1
Sustainability Economics - 2025
INTRODUCTION
What is sustainability?
Sustainability 1.0 refers to meeting the needs of the present without compromising the ability of
future generations to meet their own needs. How can we leave the planet the same as we found it?
Sustainability 2.0 refers to sustaining the underlying pattern of health, resilience and adaptability
that maintains this planet and the environment in a condition where life can flourish. For this to be
possible in the long term, the way modern societies are organized shouldn’t be sustained, but rather
re-designed using a regenerative perspective. Systems are profit driven and shouldn’t be sustained.
We should not just do less harm but also be greener than sustainability 1.0 was doing.
There is an intersection, the human system interacts with the ecosystem. We take things from the
ecosystem but by taking too much the ecosystem will break because it won’t be able to regenerate
anymore. This is why we need a regenerative system.
The 3-nested model reflects this co-dependent
relationship. Without the environment, the society and
the economy can’t exist. The economy should be serving
society, while keeping the boundaries of the environment
in mind to be regenerative.
What is a sustainable system?
If we continue to live this way, we will not have any way to survive, there will be no future to live for
anymore. Our systems require change. Nature (earth, ecosystems, …), life support (resources,
environment, …) and community (culture, groups, …) must be sustained. While on the other side
people (education, equity, …), economy (wealth, consumption, …) and society (institutions, social
capital states, …), which are all human made, should be changed.
The role of the economy initially was to allocate scarce resources to support the society. Today
people want to maximize the profit and their gains. To achieve this the people and planet became
the means. We should not only use it for these purposes, but we should also use it to contribute to
human wellbeing.
Sustainability economics stands for the study of scarcity and its implications for the use of
resources, production of goods and services, growth of production and welfare over time. Using
scarce resources to meet various competing ends (social, human, natural, physical, …). There are
several ways of fulfilling needs and we are not always using the right resources in our consumer
society.
An important aspect is value management. How to balance the needs and set priorities? In our
economies there are various values that need to be matched, by HR (value for employees),
operations (value for costumers) and finance (value for shareholders). But who takes care of the
value for the planet? Maybe we should look at value as more than financial value.
Luca Pleysier
, 2
The changes needed, need to stay within planetary boundaries. These are a set of boundaries
within which humanity can continue to develop and thrive for generations to come. Over the year,
using our current systems, we are crossing more of them every year. When over passing these
boundaries, we are not able to regenerate them, so this is a huge problem.
The model of Doughnut Economy combines the concept of
planetary boundaries with the matching concept of social
boundaries. The center shows the people that don’t have access
to life’s essentials. The outer layer represents the planetary
boundaries that life depends on and must not be crossed.
The doughnut itself is the safe area for humanity to thrive in
within the planetary and social boundaries, within de area
between the social foundation and the ecological ceiling. A social
minimum is needed for decent living standards, which
represents the social foundation. Climate change is having a
bigger influence on the GDP each year. It is becoming more difficult for companies to protect assets
against the risk of the changing climate (heavy weather, …). The risks are becoming way to high,
dramatic changes need to happen because at this pace predictions say that 10% of GDP will be lost
by 2030. There is a clear choice now in what we want our future to look like. Policies?
In politics there is often a reduced focus on reducing emissions. The current tunnel vision is a
problem. There are many factors that need to be considered, like: education, health, poverty, water
crisis, overconsumption, …. These different factors not only influence climate change but also
influence each other. They are individually linked to one another.
Gross Domestic Problem
We created a system where the GDP is used to measure anything and to satisfy people. It needs
to grow to keep everyone happy and for the economy to keep functioning. There are other factors
that need some focusing on, that de GDP can’t do. These factors can be different for the state
(education, public transport, …), households (cooking, cleaning, voluntary work, …) and commons
(people getting together). The GDP doesn’t look at social and environmental costs, only at
transaction costs. A lot of activities, like deforestation, make profit and are good for the value of GDP
but are not at all good for the environment. This system doesn’t keep goof from bad things, it only
tells us if there is a lot of wellbeing or not.
