From Environmental Economics to Ecological Economics

Traditional neo-classical economics analises the process of price formation by considering the economy as a closed system: firms sell goods and services, and then they remunerate the production factors (land, labour and capital). It is interesting to note that while classical economists such as Malthus [1798], Ricardo [1817], Mill [1857] and Marx [1867] had clear in their minds that economic activity is bounded by the environment, neo-classical economics completely forgot this important characteristic of real world economies up till to the seventies when it was started the debate on social and environmental limits to economic growth1. Real economy started to be seen as an open system that in order to function must extract resources from the environment and dispose large amounts of waste back into the environment. This is the so-called materials balance model [Ayres & Kneese, 1969; Kneese et al., 1970].