Neoclassical, institutional, and marxist approaches to the environment-economic relationship

November 21, 2010, 9:14 am


The long list of ecological complaints plaguing the world today includes many urgent problems. Overpopulation, the destruction of the ozone layer, global warming, the extinction of species, loss of biodiversity, acid rain, nuclear contamination, tropical deforestation, wetland destruction, soil erosion, floods, famine, contamination of groundwater, pollution of coastal waters, the destruction of coral reefs, over-fishing, oil spills, expanding landfills, toxic wastes, urban congestion, and the depletion of non-renewable resources are all common problems in the world today. Policy makers hoped that the 1990s would be the critical decade for change to save the Earth, yet 10 years after the Rio Earth Summit these problems are still with humanity. There are various political economic approaches for understanding why this environmental-economic conflict exists. With the rise of environmental awareness in the 1970s the main schools of thought within political economy revisited their theorizations. The Neoclassical, Institutional and Marxist schools of thought have adjusted their theories to account for the environment in various ways. This article will review how these approaches conceptualize the relationship of the environment and economics. It will be shown that despite the introduction of the environment as a new category for analysis, each school maintains the epistemological standpoint, analytical approach, operative categories, and instruments of intervention predicated by their predecessors.

The Neoclassical approach

Traditional neoclassical theory rests on several abstractions, the foremost being individualistic utility theory, the theory of the firm, and the theory of the market. Elaborate criticisms of these abstractions have been developed, one of which discusses the misplaced concreteness of neoclassical theorizations. Some critics protest against the neoclassical method of abstraction in which all activity is reduced to the price mechanism, thereby abstracting from the social and environmental spheres in which transactions operate. Moreover, critics assert that the neoclassical reduction of humans to rational self-interested individuals removes all of the non-marketable traits of real people such as benevolence or malevolence. As well, the theory of the market abstracts away from all non-marketable objects which exist in the real world. As such, if the environment does not enter the process of production or consumption, in monetary terms, the neoclassical market cannot account for its use. For the biophysical world policies directed by traditional neoclassical thought can be disastrous since the explicit exclusion of the environment from theory implies that it will be free and thereby over-consumed in practice.

Neoclassical economics recognizes that deficiencies in traditional theorizations occur when true social or ecological values are not adequately accounted for by market prices. In response, the field of environmental economics was developed, in the neoclassical tradition, to deal with the environmental inadequacies prevalent in mainstream theory. Unfortunately, the analysis and solutions offered by environmental economics maintain the same epistemological standpoint, analytical approach, operative categories, and instruments of intervention of the traditional theory, thus rendering the theory incomplete, at best.

Neoclassical theory locates the economic explanation of the degradation of nature in a lack of markets for environmental goods. This degradation is expressed operationally as the overuse of natural resources or waste disposal above an ecosystem’s assimilative capacity. When market prices fail to reflect the true cost of an environmental good or damage, the neoclassical school contends that market failure has occurred. Market failure is possible in three instances: imperfect market structures, public goods or externalities.

Imperfect Market Structures

As Daly and Cobb note, imperfect market structure is due to the tendency of the market to erode its own requirements. Market competition among firms leads to fewer firms and increased monopolization, as power becomes centralized. Neoclassical economists have developed elaborate theorizations as to why this is the second-best alternative to the ideal perfect competition structure utilized in neoclassical market theory. Neoclassical economists argue that imperfect market structures are in favor of the biophysical environment since, according to their model, production will be lower in these circumstances then in the perfectly competitive model. By using abstractions of the firm and imperfect market structures to deduct the input and output levels of industry, neoclassical economics reaches erroneous conclusions about the environmental reality of imperfect markets. In reality, oligopolostic structures usually lead to large competitors exploiting resources in the pursuit of larger market shares—an evident example is automobile manufacturing. Moreover, there is no evidence to believe that monopolistic markets conserve the environment. Hypothetically, output levels decrease in markets characterized by monopoly, even if this deduction is taken as true, there is no guarantee that a monopolistic firm would choose a production structure or technological process that is optimal for the environment. The neoclassical arguments that an imperfect market structure is a conservationists’ best friend, are based on a simplistic view of the firm from the sole aspect of output and market structure. The arguments do not consider the institutional variables which determine the type of output, technology or production processes chosen. These variables have a direct effect on the environmental impact of firm operations, regardless of the prevailing market structure. Moreover, the neoclassical argument is not reflected in reality, where firms with uncontested market power tend to increase output at the expense of the environment.

Public Goods

Another form of market failure occurs in the case of public goods, which once provided to one person are provided to everyone, regardless of each individual’s willingness to pay. In market theory the firm has no motive to provide public goods due to their non-profitability characteristic, even though such goods are beneficial and wanted by individuals. Public goods often have a “free rider” problematic and as such the price system cannot adequately measure the value of the good in question. Within this framework, the overuse of natural resources is seen as the consequence of a lack of well-defined property rights. Without well defined property rights, readily available resources are priced cheaply to current users—a problem Hardin named ‘the tragedy of commons’. According to Hardin:

"ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all."

For neoclassical theory the failure of the price mechanism, in the case of public goods, is a failure in the sense that environmental degradation will translate itself into a loss of efficiency as rapid extraction rates bring about a departure from the optimal allocation of resources. The destruction of intrinsic environmental quality, or of an environmental element with an ecological purpose, are not market failures. For neoclassical theorists, only the misallocation of resources and inefficiencies are failures. Thus, to restore efficiency, to the rate that will maximize the social collective return, private property must be introduced. The Coase theorem asserts that when property rights are clearly defined, market transaction can occur in which compensation for environmental use reflects the value of the natural resource to the property holder, thereby ensuring an efficient allocation of economic activity. Thus, for neoclassical economists everything from the animal exploitation during the early fur trade in Canada to the current loss of biodiversity and genetic resources is blamed on lack of private property. According to Coase, assigning private property will return the system back to the optimal system of exchange. As such, the neoclassical solution to the public good problem advocates the assignment of property rights in order to place an environmental good on the market as any other tradable good. Thus, the environment can enter market theory, be subjected to the laws of supply and demand, and be allocated in an optimal way. In open access cases, which cannot be resolved with private property, the resources inevitably face inefficient allocation since they cannot be assigned to an owner who can give a signal to the market that would reflect the worth of the open access environmental good relative to other goods.