From a socio-ecological economic view, materials are
going into the economy and come back out as waste. We
need regenerative enterprises to contribute positively to
human flourishing (economy), support the community and
offer decent livelihoods (society) and use as little materials
and energy as possible (earth). The challenge is how we can
combine the different spheres in one efficient system.
Welfare measures must be integrated in our GDP-critiques, the benefits and costs of all sorts of
aspects now and in the future. Daly and Cobb came up with the ISEW (Index of Sustainable
Economic Welfare) as a debunking indicator. Later, the variant GPI (Genuine Progress Indicator)
was developed because there was some confusion on what ‘sustainable’ really means or measures.
The GDP-critiques like environmental and social costs, resource depletion, inequity, and unpaid work
Luca Pleysier
, 3
and volunteering are considered, and it distinguishes benefits and costs, while illustrating the need
to move beyond GDP and growth. On the other hand, it is very data intensive, difficult to monetary
valuate and not clear on what is included or not and how they will be valued. Another important
aspect is the diminishing marginal utility of income. If you already have a lot, every extra euro
leads to less and less wellbeing or utility because it doesn’t make much of a difference. Benefits are
decreasing after some time and differ between different income groups.
There are some sustainable developments going on, like: The 17 SDG’s (= Social Development
Goals) and The 5 P’s instead of 3 (People, Planet, Peace, Prosperity and Partnership.
The Iceberg Model
This model is a system thinking tool designed to help discover the patterns of behavior, supporting
structures, and mental models that underlie a particular event. What is visible is only the top of the
iceberg, there is so much more going on underneath the surface. Above the water we see the
symptoms of what is happening, such as
bad air quality. Under the water we see
the causes. To solve our problem by
reconstructing our systems we need to
look at what’s under the water.
At the event level we perceive the world,
problems observed at this level can be
solved by a simple readjustment. For
example, waking up and realizing you have a cold. The level of patterns and trends consists of
similar evets that have been taking place over time. Observing these, allows us to forecast and
prevent them. For example, catching more colds when you’re not sleeping enough. The third one,
the underlying structures level, are the underlying causes of certain patterns we are observing.
This can include physical things, organizations, policies, rituals, …. For example, increased stress
at work. Finally, we have mental models. These are the beliefs that we often learn subconsciously
from our society or family and are likely unaware of. An example of a model is the anthropocentric
view (EGO) versus the biocentric view (ECO). In the first case we take everything from nature for
ourselves, humans are central in the economy/biosphere. This leads to the current situation we’re
in. Within the biocentric view we are a part of nature, we need to regenerate while focusing on our
co-dependencies and how we depend on the living world.
➔ Transition 1.0
This contains only a slight improvement in changing the current system but still doesn’t change the
monetary focus or belief in the free market. It is just about sustaining the current economic system,
an emerging system. On an event level the ecological and social crisis would be taken care of by
improving technology with the goal to increase efficiency. The rebound effect and risk are that
demand, production and resource exploitation can increase. The patterns and trends level will
evolve from linear production and consumption, which ends by becoming waste, to green and
circular products. Current underlying structures like the free markets without involving
governments are believed to serve sustainable goals with government boundaries for excess. The
priority in mental models goes from being money and anthropocentrism to keeping the underlying
mental models untouched.
Luca Pleysier
, 4
➔ Transition 2.0
Really seeing things differently, inner development also has an influence. From incremental change
to a generative system shift. The event level changes to fostering values of regenerative nature
and gross local happiness. Investments with the earth as a shareholder. Green is the only way for
the patterns and trends level, there might be growth but not as the goal. Underlying structures
must have to serve society as the purpose. A functional economy, where the thriving of people and
planet is the mission. Mental models focus on a reconnecting worldview, humans are part of nature.
Transition theory
Systematic changes are needed in societies in response to the environmental crisis we’re facing.
