The Economy and the Environment: Two Parts of a Whole

Abstract

The purpose of this chapter is to describe the ways in which the economy and the natural environment are interlinked. To an extent, these interlinkages are all-embracing; every economic action can have some effect on the environment, and every environmental change can have an impact on the economy. By 'the economy', we refer to the population of economic agents, the institutions they form (which include firms and governments) and the interlinkages between agents and institutions, such as markets. By 'environment', we mean the biosphere, the 'thin skin on the earth's surface on which life exists', to quote from Nisbet (1991), the atmosphere, the geosphere (that part of the earth lying below the biosphere) and all flora and fauna. Our definition of the environment thus includes life forms, energy and material resources (see Chapter 8), the stratosphere (high atmosphere) and troposphere (low atmosphere). These constituent parts of the environment interact with each other: an example is the effect of changes in biosphere composition on the composition of the atmosphere. (The effect of biological entities on their physical surroundings forms the basis of the Gaia hypothesis: see Lovelock, 1987.) Such interactions will be important throughout this book. Even more important from our perspective are the effects of human activity on the environment, and the consequences of these affects on human well-being.