The solution to the public good problem, presented by neoclassical economists, remains within the conceptualization of humans as self-interested rationalizing maximizes. In theory, the selfish individual will only have an incentive to protect the environment when it is his or her own private property. Therefore, only private property of environmental resources will motivate individuals for its protection. However, by abstracting as such, the theory cannot account for the fact that some people go to extreme lengths, by way of funding or campaigning, to preserve species or environments which they personally may never see or use as their own private property. Moreover, in order for the solution to work it requires that property rights can be well defined, enforced, distributed, and that there is a competitive systems of interested parties who can come together to negotiate over property rights. In reality none of these conditions may be met. For example, tribal people of the Amazon interested in preserving biodiversity may not have the ability to enforce their property rights due to institutional inadequacies. As well, the only party to negotiate property rights with may be a powerful logging company interested in wood over biodiversity who holds an advantageous position in the negotiation process. Finally, it is questionable if the interested parties can come together and negotiate the property rights due to social, cultural, language, and financial barriers. The neoclassical solution, in such a case, would not be possible or would not necessarily lead to protection of the resource.

Moreover, private property as a theorization and solution to environmental protection remains wholly anthropocentric, and consistent with the traditional neoclassical approach in which humans are the only agents in society. As well, even if the neoclassical theorization of public goods is taken as valid, environmental quality may still not be protected. For instance, if the transaction costs of bargaining between concerned parties are higher than the efficiency gains obtained to restore the optimal condition, the environment will not be worth protecting.


The final market failure which concerns neoclassical economists are market externalities. Externalities are benefits or costs generated as the result of economic activity that do not accrue directly to the parties involved in the transaction. Alfred Marshall in 1890 introduced external economics, but his theorization was only concerned with positive externalities accruing to third parties outside of transactions. In the 1920s Pigou realized that externalities contained not only benefits but also costs. Negative externalities arise when the welfare of one party is adversely affected by the actions of another party, and the loss in welfare is uncompensated due to a lack of liability to third parties who suffered the damages. For neoclassical economics, the damage that occurs from negative externalities will translate into a loss of efficiency and is a market failure. It is important to notice that for environmental economics what is external is not determined by the real world, but the abstractions made from it, after the abstractions are made what does not fit into the model is considered an externality.

The typical example of a negative externality is a factory on a river whose effluent is disposed of into a community river and the water pollution affects the neighboring community. The externality arises because the quality of the river water does not enter the costs of production for the firm and is not available for purchase on the market by the community. As such, the environment is undervalued and unprotected, consequently, it is polluted. In such cases, neoclassical economics calls for internalizing the externality so that the optimum amount of pollution can be reached, i.e., where the economic gain of the last unit of pollution is equal to the agreed economic cost of the last unit activity. For neoclassical theorists, a regulatory agency which set standards and quotas on pollution, or an incentive system such as pollution taxes, or an emissions-trading regime, can internalize the externality to a marketable form. For example, the cost of the environmental damage can enter the firm’s production function via a Pigouvian tax or the assignment of tradable emission property rights to the community. In either case, it is assumed that through adjustments to market a social optimal level of pollution can be achieved. To determine the value of the environmental good in question, neoclassical economists will use comparative pricing methods or direct surveys to evaluate a community’s willingness to pay for a certain level of environmental quality or its willingness to accept a certain level or environmental deterioration. With these indirect values, public policy can be directed at achieving correct pricing so that the market mechanism is returned to equilibrium and social optimality is achieved.

The theory above is the pinnacle of misplaced concreteness in neoclassical economics with respect to the environment. To begin with externalities are peripheral to market theory; all neoclassical economic conclusions about perfect competition, social optimality and efficiency are premised on the absence of externalities. Yet, in the real world it is undeniable that externalities are one of the most important aspects of economic activity. The real biophysical world is the place where humans and other species live; it is the only place where all life can survive. A theoretical abstraction in which the negative affects on the biophysical world are mere diversions, and studied only by environmental economists, leads to models which are completely irrelevant to humans or any other species on Earth, for they do not depict the real world in which we live and therefore cannot prescribe solutions to the problems arising within it. Conceptually, the theory of negative externalities provides a detailed picture of the environment as a commodity, abstracting the environment so that it can be treated as any other commodity, regardless of its complexity or the fact that it is a dynamic living entity. Environmental economics is only concerned with abstracting the environment back into the market realm so that it can be analyzed within the already existing theoretical framework. Moreover, by relying on the same abstract method to deal with environmental market failure, the theory adopts all previous problems present in neoclassical economics such as the assumptions regarding human, firm and market behavior.

Moreover, the above abstraction and solution entail that a price can be placed on everything, even though pricing may not be possible via the market mechanism. The method of deduction employed, for the valuation of externalities or public goods, is highly questionable. The theory assumes that individuals assign values to the environment and that underlying these values are individual preferences. The theory acknowledges that markets do not exist for environmental goods and that these values, by definition, cannot be observed in the marketplace. Therefore, the theory calls for the estimation of these values. One common technique is the contingent valuation method, according to which individuals who are considered relevant are asked to reveal their maximum willingness to pay for a project that will improve the quality of a specific environmental good or their minimum willingness to accept a project that will lower the environmental quality of a specific good. Individuals’ valuations are then aggregated to estimate the value of a specific environmental good. Thus, a hypothetical market is created, a market in which individuals are invited to place a monetary value on an environmental good. Once valuation is established, an a priori discounting factor is applied if damages or gains occur over a period of years, and optimality calculations in the form of ‘cost-benefit’ or ‘cost-effectiveness’ analyses are conducted.

This approach is highly problematic for several reasons. First, willingness to pay and willingness to accept values regarding environmental quality often differ. Second, willingness to pay requires the ability to pay, but for calculation purposes the income categories of participants are not considered relevant. Third, the valuation method assumes that non-market entities affect all people equally and that people do not differentiate between values expressed in private transactions and those expressed in public policy decisions. Fourth, valuation can be distorted by informational imperfections. Humanity cannot adequately evaluate the value of environmental quantity since we do not even understand biophysical complexity. As such, it is also outlandish to claim that a socially optimal level, based on individual pollution preference, can be found. Fifth, the selection of relevant actors may be completely arbitrary and will depend on how the researchers define relevant. What is included as relevant? Is it the current generation? Future generations? The entire society? All species? Relevant is limited to a narrow definition of the present human generation, however the actors chosen may not be the only entities affected by the externality in short- or longer-term. In species valuation, the method cannot escape its anthropocentrism, human-orientation, or human-assignment. Valuation cannot account for a whale’s willingness to pay for the survival of its species, and to do so would be completely absurd, thus the theory simply ignores the presence of this actor, despite the real presence of whales in the world. However, in this model whether or not a non-human creature has the right to exist in economic terms completely depends on whether the creature is capable of providing more value to society than it costs society to maintain. Thus, like its predecessors, environmental economics falls into the fallacy of misplaced concreteness.