Companies that are doing things differently at a micro-level and are not going for profit maximization
are niches. They serve society and the planet, hoping for them to become the norm. New intentions
are breaking through all the time, some fail and some work. These niches could lead to a new
ecosystem and become more established over time. An ecosystem is a community or group of living
organisms that interact with each other in a specific environment. Constantly new opportunities for
niches are created by landscapes for ecosystems to become more established. We need to make
place for niches, not only now during the sustainable transition but also in the future. The landscape
will put new pressures, and it is important to have resilient systems over time.
Sustainability is thus the capacity of a network to
maintain its flow of energy, matter and information,
in changing contexts. Transition 1.0 was less
damaging, but still did damage. The difference was
the greener focus than before. To really have a
positive impact we should focus more on being
more restorative and regenerative. That is where transition 2.0 comes in. It is focusing on boosting
niches and making those alternatives mainstream to become the new normal.
We discussed EGO and ECO before. Now we also have SEVA, which is selfless service. Acting
selflessly and helping others in different ways, without any reward or personal gain. Just being
connected to the regenerative aspect, the belief that people are of service to the living world.
Sustainability economics, the study of economic systems that support human well-being and
ecological health.
Luca Pleysier
, 5
ECONOMICS AND THE ENVIRONMENT
Economic schools of thought and the environment
The homo economicus is a rational human person who wants to maximize its utility for both
monetary and non-monetary gains. We might think that we are rational, but we never have all the
needed information to make a fully rational decision. Behavioral economics shows us that we are
indeed not as rational as we might think. Our behavior is driven by emotion, instinct and intuition for
95% of the time. This system is by far the biggest one in our brains, compared to the 5% of rational
thinking. Most of the time we act on auto pilot by being unconscious, instinctive, fast and emotional.
This effortless thinking is fast system thinking. The small part where we are slower, conscious,
more logical and rational is the part where we do slow system thinking.
Individuals may have very clear intentions and desires to engage in certain behaviors, but they fail
to follow through on these intentions in practice. This is called the intention-behavior gap. People’s
intentions do not align with their actual behaviors. The path we take depends on the interaction
between the rational and emotional system. None of them is in charge over the other one.
Maximizing utility does not always make you happier, different types of values give you fulfillment:
➔ Egoistic values: reflect a focus on the costs and benefits of a choice and on power or
achievement.
The more you are oriented towards material, ownership and fame, the greater the risk
of unhappiness, insecurity and depression. It gets in the way of relationships, because
you will always compare yourself to others and be afraid of losing what you have.
➔ Altruistic values: motivate individuals to contribute to the wellbeing of others or of society.
➔ Biospheric values: reflect a focus on the costs and benefits to ecosystems or the biosphere.
The more you care about the environment, the less you will go for the materialistic
values. This comes with a lower risk of being unhappy.
The self-interested homo economicus who focuses on the egoistic values (status, power and money)
will not make himself happy, there are other needs as well. These other needs like empathy,
generosity and environmental consciousness give more results in terms of happiness and fulfilment.
Money might decrease social bonds between people. Research showed that people help more when
no monetary reward is granted. Human behavior is not only driven by self-interest, which is not at all
but should be a factor in modern models like The Solow Model or Aggregate Demand Model.
Historic perspective
Early history
They thought of economics as a matter of moral philosophy describing how the society and economy
should be and not how it actually is (normative approach). During the 15th century there was heavy
competition between countries, international trade and mercantilism developed. The economic
policy was aimed at maximizing exports and minimizing imports. Taxes on imports to avoid a trade
deficit where a big thing. During the 18th century, the Age of Enlightenment, political economy was
developed. Economists attempted to measure economic activity and described the working of the
system, rather than looking at only moral implications. This formed the start of the first concepts of
modern macro-economics.
Luca Pleysier
, 6
Physiocrats
The idea that the economic system, like the natural world, operates according to its own laws and
principles. The rule of nature. These principles lead to optimal allocation of resources and the
greatest prosperity for society if they are left to operate without the government intervening. They
believed that de wealth of nations was derived solely from agriculture. It was key in the production,
possessing land. Quesnay developed the Tableau Economique in which he drew the economy as
a human blood system. This was the first economic model, leading to eventually the economic cycle.
