Routledge Historical Resources History of Economic Thought Nature, Environment and Political Economy To link to this article: http://dx.doi.org/10.4324/9781138201521-HET15-1 Downloaded By: At: 10:00 5 Nov 2017 From: 172.31.31.212 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: 5 Howick Place, London SW1P 1WG, UK Full terms and conditions of use: https://www.routledgehistoricalresources.com/economic-thought/terms. Nature, Environment and Political Economy Guido Erreygers Department of Economics, University of Antwerp, Antwerp, Belgium; Centre for Health Policy, University of Melbourne, Melbourne, Australia Abstract Economists have perceived the natural environment not only as a source of wealth but also as a factor which could limit economic growth. The diversity in viewpoints partly reflects profound changes in the economic fabric of society, such as the shift from an agricultural to an industrial economy. Contributions by economists from the pre-classical, classical and neoclassical periods illustrate the major insights gained with regard to the role of nature and the environment. From nature as the ultimate source of wealth to the environment as a limit to economic growth: significant shifts have occurred in the way economists have treated nature and the environment in their theories. In pre-industrial times it was not unusual for economists to express the view that nature, and especially land, contributed just as much to the creation of material wealth as man. Physiocracy, arguably the first school in the history of economic thought, even claimed that only labour in agriculture was productive because it was supported for free by nature. With the development of industry, however, capital came to be seen as a more important factor of production than nature. This does not mean that economists completely neglected nature and the environment. The use of natural resources was frequently linked to diminishing returns and to limitations to economic growth. Moreover, many economists tried to understand and explain how the incomes earned by owners of natural resources were determined and what influence this had on the rest of society. This essay highlights a few selected contributions made by well-known economists over a large period of time. For broader, richer and more detailed accounts of the place of nature and the environment in the history of economic thought one should consult the work of Juan Martinez-Alier (1987), Erhun Kula (1998) and Nathaniel Wolloch (2017). As far as classical political economy is concerned, the historical notes in the books by Heinz Kurz and Neri Salvadori (1995) and by Christian Bidard (2004) offer informative insights; with respect to this school of thought, the essay is partly based on Erreygers (1998). Nicholas Georgescu- Roegen (1971) and Philip Mirowski (1994) explored the connections between economics and the natural sciences. Downloaded By: At: 10:00 5 Nov 2017 From: 172.31.31.212 For: 10.4324/9781138201521-HET15-1 Downloaded By: At: 10:00 5 Nov 2017 From: 172.31.31.212 For: 10.4324/9781138201521-HET15-1 William Petty and Richard Cantillon: labour and land William Petty famously stated ‘That Labour is the Father and active principle of Wealth, as Lands are the Mother’ (Petty 1899 [1667]: 68). Elsewhere, he talked about ‘Hands being the Father, as Lands are the Mother and Womb of Wealth’ (Petty 1899 [1676]: 377). These striking metaphors indicate that Petty saw nature as playing an essential role in the 2 Nature, Environment and Political Economy economic process. Hardly surprising, of course, as he was living in a society dominated by agriculture. Interestingly, he extended his view about the crucial importance of labour and land to his conception of value and argued that the intrinsic value of goods depended on the amount of labour and the amount of land that went into their production. This labour-cum- land theory of value, however, could be of use only if a ‘natural Par between Labour and Land’ (Petty 1899 [1667]: 44–5) was established, allowing the conversion of one factor into the other. More than half a century later, echoes of Petty’s insights abound in Richard Cantillon’s Essai sur la Nature du Commerce en Général. He opened the book with the statement that ‘The Land is the Source or Matter from whence all Wealth is produced. The Labour of man is the Form which produces it’ (Cantillon 1931 [1755]: 3). Reflecting this view, Cantillon chose to discuss the role of land before that of labour, and as a result land figures prominently in the first chapters of his work, which deal with the emergence of villages, towns and cities. The influence of Petty also shows up in Cantillon’s value theory. Just like Petty, Cantillon maintained that the intrinsic value of goods was determined by the amounts of land and labour required