Making Pollution into a Market Failure Rather Than a Cost-Shifting Success: The Suppression of Revolutionary Change in Economics

This paper explores core failures of environmental economics as a scientific attempt to understand the ecological crises. The case of environmental pollution is used to show how neoclassical externality theory evolved to establish commitment to, and dogmatic support for, an elitist ethics and liberal market ideology. The public policy response to pollution then recommended is to internalise externalities by correcting market prices based on monetary valuation of the social costs (i.e., damages). Pollution as a market failure is deemed a correctible error of the price system. This is contrast with an alternative theory of pollution based on a classic institutional economic theory of cost-shifting that instead requires a public policy response involving regulation and planning. Reflection on the history of thought related to these two theories of pollution reveals how environmental economics became a marginalised field supporting the neoclassical economic orthodoxy with full commitment to its core paradigms. Why the critical and realist institutional approach had to be suppressed is explained as denying the potential for a revolutionary paradigm shift in economic price theory.