Classical economists
➔ Adam Smith
Let the markets do their thing without governments intervening, laissez-faire, and everything
will be fine and go into an equilibrium. Focus on economic growth. Rational individuals make
decisions in their own interest. If everyone acts like this, it will be beneficial for society
because of the invisible hand that will push the economy towards the equilibrium.
Some economists already saw the natural limits due to resource scarcity. Land was
limited and you would first use the more productive land.
➔ Thomas Malthus
The very pessimistic Malthusian trap shows us how population grows but there are limits to
natural resources. At some point there will not be enough food for everyone and there will be
poverty and diseases. Lots of people will eventually die because of this, which will restore
balance by reducing the population again. The same thing will happen repeatedly.
He did not take technology into account.
➔ David Ricardo
Natural resources have a fixed supply and are often uneven in quality. There is a diminishing
marginal return, first the most productive are used. This pushes down profit rates and the
economy comes to a stationary state. There are limits to growth.
Believed in the ability of technology to overcome these limits.
➔ John Stuart Mill
Expressed strong support for preserving the environment and emphasized the public good
nature. Developed the concept of zero growth, if we are at a steady state where we have
reached welfare for everyone, let’s be satisfied and not exhaust nature.
Neo-classical economists
There was a shift from land to factories and unprecedented levels of growth and inequality. The
central economic problem was the organization of allocation of scarce resources. Utility to
consumers was the most important factor in determining the value of a product. This was very
different from classical economists, they assumed a product’s value was determined by the cost of
materials and labor. Man made physical capital now was the most important determinant of
economic growth, nature was no more as important.
➔ W.S. Jevons
Talked about resource scarcity, the Coal Question. Coal was exhausted too rapidly because
it was cheaper, so people used it more. Their thinking should have been that economic growth
was good because they could consume more, so they should have used less resources.
Jevons paradox (rebound effect): technological improvements or efficiency don’t
necessarily lead to reduced amounts of coal, because becoming more efficient means
your production might become cheaper and you might use more.
Luca Pleysier
Sustainability Economics - 2025
INTRODUCTION
What is sustainability?
Sustainability 1.0 refers to meeting the needs of the present without compromising the ability of
future generations to meet their own needs. How can we leave the planet the same as we found it?
Sustainability 2.0 refers to sustaining the underlying pattern of health, resilience and adaptability
that maintains this planet and the environment in a condition where life can flourish. For this to be
possible in the long term, the way modern societies are organized shouldn’t be sustained, but rather
re-designed using a regenerative perspective. Systems are profit driven and shouldn’t be sustained.
We should not just do less harm but also be greener than sustainability 1.0 was doing.
There is an intersection, the human system interacts with the ecosystem. We take things from the
ecosystem but by taking too much the ecosystem will break because it won’t be able to regenerate
anymore. This is why we need a regenerative system.
The 3-nested model reflects this co-dependent
relationship. Without the environment, the society and
the economy can’t exist. The economy should be serving
society, while keeping the boundaries of the environment
in mind to be regenerative.
What is a sustainable system?
If we continue to live this way, we will not have any way to survive, there will be no future to live for
anymore. Our systems require change. Nature (earth, ecosystems, …), life support (resources,
environment, …) and community (culture, groups, …) must be sustained. While on the other side
people (education, equity, …), economy (wealth, consumption, …) and society (institutions, social
capital states, …), which are all human made, should be changed.
The role of the economy initially was to allocate scarce resources to support the society. Today
people want to maximize the profit and their gains. To achieve this the people and planet became
the means. We should not only use it for these purposes, but we should also use it to contribute to
human wellbeing.
Sustainability economics stands for the study of scarcity and its implications for the use of
resources, production of goods and services, growth of production and welfare over time. Using
scarce resources to meet various competing ends (social, human, natural, physical, …). There are
several ways of fulfilling needs and we are not always using the right resources in our consumer
society.
An important aspect is value management. How to balance the needs and set priorities? In our
economies there are various values that need to be matched, by HR (value for employees),
operations (value for costumers) and finance (value for shareholders). But who takes care of the
value for the planet? Maybe we should look at value as more than financial value.