When justice or equity problems arise, the theory reverts to the hypothetical deductive method of neoclassical economics. Intergenerational concerns are included in the form of a discount rate, which is determined by the extent that today’s generation acknowledges and decides to take responsibility for future generations. Technically speaking, if the current generation does not gain utility from imagining the well-being of the next generation, one can predict with the application of a high discount rate and the over-consumption of natural resources by the current generation. If, on the other hand, the current generation chooses to take concern, then discounting must be applied despite its apparent inadequacies. Discounting entails that the farther into the future a calculation must go, the lower the present value of the item in question. As such, the value of clean air or drinkable water is worth less in the future, an erroneous conclusion derived by this technique. When the problematic issue of justice is raised, the theory prefers to bypass it on the grounds that the neoclassical theory is value-free, whereas justice is a value-laden issue. But, neoclassical environmental economics is already value-laden, with the ethics of self-interested individuals.

In environmental economics the prescriptions for resolving either public good or externality issues, involve market correction mechanisms which assume a social guardian or government that works selflessly. However, if this body is made of people, which it must be, the theory contradicts itself, since in neoclassical economics humans are self-interested rationalizing maximizes and thus the social guardian cannot work selflessly. Moreover, as in the case of open access resources, such a body may not exist and thus the Hardin problem simply re-emerges. Even if the solutions are accepted, the theory assumes that governments are immune to failures. However, the possibilities for intervention and existence failures are very real. Intervention failure occurs when public intervention moves the market away from the so-called social optimal position, and worsens the existing situation. Existence failure occurs when market optimality is reached but is still in conflict with the biophysical world’s ability to sustain human activity. In such a case, scale has been ignored in the pursuit of optimal allocation, which is likely since scale is ignored in environmental economics. To exemplify this problem in neoclassical environmental theory Daly uses the analogy of loading a boat:

"the criteria of optimal market allocation insures that the boat its loaded evenly, but since nothing is said about the size of the load, it may also assure the boat sinks optimally."

That is, the assumption of optimal allocation, as the aim of institutional correction, is invalid for the environment so long as scale is excluded from the theorization.

Despite its inadequacies, neoclassical theory is a powerful tool for describing the market as an institution, and the theory provides a valuable service by shedding light on the small area of exchange, which is an influential force in society today. Perhaps because of its theoretical strength in the area of exchange and the influence of exchange in contemporary society, neoclassical economists have hopefully applied these theorizations to phenomena which rest outside of very specific exchange oriented models. However, neoclassical theory continues on the path of misplaced concreteness even when attempting to account for the environment by defining environmental degradation through autonomous individuals, each of whom is assumed to have a preferential ordering of goods and services, including those pertaining to the environment. Moreover, economic agents remain defined in human terms, and as such the prescriptions of correction for the environment are solely anthropocentric in abstraction and solution. In the neoclassical method the environment remains a substitutable category which acts like any other commodity once market prices have been hedonistically and anthropocentrically determined. The price mechanism will not prioritize resources in any way other then the price derived on an exchange value basis. Thus, resources only have value when they generate economic or calculable environmental benefit. Consequently, useless species have no effect on optimal allocation decisions in neoclassical theory. Neoclassical theory expects the market to place a price on every individual species, ecosystem, or biological function. This task is impossible given that many of these features are unknown. Moreover, assuming community rationality for these calculations is flawed since the rationality to make decisions regarding environmental goods depends on available information, and the limited knowledge humans have regarding the biophysical environment makes it impossible for consumers to make informed “rational” choices regarding the environment. A “rational” choice over a finite individual lifetime is not necessarily a “rational” choice for all human and non-human species, but environmental economics cannot account for these discrepancies. Therefore, in environmental economics the fallacy of misplaced concreteness remains prevalent, despite neoclassic attempts to account for phenomena outside of traditional models. The conflict between economic activity and environmental quality is not merely the result of market failure as neoclassical economists would assert. The economy-environment conflict ultimately arises from the impossibility of economic markets to place ecologically meaningful values on the functions and attributes of the biophysical world. But, for environmental economics every relevant environmental aspect must be calculable and mathematically abstracted to stay consistent with the analytical approach developed in traditional neoclassical economics. This is perhaps the Achilles’ heal of environmental economics, for in doing so it excludes the complex, incalculable aspects of the human-environment-economic relationship and renders the environmental theory, like the economic theories of its predecessors, vulnerable to external critiques from Institutional and Marxists perspectives.

The Institutional Approach

The traditional institutional school emphasizes organizations, institutions, habits, values, norms and rules as the causes and consequences of existing power structures and economic performance. In terms of power structures, these elements socialize the behavior of individuals and subgroups. In terms of economic performance, these elements are expressed through resource allocation decisions, income distribution, growth, and the division of labor and its respective remuneration. The theory approaches economic structures with a holistic method based on the assumption of an evolutionary path to economic structures based on social changes and processes occurring on an aggregated level. Distributional issues, social relations, conflicts and inequalities between agents in capitalist economies are also key components of the traditional institutional school. For institutional theorists, if the economy is not conceptualized as embedded within social life, it is impossible to determine how individual preferences are formed and therefore how conceptions of market costs and benefits are created. Therefore, the institutional school rejects the neoclassical utilitarian framework and emphasizes the social and historical context in which economic structures arise. In addressing the production side of capitalistic economic activity, the institutional school considers the forces which promote technological change, the interaction of production and exchange, the networking among firms and social institutions, and internal organizational issues. The holistic standpoint of institutional theory also entails an interdisciplinary approach to political economy which includes the disciplines of sociology, psychology, anthropology, politics, and history. The institutional school recognizes that traditionally the economy has not been viewed as embedded within the environment. As such, the institutional approach has noted that social and economic life must be understood within the ecological system. As will be shown below, the eco-conscious institutional approach parallels in significant ways to the epistemological standpoint, analytical approach, operative categories, and instruments of intervention of the traditional institutional school.

Before discussing the institutional approach to the environment-economy relationship, it is important to note that the difference between institutional thought and neoclassical thought is not black or white. Rather, institutionalism tends to accept various suppositions of the neoclassical school and rejects others. Moreover, the institutional approach to the environment can be viewed as a spectrum. On one end there are theorists who accept the prescriptions of neoclassical environmental economics, and with some adjustments, develop theorizations on the institutional role required to implement neoclassical prescriptions. On the other end, there are theorists who reject most elements of environmental economics and have developed a holistic interdisciplinary approach to understanding the environment-economic problem. As expected, there are also theorists who lie in between these extremes. This pattern parallels substantially with the traditional intuitionalist approach, where some theorists accept some notions set out by the neoclassical school, such as Mill, and others who are markedly opposed to neoclassical conceptions, such as Veblen. The section below will outline the key approaches of the institutional approach to the environment-economy relationship.

