Economy and Ecology

The Primacy of Ecology

First, let me get one thing stated very clearly, ecology and economy are related. The Greek word oikos, or as translated, home, serves as the root for both. Ecology is the study of our home. Economics is the management of the home. Ecology seeks to understand all the interrelated pieces in the home, or in this case the home system, or ecosystem. Economics attempts to describe how humans interact with all these pieces, developing a means of exchange between all the pieces as mediated by human interactions and trade. All economics falls within the boundaries of ecology, but only a small fraction of the interrelationships in ecosystems are of interest to economics. Economists, those who study the trade, movements, changes, and exchange of pieces of ecosystems, tend to ignore relations with ecosystems that do not involve measurable components, much to their loss and peril. This lies at the root of fallacies in economic assumptions.

Of late a few economists are waking up to the fallacies and exposing the failings of dominant economic theory. Steve Keen is one I have read to some degree. He writes a Substack with some frequency, and has appeared as a guest on The Great Simplification, which is where I first heard of him. He thinks the errors of modern economics have its roots in Adam Smith and David Ricardo, two early pillars of modern economics. One problem lies in energy. Adam Smith ignored it, even though the industrial revolution, starting with James Watt’s improvement of the steam engine, was entirely dependent on the extraction of coal as an energy source. Smith defined capital, the means of production (the machines, building and design generating products for the market, owned by a select few) and labor, which acts using the means to produce products for market, as the two components of Capitalism. Keen thinks this failure to name energy, the power to do work, was a fundamental flaw. He also implies that raw material, extracted from ecosystems using energy and labor, must be included as well. While an extracted material may not be globally rare, for example copper, its source material of rock and ores, becomes increasingly expensive to extract as the quality of the ore diminishes through time. Failure to note this can collapse the discipline, or at least that part of the dismal science that ignores the energy and raw material variables.

My background lies in natural resources and ecology especially as it relates to agriculture. I studied soil science, international agriculture, and natural resources at Cornell University. For a brief time, I considered agricultural economics as a minor in my PhD program. That lasted about two weeks. At the time I did not fully understand why economics classes were so distasteful. The professors were highly rated, the textbooks were written by top people in their field, so it was not that. The best example of my disgust came from a production economics course. The professor used an example of egg production on a farm to describe how you could use the equations given in the textbook and on the blackboard (yes, chalk in those days of yore). The equations were understandable, but something was wrong, so I asked a couple of questions. “You feed the chickens corn and soybean-based feed, and you have a cost of feed in the equation, but how do agricultural subsidies skew or disguise these costs?” The professor looked at me and said, basically (from my memory not his words), you don’t have to consider that because it is outside the production system of eggs. You just consider it at the input point. I nodded and continued listening. Then I saw another issue. “Chickens poop, where in your equation do you account for the cost of dealing with chicken litter?” He answered, chicken litter is a farm-based cost, not related to the production of the eggs as priced and sold by the corporation. Oh. Here I got belligerent, “Have you ever been on a chicken farm? Litter stinks, so farmers have to deal with it. Shouldn’t that be part of production?” He looked at me with some disgust. That is not relevant to the production process. He did not look at me again. He couldn’t. I dropped the class.

I never understood the logic and assumptions used in economics as taught by classical, neoclassical and neo-liberal economists. Perhaps this was due to my understanding of ecology, or perhaps it was because I never understood those complex mathematical equations they liked to use to prove they were a science. Herman Daly, Steve Keen, Kate Raworth, and James Galbraith (and his father John Kenneth Galbraith) have shown me that I was at least on the right track, even though I have to work quite hard to understand the math in their critique. Truthfully, I am not sure I do, but I do get their basic assumptions. You cannot leave energy out as a basic contributing factor in any economic analysis. It is always necessary. When you consider energy then you also have to include an understanding of basic laws of thermodynamics. Energy cannot be created or destroyed; it can only be converted to another form. Energy exists as potential energy, gets converted to kinetic energy (or, work), and ends up dissipating into the universe. This leads to the second law: the dispersal of energy to the universe, or entropy is always increasing. If you are going to have an increase in order, then the net energy given off as heat (and disorder) is always equal to, or greater than, the energy in the newly ordered item. This is true whether engineers design and build an airplane, or a chicken lays an egg. There is always waste and heat, and the energy of those is greater than the energy in the product.

The prospect of continuous growth in an economy is a product of mainstream economics, whether you call it classical, neo-classical or neo-liberal. It makes an assumption that the economy exists in an open system, where natural inputs (or, found substitutes for these) are readily available without known limits. Earth is not an open system, with one exception. There is a steady, near constant input of solar radiation. All other resources beyond this electro-magnetic input are bounded by the atmospheric and material limits of the planet. Ecologists and other scientists refer to these as planetary boundaries, lines we should not cross lest we put ourselves into overshoot, which inevitably leads to collapse if not rapidly corrected. Kate Raworth drew on this broader ecological research to work on a book called Doughnut Economics (Raworth, 2017). I have taken the following graphic from her website:

Doughnut Economics: Planetary boundaries we have, but should not, cross (Raworth, Doughnut, 2025).

In the diagram above there are 9 planetary boundaries, and we have crossed four of them: climate change (as measured in carbon dioxide equivalent forcing), nitrogen and phosphorus loading, land conversion, and biodiversity loss. Since publication of this in 2017 scientists think we have crossed two more: chemical pollution (plastic and pesticides among others), and freshwater withdrawals. There is a meeting in Europe, as I write this, about the ocean acidification boundary. Many scientists insist that we have crossed this one as well. The inside of the doughnut consists of social foundation shortfalls. These are things society and governance should handle, but do not do so adequately. This is calculated on a country-by-country basis, and all countries fail in one or more, but as a whole, people suffer when needs cannot or are not met. It takes a book to describe the full meaning of the diagram, and Kate Raworth’s is worth the read. It would take other books to detail the failings with each country. I will discuss only one of the ecological ceilings we have crossed for this short essay, nitrogen and phosphorus.