Luca Pleysier
, 2
The changes needed, need to stay within planetary boundaries. These are a set of boundaries
within which humanity can continue to develop and thrive for generations to come. Over the year,
using our current systems, we are crossing more of them every year. When over passing these
boundaries, we are not able to regenerate them, so this is a huge problem.
The model of Doughnut Economy combines the concept of
planetary boundaries with the matching concept of social
boundaries. The center shows the people that don’t have access
to life’s essentials. The outer layer represents the planetary
boundaries that life depends on and must not be crossed.
The doughnut itself is the safe area for humanity to thrive in
within the planetary and social boundaries, within de area
between the social foundation and the ecological ceiling. A social
minimum is needed for decent living standards, which
represents the social foundation. Climate change is having a
bigger influence on the GDP each year. It is becoming more difficult for companies to protect assets
against the risk of the changing climate (heavy weather, …). The risks are becoming way to high,
dramatic changes need to happen because at this pace predictions say that 10% of GDP will be lost
by 2030. There is a clear choice now in what we want our future to look like. Policies?
In politics there is often a reduced focus on reducing emissions. The current tunnel vision is a
problem. There are many factors that need to be considered, like: education, health, poverty, water
crisis, overconsumption, …. These different factors not only influence climate change but also
influence each other. They are individually linked to one another.
Gross Domestic Problem
We created a system where the GDP is used to measure anything and to satisfy people. It needs
to grow to keep everyone happy and for the economy to keep functioning. There are other factors
that need some focusing on, that de GDP can’t do. These factors can be different for the state
(education, public transport, …), households (cooking, cleaning, voluntary work, …) and commons
(people getting together). The GDP doesn’t look at social and environmental costs, only at
transaction costs. A lot of activities, like deforestation, make profit and are good for the value of GDP
but are not at all good for the environment. This system doesn’t keep goof from bad things, it only
tells us if there is a lot of wellbeing or not.
From a socio-ecological economic view, materials are
going into the economy and come back out as waste. We
need regenerative enterprises to contribute positively to
human flourishing (economy), support the community and
offer decent livelihoods (society) and use as little materials
and energy as possible (earth). The challenge is how we can
combine the different spheres in one efficient system.
Welfare measures must be integrated in our GDP-critiques, the benefits and costs of all sorts of
aspects now and in the future. Daly and Cobb came up with the ISEW (Index of Sustainable
Economic Welfare) as a debunking indicator. Later, the variant GPI (Genuine Progress Indicator)
was developed because there was some confusion on what ‘sustainable’ really means or measures.
The GDP-critiques like environmental and social costs, resource depletion, inequity, and unpaid work
Luca Pleysier
, 3
and volunteering are considered, and it distinguishes benefits and costs, while illustrating the need
to move beyond GDP and growth. On the other hand, it is very data intensive, difficult to monetary
valuate and not clear on what is included or not and how they will be valued. Another important
aspect is the diminishing marginal utility of income. If you already have a lot, every extra euro
leads to less and less wellbeing or utility because it doesn’t make much of a difference. Benefits are
decreasing after some time and differ between different income groups.
There are some sustainable developments going on, like: The 17 SDG’s (= Social Development
Goals) and The 5 P’s instead of 3 (People, Planet, Peace, Prosperity and Partnership.
The Iceberg Model
This model is a system thinking tool designed to help discover the patterns of behavior, supporting
structures, and mental models that underlie a particular event. What is visible is only the top of the
iceberg, there is so much more going on underneath the surface. Above the water we see the
symptoms of what is happening, such as
bad air quality. Under the water we see
the causes. To solve our problem by
reconstructing our systems we need to
look at what’s under the water.
At the event level we perceive the world,
problems observed at this level can be
solved by a simple readjustment. For
example, waking up and realizing you have a cold. The level of patterns and trends consists of
similar evets that have been taking place over time. Observing these, allows us to forecast and
prevent them. For example, catching more colds when you’re not sleeping enough. The third one,
the underlying structures level, are the underlying causes of certain patterns we are observing.