Society and institutional change

Methodologically, the intuitionalist school differs from their neoclassical counterparts in that institutional theorists have a holistic evolutionary conception of the economy, as opposed to the reductionist mechanistic conception of the neoclassical school. With respect to the environment, institutionalists seek to provide a platform that promotes multidisciplinary environmental research by bringing together the contributing disciplines of economics and ecology. The field of ecological economics is a sub-discipline of the institutional school. Ecological economics is a policy-oriented perspective that addresses the interdependence and co-evolution between human economies and their natural ecosystems. Like the traditional institutionalist approach, it acknowledges that interactive social processes are complementary to market structures and play an important role in achieving social consensus on environmental issues. In traditional institutional theory, institutional structures are the operative category where social processes take place and as such institutions are important in the facilitation of societal change. The school traditionally attempts to understand how institutions evolve and emerge for institutional and societal change. When extended to the environment, institutional theory applies the concept of co-evolution, in the ecological economic sense.

The theory of co-evolution has been developed within ecological economics and is analytically founded on evolutionary economics. Institutional economists have a preference for evolutionary theories of political economy which focus on how historical, habitual, normative and/or technological changes drive institutional change. As such, change is studied over time. Ecological economics extends the evolutionary approach of understanding institutional change to a co-evolutionary theory, in which both the natural and societal worlds evolve in synergistic or symbiotic ways. Economic co-evolution refers to the mutual influence of ecological and economic systems in influencing historical developments. For ecological economists, economic systems undergo learning, adaptation, and selection processes based on the constantly changing resource base which is in turn affected by human use. Technological change is a key force in determining the economy-ecology relationship, since the type of technology utilized in economies will determine the condition of the ecological base. The social system develops historically as a reflection the peculiarities and constraints imposed by the resources on which a specific society depends. Thus, human economies are intricately linked to the ecological system, but in turn change the ecological system through economic processes. In these processes institutions evolve to adapt to the various economic and societal changes which are related to ecologies.

From externality to interdependence

New institutional theorists, such as Paavola and Adger, claim that Coase and Pigou are the founders of their approach, having theorized the neoclassical approach to market failure which calls for institutional intervention. However, the new institutionalists attempt to extended neoclassical theory to a level which includes interdependence only, in the sense than the choice of one agent influences that of another. Thus, interdependent agents cannot simultaneously realize their incompatible interests with scarce environmental resources and conflict must be resolved by redefining initial endowments through institutional mechanisms. As well, these theorists would extend the neoclassical notion of externalities to include agents’ interdependence. Interdependence thus explains the existence of institutions which are necessary to resolve interest conflicts. As an institutional theory, this approach to environmental policy is only rooted in the operative category of institutions and does not differ epistemologically from the neoclassical approach to the environment-economic relationship. However, the branch of institutional environmental thinking which does differ epistemologically, analytically and instrumentally from neoclassical environmental economics is ecological economics.

Ecological economists, would not accept the above new intuitionalist economic definition of interdependence. Ecological economists reject the neoclassical theorizations of the environment-economic problem as an externality. Rather, ecological economics calls for a policy-oriented perspective in which the interdependence of human economies and natural ecosystems are addressed. For ecological economists, the economy and social actions must be viewed as occurring within the larger biophysical system. There is a material and energy basis for the relations between human economies and their ecosystems, as well as human social structures and processes. Economies possess general ecosystem properties, such as dynamism, evolution, integrity, stability and resilience. Economies are inextricably embedded in larger natural ecosystems, where economies exchange flows of materials and energy with natural systems. As such, this approach is concerned with the adverse impact human economic growth has on natural systems, rather then on institutionally correcting market failures. Moreover, the approach seeks to understand the tolerances of ecosystems to human-induced changes, as well as the tolerances of economies to ecosystem changes. Thus, the analysis of the economy cannot take place without an analysis of ecology or vice versa. Economies, societies and ecosystems are processes, which dynamically interact to continually affect each other and cause change. Hence, the approach seeks to understand how co-evolution between economies and ecologies occur. Epistemologically, ecological economics remains within the institutional school of thought since it advocates institutional and aggregate behavioral changes so that sustainability can become societal value and norm. Moreover, the ecological economic approach represents a holistic approach to studying the environment-economy-society relationship as opposed to the neoclassical reductionist view, which the new institutionalists readily accept.

From weak to strong sustainability

Since the Brundtland report, the term "sustainability" has dominated discussions of economic development and growth. The term is attractive and dubious, for its ambiguity entails that each school of thought can fit the meaning of sustainability into its pre-established worldview. For neoclassical theorists this entails a definition of sustainable development in terms of economic growth. Neoclassical economists maintain that so long as the total capital of a society remains intact sustainability is achieved. However, this entails the assumption that natural and humanly created capitals are equal substitutes. Moreover, the neoclassical approach continues to measure aggregate economic performance in terms of gross domestic product (GDP), despite the widespread evidence that increasing GDP does not necessarily improve social welfare. Due to this method of analysis, external critics claim that the neoclassical approach remains overly optimistic regarding the possibilities for economic growth. As such, the neoclassical notion of sustainability has been dubbed weak sustainability by the institutional school.

In contrast, institutional approaches to sustainability recognize the importance of growth, but advocate for strong sustainability. Daly notes that strong sustainability requires to humanly created capital and natural capital to be maintained and kept intact separately. This approach assumes that humanly created capital and natural capital are compliments rather than substitutes. Eco-conscious institutional theorists seek to establish the conditions of human economies that would allow for ecological sustainability and growth in human welfare. For ecological economists, growth must be defined by the physical limits of the ecological system. Thus, the notion of economic scale is critical to an understanding of environment-economy relationship. As noted earlier, Daly has criticized the neoclassical conception of optimal efficiency, and has rather advocated an optimal scale to growth approach. The analogy set forth by Boulding of the Cowboy versus Spaceship economy is particularly relevant to the strong sustainability worldview. Boulding argues that with the insurmountable rise in the human population and technological expansion, the pervious worldview of the Earth as an infinite reservoir can no longer be adopted. For Boulding the Earth has “become a tiny sphere, closed, limited, crowded, and hurtling through space to unknown destinations”. Earth has become a spaceship, and it is now necessary for humanity to develop technologies which lower entropy and use production methods which recognize the biophysical laws of the Earth. For ecological economists, if measures of change at a societal and technological level are not taken quickly, the intrinsic qualities of the Earth and humanity’s economic and living-base will be destroyed. In eco-conscious institutional thinking, the protection of the environment is based on the ethical premise that protection of the environment for future generations is a social goal in and of itself. Ecological economics assumes that it is natural for humans to care about the environmental crisis and to want a healthy survival of the planet. In response to these premises, Daly and his contemporaries have argued for a steady-state economy with the objective of minimizing the use of materials and energy consumed, while maintaining a constant stock of people and capital flowing within the system. This approach has been criticised as overtly pessimistic by neoclassical theorists. Nevertheless, eco-conscious institutionalists care for the resilience and stability of ecosystems and economies, rather then the pure monetary growth of the economy.