for their production. However, he was not convinced by Petty’s ‘fanciful’ approach to the problem of the determination of the par (ibid.: 43), and therefore decided to devote a whole chapter to the issue. His solution consisted of attempting to convert all forms of labour into land, which means that he ended up with what might be called a land theory of value rather than a labour theory of value. Physiocracy: the rule of nature Land, and nature in general, became of central importance to François Quesnay and his followers, the French Enlightenment economists of the second half of the eighteenth century who were part of the physiocracy movement. The name of the school means ‘rule of nature’, by which the physiocrats referred both to their belief in the existence of a natural order and to their conviction that agriculture was the only truly productive sector of the economy. The manufacturing and trading sectors transformed material goods into other forms (e.g. the production of luxury products by means of raw materials) or moved them from one place to another, but these activities were not capable of generating a surplus. Only in agriculture, where nature labours alongside man, a surplus (or net product, in physiocratic terminology) can be created. The goal of economic policy was to increase the size of the net product, for instance by encouraging a shift from petite culture (oxen-based agriculture) to grande culture (horse-based agriculture) (see Walter Eltis 1984: chapter 1). The Tableau Rconomique was conceived to visualize how the different sectors of the economy were interrelated, to show how the net product was produced and consumed and how goods and money circulated in an economic system. Originally developed by Quesnay around 1758, it was the object of various presentations and analyses in the years thereafter (see e.g. Quesnay 2005 [1766]), and eventually inspired Wassily Leontief’s input-output theory. In their writings the physiocrats repeatedly emphasized that economic prosperity depended upon agriculture being in good shape. They criticized the mercantilist policies adopted in France, which favoured the production and trade of luxury goods in towns and neglected the agricultural sector. As a result, fields and vineyards were abandoned and people were moving Downloaded By: At: 10:00 5 Nov 2017 From: 172.31.31.212 For: 10.4324/9781138201521-HET15-1 Downloaded By: At: 10:00 5 Nov 2017 From: 172.31.31.212 For: 10.4324/9781138201521-HET15-1 out of the rural areas into the cities (see e.g. Quesnay’s entry on ‘Grains’ in the Encyclopédie; Quesnay 2005 [1757]). They went to great lengths to estimate the value of the net product of France and subsequently compared it to that of England, which in their view had a more developed agriculture (Quesnay 2005 [1763]). Nature, Environment and Political Economy 3 Adam Smith: rent and natural prices Even though he appreciated many aspects of physiocracy, especially its emphasis on free trade, Adam Smith distanced himself from the notion of the exclusive productivity of agriculture. That being said, he did pay a lot of attention to land, and to other natural resources as well, in The Wealth of Nations (1776). The main issue was the determination of the price for the use of land, i.e. rent. It is safe to say that Smith’s explanation of rent is perhaps one of the least convincing elements of his economic analysis. His treatment of rent is not always easy to follow, lacks profundity and contains contradictory statements. For instance, it seems hard to reconcile the notion that rent is one of the constituent components of the natural price (Smith 1976 [1776]: I.vii.33) with the idea that rent is a residual, what is left for landowners after wages and profits have been paid (ibid.: I.xi.a.8). In fairness to Smith it must be observed that he distinguished different types of land, such as uncultivated and cultivated land, and different kinds of agricultural product, with corn receiving special attention. In this way, Smith allowed rent to enter into the price of agricultural commodities in various ways, and as a result ended up proposing different explanations of rent. Interestingly, Smith extended the notion of rent to mines, such as coal mines and silver mines (ibid.: I.xi.c). He focused on fertility and location as the main factors to explain the amount of rent their owners could earn. Thus he foreshadowed the idea that some rents are due to variations in productivity of natural resources. One of Smith’s contemporaries, James Anderson, elaborated the idea more rigorously than Smith had done, and in the process developed one of the first formulations of the theory of differential rent (Anderson 1968 [1777]: 376). Anderson applied the principle to the production of corn rather than to the production of minerals and ores.