This can include physical things, organizations, policies, rituals, …. For example, increased stress
at work. Finally, we have mental models. These are the beliefs that we often learn subconsciously
from our society or family and are likely unaware of. An example of a model is the anthropocentric
view (EGO) versus the biocentric view (ECO). In the first case we take everything from nature for
ourselves, humans are central in the economy/biosphere. This leads to the current situation we’re
in. Within the biocentric view we are a part of nature, we need to regenerate while focusing on our
co-dependencies and how we depend on the living world.
➔ Transition 1.0
This contains only a slight improvement in changing the current system but still doesn’t change the
monetary focus or belief in the free market. It is just about sustaining the current economic system,
an emerging system. On an event level the ecological and social crisis would be taken care of by
improving technology with the goal to increase efficiency. The rebound effect and risk are that
demand, production and resource exploitation can increase. The patterns and trends level will
evolve from linear production and consumption, which ends by becoming waste, to green and
circular products. Current underlying structures like the free markets without involving
governments are believed to serve sustainable goals with government boundaries for excess. The
priority in mental models goes from being money and anthropocentrism to keeping the underlying
mental models untouched.
Luca Pleysier
, 4
➔ Transition 2.0
Really seeing things differently, inner development also has an influence. From incremental change
to a generative system shift. The event level changes to fostering values of regenerative nature
and gross local happiness. Investments with the earth as a shareholder. Green is the only way for
the patterns and trends level, there might be growth but not as the goal. Underlying structures
must have to serve society as the purpose. A functional economy, where the thriving of people and
planet is the mission. Mental models focus on a reconnecting worldview, humans are part of nature.
Transition theory
Systematic changes are needed in societies in response to the environmental crisis we’re facing.
Companies that are doing things differently at a micro-level and are not going for profit maximization
are niches. They serve society and the planet, hoping for them to become the norm. New intentions
are breaking through all the time, some fail and some work. These niches could lead to a new
ecosystem and become more established over time. An ecosystem is a community or group of living
organisms that interact with each other in a specific environment. Constantly new opportunities for
niches are created by landscapes for ecosystems to become more established. We need to make
place for niches, not only now during the sustainable transition but also in the future. The landscape
will put new pressures, and it is important to have resilient systems over time.
Sustainability is thus the capacity of a network to
maintain its flow of energy, matter and information,
in changing contexts. Transition 1.0 was less
damaging, but still did damage. The difference was
the greener focus than before. To really have a
positive impact we should focus more on being
more restorative and regenerative. That is where transition 2.0 comes in. It is focusing on boosting
niches and making those alternatives mainstream to become the new normal.
We discussed EGO and ECO before. Now we also have SEVA, which is selfless service. Acting
selflessly and helping others in different ways, without any reward or personal gain. Just being
connected to the regenerative aspect, the belief that people are of service to the living world.
Sustainability economics, the study of economic systems that support human well-being and
ecological health.
Luca Pleysier
, 5
ECONOMICS AND THE ENVIRONMENT
Economic schools of thought and the environment
The homo economicus is a rational human person who wants to maximize its utility for both
monetary and non-monetary gains. We might think that we are rational, but we never have all the
needed information to make a fully rational decision. Behavioral economics shows us that we are
indeed not as rational as we might think. Our behavior is driven by emotion, instinct and intuition for
95% of the time. This system is by far the biggest one in our brains, compared to the 5% of rational
thinking. Most of the time we act on auto pilot by being unconscious, instinctive, fast and emotional.
This effortless thinking is fast system thinking. The small part where we are slower, conscious,
more logical and rational is the part where we do slow system thinking.
Individuals may have very clear intentions and desires to engage in certain behaviors, but they fail
to follow through on these intentions in practice. This is called the intention-behavior gap. People’s
intentions do not align with their actual behaviors. The path we take depends on the interaction
between the rational and emotional system. None of them is in charge over the other one.