Consequently, institutional economists who care to develop an eco-conscious sustainable approach to the environment-economic relationship must also develop a critique of the neoclassical measure of growth. The neoclassical measure of economic performance is GDP, a calculation which grossly fails the environment since income derived from production and income derived from depleting natural capital are both counted as economic indicators. Failure to identify defensive expenditures, such as the cost of cleaning up pollution, entails that GDP double counts those activities which add to pollution and in turn create cleaning-up activities. In this way, GDP may overstate the well-being of an economy. Strong sustainability calls for measurements of biophysical qualities as well as monetary qualities when evaluating the aggregate welfare of an ecological-economic system. For ecological economists any measure of sustainability must include both ecological and economic indicators. The Hicksian Income calculation, is one such measure, and only counts current consumption that does not reduce future welfare through the depletion of assets. It is important to note that although this is an improvement to the GDP measure proposed by neoclassical economists, it is difficult to adhere to, for human knowledge of ecosystems is so limited that some activities which are thought to deplete assets minimally, may exceed the capacity of the Earth. Subsequently, activities which do have a negative impact may be included in the calculation. The measurability of each of the variables in the Hicksian Income can be subjective, unknown, or prone to miscalculation. Thus, the Hicksian Income may also be an inaccurate depiction of well-being. As such, the institutional approach to sustainability offers an alternative calculation method which is multidimensional in its approach, but still reduces all identified factors to the common denominator of price.

Institutional theorists also argue that the growth-oriented approach of neoclassical economics is not concerned with how growth affects communities or how income from growth is distributed. As such, institutional economists also define strong sustainability with respect to human community resilience which includes fair distribution. Pearce notes that sustainability is inherently connected with the notion of justice within species, between them, and between current and future generations.

Distribution and justice

Like their traditional counterparts, eco-conscious institutional theorists are concerned about relative income and a just distribution of social welfare. Institutional theorists of this branch are concerned with intra-generational and intergenerational equity. From an intra-generational perspective, the neoclassical efficient allocation model of distribution fails to address community well-being, since it has no sense of justice. Moreover, in the neoclassical model the historical conditions of property ownership determine income distribution rather than so-called efficiency as neoclassical theorists claim. For institutional theorists, the fulfillment of needs by equitable and just distribution is more important than efficiency. Thus, the goals of society and policy evaluation are founded on basic needs. In this sense, eco-conscious institutional approaches advocate for a strong sustainability in which consumption is limited to a basic needs criterion. Moreover, the theory is not limited to the human species. Eco-conscious institutional theorists also note that intra-generational distribution must be sensitive to the needs of ecosystems, to whatever limited knowledge humans have. Even when humans have no knowledge, the approach supports the application of the precautionary principle.

The precautionary principle states that when making decisions the value of the environment as potential to supply goods and services should be considered. The precautionary principle is closely related to a concern for the stability of ecosystems, premised on ethical values. From an intra-generational perspective the method entails precaution when making policy decisions even though an environmental affect is unknown. In addition, intergenerational welfare is an important criterion for the eco-conscious institutional approach. From an intergenerational perspective the precautionary principle entails that the value of holding the future option of use should be preserved, and in the face of increasing ecological knowledge only then can future generations decide how to use an ecological good. As such, the eco-conscious institutional approach rejects discounting as a method for insuring intergenerational equity. Thus, the precautionary principle avoids the social trap of making short-term decisions which are incompatible with the needs of the future society, by adding a long-run dimension to environmental decision making. Thus, the institutional approach is more relevant than the simple neoclassical approach, for the biophysical world with dynamic processes that evolve over time. In addition to applying the precautionary principle for distribution, the Rawlsian principle of equity is applied as an intergenerational decision criterion. In the Rawlsian principle of equity, one is asked to adopt the original position or a veil of ignorance regarding his or her position in a future society. Thus, a person will not know whether he or she will be affected adversely or favorably by the environmental conditions created by previous generations. This method of analysis is intended to assist the current generation in considering future generations. Eco-conscious institutionalists advocate an ecocentric approach to justice where all species are included in the precautionary and Rawlsian principles.

Thus, like their traditional counterparts, eco-conscious institutionalists criticize the social objectives of the neoclassical marginal approach to justice. For institutional theorists, not only is the neoclassical approach insufficient epistemologically, it is also insufficient in its policy prescriptions. The institutional school notes the importance of establishing an economics for the community, which has been consciously abstracted from in the competitive individualist approach of neoclassical economics. For institutional theorists, abstractions from the community entail an approach which cannot improve the social welfare or well-being of a society from social or ecological perspectives. As Daly notes, the costs and benefits accruing to the whole community, ecological and social, not just parties involved in the transaction, should be the primary consideration in economic thinking. The focus of study requires a shift from a focus on unlimited exchange values, to concrete use values with limited accumulation. For institutional theorists such a shift entails a societal shift in morals and preferences, instigated via institutions.