Nitrogen and phosphorus are counted as macronutrients for plant growth along with potassium, calcium, magnesium and sulfur. They were not really identified with certainty as key elements for plant growth until the 19^th century. Justus von Liebig played a central role in identifying and characterizing the chemistry of these elements, and developing the concept of limiting factors. Both nitrogen and phosphorus were important limiting factors. Up to this point in agriculture most nutrient management involved the return of manure to agricultural fields, and the making and using of compost. Some farmers began supplementing this with guano sourced from islands off the coast of Peru, and a few points on the mainland of Peru and Chile, where sea birds, especially cormorants, feasted on the abundant anchovies growing in the upwelling, nutrient rich waters of the Pacific Ocean. When deposited on land the guano dried out since the Atacama Desert region is one of the driest places on earth. This supply of both nitrogen and phosphorus was not sufficient to meet the needs of agriculture, combined with the nitrogen demand from the munitions industry, so the quest was on to find a way to fix nitrogen from the air.

The quest was achieved by Fritz Haber, and commercialized by Carl Bosch, in 1908 and the following years. While the ammonia produced in the reaction Haber devised, the energy cost and price of the product was too high for immediate impact. Then World War I intervened. Haber, who was highly nationalistic, and not a nice man overall, went on to devise poison gas strategies for the war, and later invented Zyklon B, used by the Nazis to exterminate Jews in gas chambers. The two world wars allowed expanded production of ammonia for munitions, and that surplus capacity at the end of the second world war went directly into agriculture. The most energetically intensive part of ammonia production involves making hydrogen gas, which does not occur naturally on earth as it easily escapes the atmosphere and is highly reactive. Post WWII production gradually switched from coal to methane as both the source of hydrogen and the source of heat to drive the process. which reduced the cost. According to Vaclav Smil the original energy cost of producing one metric ton of ammonia was 100 gigajoules, but this came down to about 20 gigajoules per ton in 2000 (Smil, 2001). 20 gigajoules is equivalent to about 5,555 kilowatt hours of electricity. I can drive about 25,000 miles on that amount of energy.

Ammonia can be used directly as fertilizer, or companies convert it to solid fertilizers like ammonium nitrate, ammonium sulfate, potassium nitrate and more, using less energy intensive processes. All of these are used to grow crops like corn, cotton, wheat, rice and a wide variety of fruits and vegetables. The problem arises from the solubility of all nitrogen compounds. They like to dissolve and move in water as salts. Runoff, or leachate water from farms then gets into streams, lakes, rivers and eventually the ocean where it contributes to nutrient pollution. It was nutrient pollution that rose with rising population and the use of nitrogen and phosphorus fertilizers, which stimulates uncontrolled algae growth in lakes and estuaries, and led to the passing of the Clean Water Act in 1972. The act helped clean up many of the municipal sources of nutrients through wastewater treatment plants and point source pollution outlets from manufacturing and food processing, but it did not impact agricultural pollution as these are considered non-point sources, meaning there is no identifiable point for entry for the nutrient load. We count this as an externalized cost of agriculture.

An externalized cost is simply any cost that is not paid by the producer or system of production, but takes a toll outside of setting the price of that good. A buyer pays for a bushel of corn, but does not pay for the pollution production of that corn causes. That price is absorbed, for better or (mostly) worse, by the environment that receives the pollutant. For example, the Maumee River flows through the farm country of northwest Ohio, and enters Lake Erie near Toledo. Every year the river carries a flush of nutrients to the lake causing a massive algae bloom. The picture below shows the bloom in 2017. Since 12 million people use the lake as a drinking water source, the algae pollution raises the price of cleaning the water. The cost is paid by consumers of water, not for the cost of corn. This does not count the cost paid by wildlife in, on, and around the lake. These are referred to as costs to the commons: the water, air, and public land that is shared by all. The ecology suffers even as the economy of farmers, and especially the corporations they sell to, benefit. Would we buy beef, pork, chicken, corn syrup, cornbread or ethanol in our gasoline if we really understood that the cost of our purchase was the destruction of Lake Erie?

Algae Bloom, Lake Erie, 2011 (Shingler, 2017)

Nitrogen and phosphorus loading are a global boundary we have crossed. Continuing to operate as we are will eventually lead to the destruction of the commons impacted by crossing that boundary. When we only pay attention to the economics of an action and fail to see the impact on the larger, inclusive context, the ecosystem where the action takes place, then we run into these problems. It is time that we recognize the primacy of ecology. Ecosystem health, and our health, ultimately depend on it.

Works Cited

Raworth, K. (2017). Doughnut Economics: Seven Ways to Think Like a 21st Century Economist. Chelsea Green Publishing.

Raworth, K. (2025, 5 30). Doughnut. Retrieved from Kate Raworth: Exploring Doughnut Economics: https://www.kateraworth.com/doughnut/

Shingler, D. (2017, October 14). 10 years after algae bloom crisis, Lake Erie recovery has been mixed. Retrieved from Crain's Cleveland Business: https://www.crainscleveland.com/crains-forum-lake-erie-health/decade-after-algal-bloom-crisis-lake-erie-progress-lags

Smil, V. (2001). Enriching the Earth: Fritz Haber, Carl Bosch and the Transformation of World Food Production. Cambridge: MIT Press.e