Maximizing utility does not always make you happier, different types of values give you fulfillment:
➔ Egoistic values: reflect a focus on the costs and benefits of a choice and on power or
achievement.
The more you are oriented towards material, ownership and fame, the greater the risk
of unhappiness, insecurity and depression. It gets in the way of relationships, because
you will always compare yourself to others and be afraid of losing what you have.
➔ Altruistic values: motivate individuals to contribute to the wellbeing of others or of society.
➔ Biospheric values: reflect a focus on the costs and benefits to ecosystems or the biosphere.
The more you care about the environment, the less you will go for the materialistic
values. This comes with a lower risk of being unhappy.
The self-interested homo economicus who focuses on the egoistic values (status, power and money)
will not make himself happy, there are other needs as well. These other needs like empathy,
generosity and environmental consciousness give more results in terms of happiness and fulfilment.
Money might decrease social bonds between people. Research showed that people help more when
no monetary reward is granted. Human behavior is not only driven by self-interest, which is not at all
but should be a factor in modern models like The Solow Model or Aggregate Demand Model.
Historic perspective
Early history
They thought of economics as a matter of moral philosophy describing how the society and economy
should be and not how it actually is (normative approach). During the 15th century there was heavy
competition between countries, international trade and mercantilism developed. The economic
policy was aimed at maximizing exports and minimizing imports. Taxes on imports to avoid a trade
deficit where a big thing. During the 18th century, the Age of Enlightenment, political economy was
developed. Economists attempted to measure economic activity and described the working of the
system, rather than looking at only moral implications. This formed the start of the first concepts of
modern macro-economics.
Luca Pleysier
, 6
Physiocrats
The idea that the economic system, like the natural world, operates according to its own laws and
principles. The rule of nature. These principles lead to optimal allocation of resources and the
greatest prosperity for society if they are left to operate without the government intervening. They
believed that de wealth of nations was derived solely from agriculture. It was key in the production,
possessing land. Quesnay developed the Tableau Economique in which he drew the economy as
a human blood system. This was the first economic model, leading to eventually the economic cycle.
Classical economists
➔ Adam Smith
Let the markets do their thing without governments intervening, laissez-faire, and everything
will be fine and go into an equilibrium. Focus on economic growth. Rational individuals make
decisions in their own interest. If everyone acts like this, it will be beneficial for society
because of the invisible hand that will push the economy towards the equilibrium.
Some economists already saw the natural limits due to resource scarcity. Land was
limited and you would first use the more productive land.
➔ Thomas Malthus
The very pessimistic Malthusian trap shows us how population grows but there are limits to
natural resources. At some point there will not be enough food for everyone and there will be
poverty and diseases. Lots of people will eventually die because of this, which will restore
balance by reducing the population again. The same thing will happen repeatedly.
He did not take technology into account.
➔ David Ricardo
Natural resources have a fixed supply and are often uneven in quality. There is a diminishing
marginal return, first the most productive are used. This pushes down profit rates and the
economy comes to a stationary state. There are limits to growth.
Believed in the ability of technology to overcome these limits.
➔ John Stuart Mill
Expressed strong support for preserving the environment and emphasized the public good
nature. Developed the concept of zero growth, if we are at a steady state where we have
reached welfare for everyone, let’s be satisfied and not exhaust nature.
Neo-classical economists
There was a shift from land to factories and unprecedented levels of growth and inequality. The
central economic problem was the organization of allocation of scarce resources. Utility to
consumers was the most important factor in determining the value of a product. This was very
different from classical economists, they assumed a product’s value was determined by the cost of
materials and labor. Man made physical capital now was the most important determinant of
economic growth, nature was no more as important.
➔ W.S. Jevons
Talked about resource scarcity, the Coal Question. Coal was exhausted too rapidly because
it was cheaper, so people used it more. Their thinking should have been that economic growth
was good because they could consume more, so they should have used less resources.
Jevons paradox (rebound effect): technological improvements or efficiency don’t
necessarily lead to reduced amounts of coal, because becoming more efficient means
your production might become cheaper and you might use more.
Luca Pleysier
