In his iconic economic treatise The Wealth of Nations, Adam Smith never mentions the words ânatural capital.â Instead, he neatly divides the world into two kinds of capital not consumed by the economy: physical capital (machines and factories) an
In his iconic economic treatise The Wealth of Nations, Adam Smith never mentions the words ânatural capital.â Instead, he[neatly divides]( the world into two kinds of capital not consumed by the economy: physical capital (machines and factories) and human capital (skills, expertise, and knowledge).
But even Smith grasped that nature, [as the source of our shelter and sustenance]( held the key to human prosperity. Today, 7.8 billion humans are now consuming more energy and resources than Smith may ever have imagined, leading economists to dust off the concept of natural capital and put it in terms the rest of us can understand: Natural capitalâthe dollar value of the services nature provides, from clean water to breathable airâis worth more than[$160 trillion]( (pdf) every year.
Think of that like free interest from natureâs bank account, only weâre quickly depleting the principal and running a deep deficit. Now an entire field of economics and ecology has sprung up to define, map, and track the worldâs declining stock of natural capital.
If they can convince us to value it more, we may just avoid bankruptcy after all.
Letâs buy in.
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[Quartz Weekly Obsession]
Natural capital
August 12, 2020
The true wealth of nations
---------------------------------------------------------------
In his iconic economic treatise The Wealth of Nations, Adam Smith never mentions the words ânatural capital.â Instead, he[neatly divides]( the world into two kinds of capital not consumed by the economy: physical capital (machines and factories) and human capital (skills, expertise, and knowledge).
But even Smith grasped that nature, [as the source of our shelter and sustenance]( held the key to human prosperity. Today, 7.8 billion humans are now consuming more energy and resources than Smith may ever have imagined, leading economists to dust off the concept of natural capital and put it in terms the rest of us can understand: Natural capitalâthe dollar value of the services nature provides, from clean water to breathable airâis worth more than[$160 trillion]( (pdf) every year.
Think of that like free interest from natureâs bank account, only weâre quickly depleting the principal and running a deep deficit. Now an entire field of economics and ecology has sprung up to define, map, and track the worldâs declining stock of natural capital.
If they can convince us to value it more, we may just avoid bankruptcy after all.
Letâs buy in.
ð¦ [Tweet this!](
ð [View this email on the web](
Giphy
Playlist
To help you get in the natural capital mindset while you read, weâve put together a playlist with music inspired byâor directly made byânature itself.
[Check it out on Spotify](
By the digits
[2.3 hectares]( Amount of biologically productive space (arable land, pasture, forest, and ocean) available for each person on the planet in 1997
[1.2 hectares:]( Amount left per person once the world population reaches[10.9 billion]( by 2100
4.2 hectares: Amount of space the average citizen occupies through their annual consumption of goods and services, mostly in developed nations
10,000 square meters (~12,000 square yards): A hectare (youâre welcome)
[$5 to $23 trillion]( Value of services sacrificed per year from habitat loss and environmental degradation
[1.7]( Number of Earths it takes to sustain todayâs global level of consumption of natural capital
[86%:]( Share of countries living beyond their natural means, thereby generating an âecological deficitâ
[$5.7 billion]( Annual contribution of the Great Barrier Reef to the Australian economy each year
Reuters/Thomas Mukoya
Explain it like Iâm 5!
Vocabulary lesson
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From Karl Marx to John Maynard Keynes, economic thinkers have conceived of capital as productive stuff (factories, machines) and humansâ capacity to do something with it (skills, knowledge, and expertise). While these inputs may provide a [flow of goods and services]( (pdf) well into the future, it largely ignores the source on which it all depends: nature itself.
In 1973, E.F. Schumacher first proposed the term â[natural capital]( in his book[Small Is Beautiful]( describe soil, air, water, animals, plants, and the[ecosystem services that make human life possible,]( like[a trust fund,]( where humans and wildlife are the beneficiaries.
After nearly a century living with[gross domestic product]( as the central measure of national wealth, economists are asking whether weâre measuring âwealthâ all wrong. If we buy economic growth at the expense of poisonous air and lifeless oceans, are we really richer? New measures of wealth have emerged, from the Index of Sustainable Welfare (ISW) to the UNâs Inclusive Wealth Report to[genuine progress indicator](. They note that while GDP has risen significantly, destruction of natural capital means weâre poorer than we imagine.