Expanding social preferences and values

For eco-conscious and traditional institutional theorists the neoclassical assumptions regarding preferences and values are problematic. The neoclassical self-centered welfare-seeking assumption is restrictive since it does not admit that motivations may be driven by a regard for the welfare of others or by a respect for societal rules. Institutional theorists seek to understand how motivations are driven by the preferences and values of agents formed by society. In order to change preferences and values, institutional instigation is necessary. With respect to the eco-conscious institutional approach, sustainability norms must be instigated into society through the establishment of institutional and behavioral norms compatible with sustainability. This entails an understanding of how society reproduces itself through the productive activities of its members. In institutional approaches it is the actors in society who hold specific worldviews and it is the power relationships among those actors which determine the use and control of environmental resources. Institutional theorists discard the consumer sovereignty and individual rationality assumptions set forth by neoclassical economists. As well, the institutional approach rejects the notion that markets select optimal technologies for eco-friendly production. Rather, eco-conscious rationality is bounded by knowledge and motives for protecting the environment which can be institutionally prompted by the internalization of environmental values into the decision-making of individuals and firms. Faith in the ability of institutions and social forces to affect the behavior of economic actors entails that growing environmental consciousness of consumers will lead to "green" consumption choices for sustainable goods and socially responsible firms who modify their practices to minimize environmental impact. Moreover, social institutions can facilitate negotiations to attain consensus among the holders of different environmental views and in the process, values are learned. Thus, unlike the neoclassical school which contextualizes the environment as a commodity for consumption between different economic actors, the institutional approach is interested in examining the rise of environmental concern in society.

Eco-conscious institutional theory notes that human decisions are guided by some knowledge the value of their actions and value of their impact on ecosystems. If rational choices are to be made, some bounded rationality with respect to the natural environment must exist. Private values, regarding the instrumental quality of the environment for the human economy as a use value, are considered, along with the public environment values which include aesthetic, moral, and cultural consideration. The interaction of these forces leads to a dilemma within society, for the environmental choices made in the present will in turn shape the preferences, culture and societal norms of society in the future. Thus, institutional theorists advocate a policy approach which asks the following questions:

  • What does society wish to become?
  • What is the requisite health of an ecosystem relative to that social objective?
  • What set of human economic artefacts, structures and process are feasible that requisite healthy ecosystems?
  • How can we use the adaptability and behaviors of human economies to assure that they meet their own welfare needs as well as the needs for preservation of a healthy ecosystem?

The institutional dilemma is to organize a method for establishing what society wishes to see itself become and through institutional methods assist society to reach those desires, within the limits of the ecological system. As such, the institutional approach believes that within market society, values can be made congruent with economic and ecological goals. However, eco-conscious institutionalists recognize that the moral systems of society may be incompatible with what a society would like to see itself become. Therefore, for social morality to change, the entire set of institutions, social relations and views of natural system must also change. To achieve change the institutional approach advocates the development of the necessary regulatory instruments, laws and associated institutions that assist human economies in attaining sustainable welfare development goals. However, the analysis of how societal preference and values are shaped must also include an analysis of the power relationships in society and how power impacts the actions of actors.


Power relationships are also a consideration in the institutional pursuit for an understanding of environmental behaviors, attitudes, values and norms. For institutional theorists, power is considered on the one hand an individual socio-economic characteristic, and on the other, the political framework in which socio-economic variables interact. Veblen’s exposition of power relationships, in terms of consumption choices, has been adopted by eco-conscious institutional theorists. Veblen pioneered an analysis of capitalist society as one in which:

emulative consumption is pursued for the visible display of wealth and as means of acquiring social status, despite the wasteful use of natural resources it entails.

For institutional theorists, in societal structures where insatiable consumption is a norm, powerful corporations with the rights over natural resources will inevitably exploit those resources in the pursuit of profits. Thus, problem of resource scarcity is attached to societal needs and norms, industrial shortcomings and business manipulations. Also, the entitlements over resources will determine how the environment is treated by society. Where environmental conflicts occur it is not only a conflict of values but, above all, a conflict for power over resources. For institutional theorists an unequal distribution of power in society is usually conductive to increased environmental degradation. The struggles over resources and the dogma of those holding power in society will determine the prevailing social preferences and values adopted by the society at large. For Galbraith, the power of corporations in society, with their growth-based objectives, not only leads to environmental problems, but undermines the public services needed to ease the burden their operations cause. Therefore, Galbraith recommends institutional implementation through legislation, to control the environmentally destructive practices of powerful firms. This, of course, assumes that social institutions are free from the power of firms and are able to control independent actors for the sake of the common good.

The eco-conscious institutional approach lends itself to a holistic understanding of the environment-economy relationship and provides structural solutions to environmental problems. In identifying how the social preferences and values of agents affect the environment-economy approach, the institutional school develops an intricate and sensitive approach to understanding the economy-ecology relationship. Its method of understanding environmental degradation at a societal and distributional level also leads to a dynamic approach. Moreover, the reliance on physical indicators for a comprehensive system analysis relates to the concrete world rather than hypothetical reductionist abstractions from it. Despite these attributes, the approach remains vulnerable to criticism from outside theorists. Firstly, the approach assumes that the negative attributes prevalent in market society can be institutionally corrected through a wider understanding and through changes to social norms. Secondly, although the approach has elaborated on the environmental issues facing society, it has not considered the operation of the socio-economic system as a whole. Thirdly, the approach assumes that strong sustainability is possible within a capitalist society which has been widely questioned by Marxist theorists. To fully understand the inadequacies of both the neoclassical and institutional approaches, an understanding of the Marxist approach to the environment-economy relationship is constructive.

Marxian approaches

Identifying the relationship between ecology and Marx has been a challenging task for Marxists. However, the Marxian understanding of the environment-economic relationship is crucial for a complete discussion of the ecological destruction occurring in society today. The neoclassical and institutional schools of thought do not challenge the basic premises of capitalism, and as such the solutions offered by theses approaches cannot ameliorate the ecological effects of the system. For Marx and his followers, to understand the specificity of ecological destruction in society, it is necessary to examine the historical materialist conditions, modes of production/reproduction, and the nature of capital within society. It will be shown below that the epistemological standpoint, analytical approach, operative categories and instruments of interventional predicated by Marxists remain within the Marxian understanding of the ecological-economic problem.

Before beginning this examination of the Marxian approach it is important to note that within the Marxist school of thought there are those theorists whose concern is to locate environmentalism within Marx and his approach, and on the other hand there are contemporary theorists whose concern is to apply the Marxian method of analysis to the environment-economic relationship. Both approaches are necessary for understanding the Marxist conception of the environment-economic relationship and as such will be analyzed in conjunction for the purposes of this paper.

Historical Materialism

From the outset Marxian analysis had a sense of humanity as part of nature. Engels was particularly critical of anthropocentric understandings of nature and Marx was critical of any analysis of society which excluded a co-evolutionary understanding of the human-nature relation.

