An Institutional and Evolutionary Critique of Natural Capital

Sustainability, in the discourse of neoclassical economics,1 is thought of as maintaining a constant or increasing level of utility (consumption in the standard formulation) which depends, in turn, on maintaining the stock of capital assets generating that utility (Hartwick, 1977; Solow, 1974). In this way capital has been elevated to a central position in neoclassical discussions of sustainability. Ecological economists2 have refined and extended the discussion of sustainability by introducing and popularizing the concept of natural capital. Focusing on natural capital as distinct from man-made capital has brought the biophysical context of economic activity front and center (Krall and Klitgaard, 2011). As Costanza (1994, 394) put it over 20 years ago: ‘…we are now entering an era, thanks to the enormous increase of the human scale, in which natural capital is the limiting factor. Human activities can significantly reduce the capacity of natural capital to yield the flow of ecosystem goods and services upon which the very productivity of human-made capital depends’. In the ensuing years a considerable effort has been invested by ecological economists in sorting through the best way to account for natural capital. It is important to clarify our understanding and use of natural capital, especially given its centrality in the discourse and methodology of ecological economics.