Million-dollar question
What is the value of Earthâs natural capital?
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Itâs hard to put a value on something as priceless as nature,[critics argue.]( But nevertheless, economists gotta try.
Published by Nature in 2011, Robert Costanza and his co-authors estimated the value of the services natural capital provides as at least[$160 trillion]( (adjusted for inflation), three times higher than just a few decades earlier. But losses are mounting all the time. Each year, environmental degradation and habitat loss have reduced the value of that stream by[$5 to $23 trillion annually.](
Beyond money, thereâs another way to think about natural capital: our â[ecological footprint]( By calculating how much natural capital we consume each yearâand the ecosystems needed to maintain itâwe see how much weâre pulling from natureâs bank account.
Humanity now needs the equivalent of[1.7 Earths]( to sustain todayâs global level of consumption, according to the New Economics Foundation, and that number keeps getting larger. Itâs derived by dividing humanityâs total demand for ecological resources by how much of those resources the planet generates each year. While not a perfect number (thereâs uncertainty in the methodology for calculating ecosystem degradation), the trend is unmistakable.
Completely unfun fact!
Mark your calendars, but do it in pencil: The symbolic day of the year when humanity âovershootsâ the Earthâs carrying capacity is creeping steadily earlier. In 1970, â[Earth Overshoot Day]( was in late December. This year, itâs Aug. 22.
To take into account all of 2020âs weirdness, this yearâs calculation [was a little different]( (and a little less grim). But that doesnât mean you should celebrateâweâre [on track to make up for it]( and then some. Yay, humans.
Giphy
Pop quiz
Which of the following is not included in the concept of natural capital?
FireEarthAirWater
Correct.
Incorrect.
If your inbox doesnât support this quiz, find the solution at bottom of email.
Brief history
[1776:]( Adam Smith publishes The Wealth of Nations, connecting agriculture with an early concept of natural capital.
[1937:]( Simon Kuznets, an economist at the National Bureau of Economic Research, formulates gross domestic product (GDP) for the first time. Natural capital is unmentioned.
[1970:]( Human consumption begins to surpass Earthâs capacity to regenerate resources, according to the Global Footprint Network, which identifies the day that year when humans began to overshoot Earthâs biocapacity (Dec. 29).
[1973:]( E.F. Schumacher proposed the term ânatural capitalâ in his book Small Is Beautiful to show how modern economists erroneously treat the[depletion of natural capital stocks as income](.
[1989:]( Ecological economist Herman Daly and theologian John Cobb develop the Index of Sustainable Economic Welfare (ISEW), a metric of welfare that includes natural capital. It forms the basis for the[Genuine Progress Indicator]( (GPI) which assesses 26 variables related to economic, social, and environmental progress.
[1995:]( Maryland adopts the GPI. Vermont follows suit in 2012.
[2006]( China creates a âgreen GDPâ index for national economic output considering environmental factors. Accounting for environmental damage would have reduced Chinaâs GDP by 3% in 2004.
[2012:]( Forty-three institutions, including the International Finance Corporationâthe private arm of the World Bankâurge companies to reveal their dependence on natural capital and the damage they do to it in their annual statements. Ten African countries make the Gaborone Declaration for Sustainability, pledging to â[incorporate the value of natural capital]( into their policies and decision-making.
[2016:]( The Natural Capital Protocol is released for businesses to â[identify, measure and value their direct and indirect impacts and dependencies on natural capital](
Quotable
âIndustrial Capitalismâ¦does not fully conform to its own accounting principles. It liquidates its capital and calls it income. It neglects to assign any value to the largest stocks of capital it employsâthe natural resources and living systems, as well as the social and cultural systems that are the basis of human capital.â
â[Natural Capitalism: Creating the Next Industrial Revolution]( by Paul Hawken, Amory Lovins, and Hunter Lovins, published in 1999
Giphy
Poll
How do you describe your own relationship with natural capital?
[Click here to vote](
Pretty sure I, personally, am not overdrawingI try, but sometimes it feels too difficultI give upâitâs beyond an individualâs control at this point
Ana Cuna for Quartz
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