In regard to anthropocentrism, Engels wrote:

"Let us not, however, flatter ourselves overmuch on account of our human victories over nature. For each such victory nature take its revenge on us… we are reminded that we by no means rule over nature, like someone standing outside of nature, but that we … belong to nature, exist in its midst, and that all mastery of it consists in the fact that we have the advantage over all other creatures of being able to learn the laws and apply them"

Regarding co-evolution Marx wrote:

"Man opposes himself to nature as one of her own forces… in order to appropriate Nature’s production in a form adapted to his own wants. By acting on the external world and changing it, he at the same time changes his own nature"

In the Marxian analysis of the environment-economic relation, nature and society cannot be viewed as two independent bodies. Rather, they must be viewed as co-evolutionary, each changing the other in a dynamic process. For Marx and Marxists, the way humanity treats the environment is formed through social and historical forces. Marx’s own words clarify the perspective of historical materialism in application to economic relations:

"it is not the consciousness of men that determines their existence, but, on the contrary, their social existence that determines their consciousness."

With respect to the environment-economic relation, historical materialism contends that social and economic life takes on a specific form based on the dynamic interrelation of the contextual conditions, resource materials, energy sources and unintended consequences in the environment where social-economic forms develop. Thus, each form of social and economic life must be understood in terms of its own specific conditions and limits. What differentiates humans from other species is that human’s master nature through labor, and labor is applied by humans in order to produce their means of subsistence. For Marx, the human relation to nature is rooted in the productive relations through which humans reproduce their mean of subsistence:

"Man begins to distinguish himself from animals as soon as he begins to produce his means of subsistence, a step which is conditioned by physical organization. By producing the means of subsistence men are producing their material life. The way in which men produce their means of subsistence depends first of all on the nature of the mean of subsistence they actually find in existence and have to reproduce. This mode of production cannot be considered simply as being the reproduction of the physical existence of individuals. Rather it is a definite form of activity of these individuals, a definite form of expressing their life, a definite of life on their part. What they are, therefore coincides with their production, both with what they produce and how they produce. Hence, what individuals are depends on the material conditions of their production."

Thus, humans create their own distinct historical relation and understanding of nature through production. For Marx, humans also act through the material praxis creating a distinct human-nature relation so that they can transcend the alienation from nature they experience when producing their means of subsistence. Contemporary Marxists have applied Marx’s historical materialism to the ecological crisis and assert that the current stage of history is characterized by structural forces that systematically degrade and exceed the capacity of nature, thus setting into motion ecosystem breakdowns. For Marxists the ecological crisis is not just a crisis of nature, but also a crisis of society, created by the specific structures of production and reproduction applied by contemporary society. Relating to Marx’s co-evolutionary approach, contemporary Marxists argue that humanity is not just the perpetrator of the crisis but is also a victim of the crisis, evident in instances of malnutrition, social alienation, and the systematic poisoning of the very environment on which humans depend. For Marx and Marxists, capitalism was and is a specific historical form. Moreover, antagonism to nature is a specificity of capitalism that can be demonstrated by studying the spheres of production and reproduction, notions of value, and the nature of capital as they occur in capitalism.

Production and reproduction

For Marx and Marxists, production is part of the economic dynamic that develops under specific historical forms. Capitalist production is specific from other forms of production since it resets upon a specific structure of exploitation and appropriation, made possible by various historical forces. In particular, capitalism relies on a system of private property which increasingly removes the agricultural population from the land. The enclosure process of the 19th century prepared the way for a more intensive exploitation of the human and natural sides of production. Agrarian laborers separated from the land were increasingly forced into the factory system for their means of subsistence, and nature was placed in the hands of private property owners, whose main purpose of ownerships was to pursue profits.

The system of private property also led to the division of labor within the nation as the industrial and commercial spheres of life were separated from agriculture labor. The division created a lasting antagonism between town and country as “the subjection made man into a restricted town-animal or country-animal and created conflict between their interests.” These divisions in society were rooted in the division of the population from the Earth, and the separation of town and country also led to new conditions of production in both. For nature, the disruption was most concerning, for it entailed the application of industrial techniques to the land which would inevitably disrupt the ecological basis of human existence. For Marx, the capitalist mode of production when applied to agriculture would degrade the soil and rob its fertility through reckless exploitation.

Moreover, a resulting effect of the separation of town and country was also the increasing alienation of human beings from nature and a consequent alienation of labor. For Marx, alienation from the land:

"estranges man from his own body, from nature as it exists outside of him, from his spiritual essence, his human essence….This is always a social estrangement, every self-estrangement of and from himself and nature is manifested in the relationship he sets up between other men and himself and nature"

In capitalistic social forms, this alienation leads to the reduction of both labor and nature to the status of a commodity, governed by the laws of supply and demand. For Marx, the alienation was expressed through the fetishism of money, which is the "alienated essence" and the universal value of all things in capitalism. But the abstraction of labor power and nature to the money form would allow for the inevitable exploitation of both and would manifest into class struggles between the worker and the capitalists class. To understand the process by which exploitation occurs, it is necessary to understand the notion of value specific to capitalism.


For Marx and his supporters, every commodity is a conjunction of use values and exchange values. Use values signify the commodity’s place in the ever-developing manifold of human needs and wants, while exchange value represents its commodity-being, its exchangeability, an abstraction that is expressed in quantitative terms as money. Capitalism is a regime in which exchange value predominates over use value, and the problem in this is that once exchange value dominates capital, capital must perpetually expand. Profit is derived when the total cost of inputs used in production are lower then the exchange value of the commodity they constitute. For Marx, it was the low cost of labor power which determined the source of capitalist profitability. The greater the exchange value of the commodity produced and the lower the cost of the labor input, the higher would be the surplus or profit extracted by the capitalists. Since in capitalism, production is for profit, selling prices must be kept as high as possible and costs as low as possible. The costs to be lowered or kept low are those of any input which enters the production of commodities. This entails combining inputs which have little or no value into production.

Marx recognized that nature and labor were the sources of wealth in production and claimed that "work is the father of wealth, but earth is its mother." Marx also noted that in capitalist society "the earth is active as an agent of the production or use value, but it has nothing to do with exchange value" and hence, nature was accorded no value in capitalism unless the law required the market to place a value on nature. The ascendancy of exchange value over use value in capitalism entails ecological and social degradation as nature and human begins are commodified:

"Nature becomes for the first time simply an object for mankind, purely a matter of utility; it ceases to be recognized as a power in its own right; and the theoretical knowledge of its independent laws appears only as a stratagem designed to subdue it to human requirements."

