-Roegen
tonaturalcapital,buthas now lostthatmean- 244).
ing.Thetermnaturalcapitalis used to call at-
tentionto the factthat thereis a stock of 15 For a discussionof the conflictsbe-
naturalassetsthatyield a flowof resources tweenfreetradeand sustainabledevelopment
and servicesand thatrequiremaintenancein see Chapter11ofDaly and Cobb (1989).
thefaceofdepreciation and whose consump- 16 This approach is in agreementwith
tioncannotbe countedas income. Markandyaand Pearce's (1988:58) general
11 Discountingis an operationalconcept principlethat"wherepossibleit is betterto
when applied to moneyin the bank thatis adjustthecostand benefitvalues thanto ad-
growingat a rateof interest.By extensionit justthediscountrate."

References
Ahmad, YusufJ., Salah El Serafy,and ErnstLutz (eds.). 1989. Environmental for
Accounting
Washington, D.C.: World Bank.
SustainableDevelopment.
Boulding,Kenneth.1966. "The economicsofthecomingSpaceshipEarth,"in HenryJarrett
Qualityin a GrowingEconomy.Baltimore: Johns Hopkins University
(ed.), Environmental
Press.
Brown,Harrison.1970. "Human materialsproductionas a processin thebiosphere,"Scien-
American
tific (September):194-208.
Daly,H. E. 1985. "The circularflowof exchangevalue and thelinearthroughput ofmatter-
energy:A case of misplaced concreteness,"Reviewof SocialEconomy(December):
279-297.
. 1986. Review of National Research Council, PopulationGrowthand EconomicDevelop-
ment: Policy Questions,in Population and DevelopmentReview 12, no. 3 (September):
582-585.
, and John B. Cobb, Jr. 1989. For theCommonGood:Redirecting
theEconomyTowardCom-
and a SustainableFuture.Boston: Beacon Press.
munity,theEnvironment

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions
HERMAN E. DALY 43

El Serafy,Salah. 1989."The propercalculationofincomefromdepletablenaturalresources."

in Ahmad,El Serafy,and Lutz(I1989),pp. 10-18.
Georgescu-Roegen, Nicholas. 1971. The EntropyLaw and the EconomicProcess.Cambridge,
Mass.: HarvardUniversityPress.
Heilbroner,Robert,and LesterThurow.1981. TheEconomic Problem.EnglewoodCliffs,N.J.:
Prentice-Hall.
Hicks,J.R. 1946. ValueandCapital.Oxford:OxfordUniversity
Press.
A Materials
Kneese, A. V., R. V. Ayres, and R. C. d'Arge. 1970. Economicsand theEnvironment:
BalanceApproach.
Washington,
D.C.: ResourcesfortheFuture.
Lauderdale. 1819. An Inquiryinto theNatureand Originof Public Wealthand into theMeans and
CausesofitsIncrease,
secondedition.Edinburgh:ArchibaldConstantand Co.
Markandya,Anil,and David Pearce. 1988. "Environmental
considerations
and thechoiceof
discountratein developingcountries,"WorldBank,Environmental DepartmentWork-
ingPaperNo. 3.
National Commission on Materials Policy. 1973. MaterialNeedsand theEnvironment
Todayand
Tomorrow.
Washington,
D.C.: US Government
Printing
Office.
Page, Talbot. 1977. Conservation
and EconomicEfficiency.
Baltimore: Johns Hopkins University
Press.
Pearce,D. W. 1987. "Foundationsofan ecologicaleconomics,"EcologicalModelling 38, nos. 1
and 2: 9-18.
Perrings,
Charles.1987.Economy andEnvironment.Cambridge:CambridgeUniversity Press.
Pezzy,John.1989. "Economicanalysisofsustainablegrowthand sustainabledevelopment,"
WorldBank,Environmental DepartmentWorkingPaperNo. 15.
Vitousek,PeterM., Paul R. Ehrlich,AnneH. Ehrlich,and PamelaA. Matson. 1986. "Human
appropriation oftheproductsofphotosynthesis," 34, no. 6 (May): 368-373.
BioScience
WorldCommissionon Environment and Development(The BrundtlandCommission).1987.
OurCommon Future.Oxford:OxfordUniversity Press.

This content downloaded from 206.212.0.156 on Tue, 3 Sep 2013 03:38:36 AM

All use subject to JSTOR Terms and Conditions