The contradiction between use values and exchange values in capitalism entailed that the contributions of nature and labor would be neglected by the system, or in other words that nature and labor would not be accorded a value related to their use. Yet, separation of the exchange value of nature and labor from their use entailed a low valuation of these inputs, and thereby implied a perpetual and increasing exploitation of them. For Marx and his followers, this pattern would eventually lead to crisis and transformation within the system. For Marxists, the increasing exploitation of nature experienced today under the global system of capitalism will also lead to different crisis—a biophysical crisis of the Earth and its ecosystems. To full appreciate Marxian notions of environmental or labor exploitation, and the crisis and transformation process, it is necessary to understand the essence of capital, to which this analysis will now turn.


For Marxists, an understanding of capitalism is incomplete without an understanding of the fundamental nature of capital. Although this area of Marxism is extensive and well beyond the scope of this paper, it is still necessary to at least touch the surface of this analysis and utilize its insights for an environment-economic understanding. For Marx and Marxists, capitalism differs from other social forms since in capitalism, the end and beginning of the production cycle are the same, (M-C-M’), expressed as money or exchange value. A cycle starts with money (M) and ends with money (M’), but for the capitalist to be motivated to engage in the production process, the money at the end of the cycle must be greater then at the beginning. So long as this incentive exists, the cycle will repeat itself, with the ending money (M’) becoming the starting point of a new cycle. Due to this nature of the production cycle in capitalism, the valorization of value can only take place through the constant renewed movement of capital, where M grows to M’ and M’ grows to M”, and so forth in a limitless cycle of buying and selling, producing and reproducing. For Marx, this pressure for growth in capitalism was exponential and became proportional to the total magnitude of accumulated capital (M+ M’+M”) pressing for release:

"The barrier appears an accident which has to be conquered. This is apparent on even the most superficial inspection. If capital increases from 100 to 1,000 then 1,000 is now the point of departure from which the increase has to begin; the tenfold multiplication; profit and interest themselves become capital in turn. What appeared as surplus value now appears as a simple presupposition and is included in this simple composition."

Thus, in the regime of capital any original profit is only a starting point, as the cycle repeats, an expansionary force will be observed. This expansionary force breaks the previous boundaries of surplus value or profit, leading to another circuit in which the boundaries must be broken again. With respect to this, capital regards boundaries as barriers to be surpassed and replaced with novel boundaries. Every boundary in the real world is useless to capital unless it can be monetized and places into an M-C-M’ circuit, so that further boundaries can be broken, at the end of which another circuit must begin. Thus, for contemporary Marxists, when capital is faced with ecological boundaries, such as a specific carrying capacity of the Earth, the prospects of the capitalists change and require the inclusion of ecology into the circuit of capital. As such, markets emerge for trading pollution credits or selling green space or producing drugs to offset the harmful ecological effects created by capital in the first place. It is a fundamental element of capitalism to create new anxieties and needs due to the constant requirement of capital to be funnelled into new circuits of accumulation. "Accumulate, accumulate, it is the capitalists Moses and profits." Moreover, the faster [[capital] can move through the production circuit, the greater the rate of resource extraction and environmental damage. Contemporary Marxists recognize that capital can produce "green" commodities such as antipollution devices, recycled goods, or organic produce, but capital will only do so if it can reproduce itself exponentially through these avenues. However, before anything else capital must sustain itself. The rate of profit or accumulation determines the amount of capital entering the circuit of production. The higher the initial capital the greater will be the resulting profits. Anything or anybody that interferes with profits, new investment, and expanding markets threatens the economic sustainability of the system. As such, there is a strong case against the institutional claim that ecologically sustainable capitalism or sustainable development is possible. For Marxists, capitalism requires economic growth, the absence of which leads to general economic decline. Ecologically sustainable development can continue up to a point, but if there is an ecological limit to growth, then the growth must cease at some point, a condition capital would not accept. The only escape would be if capitalism could shift growth to economic activities that do not involve the consumption of materials or environmental goods, but then production would be off-loaded into new areas with no market value so that production costs remain low and profit rates remain high. Recall that in order to expand, capital must continually use more no-cost or low-cost inputs so that M can convert to M’. For Marx this manifested itself through the increasing exploitation of labor. For contemporary eco-Marxists it also means using the environment which has zero or low value on the market to thus lower the cost of production and increase the rate of profit. Yet, if sustainable development is pursued, then the environment has to be valued, and if legislation exists to protect workers from exploitation, capital will have no where to turn. Thus, ecologically sustainable capitalism is impossible in the long-term for Marxists.

In the above analysis it appears that capital has a life of its own, a point which must be clarified. Capital is not a living organism; it is a relationship set up by social forces and is personified by people who act for capital in the way described above. In the specific structure of capitalism, the capitalist cannot rest content for he or she must constantly try to expand the profit boundary. Growth is simply equated with survival, and any capitalist who fails to grow and break, or at least meet, the new boundary will disappear from a power position in the system. As such, no matter how much one has it is never enough, more must always be pursued. Ironically, the intense rate of competition tends to lead to the overproduction of goods which cannot be sold: a realization crisis. Thus, the capitalist psychology which strives for more and more growth, leads the system into inevitable breakdown. For Marx, the reason for the breakdown or crisis in the system was that as output expanded, workers who were increasingly deprived of their surplus value would experience a lack of purchasing power. This, in turn with the drive for production on the part of capitalists, would lead to a realization crisis. Then production would be cut back, unemployment would rise and prices would eventually decline. After the excess commodities had been disposed of, the system would recover, production would rise, and the system would follow the same cycle, until the long-run patterns of boom and bust became more severe and unmanageable. For Marx in the long-run, realization crises would become severe and social transformation would occur. Thus, for Marx, capitalism’s ever expanding feature in order to exist would eventually lead to the demise of capitalism.

Marx also noted that the insatiable pursuit to expand capital would also lead to capital degrading the conditions of production it relied on. Thus, the pursuit of profits would have a contradictory effect on profitability itself, thereby leading to crisis. Contemporary Marxists have applied this conception to social and environmental conditions, noting that capital tends to impair or destroy those conditions when, in order to retrieve itself from self-induced crises, it undertakes mechanisms and measures which cumulatively worsen the damage. The crisis situation induces capital, in the pursuit of profit, to seek new avenues of appropriation, which can lead to a further degradation of social systems or ecosystems, which in turn only deepen the crisis over the long-term. For this reason as well, for Marx and Marxists, capitalism cannot be ecologically sustainable, since it creates crises that require further exploitation for short-term recovery, which led to the long-run demise of the very element being exploited.


If capitalism is not sustainable ecologically, it follows that the instruments of intervention proposed by the neoclassical school or institutional school cannot rid the system of its ecological perils. Ecological economics, although perhaps useful in the short-run, does not recognize the fact that in order to significantly slow down the rate of environmental deterioration or halt it completely, capitalist society will have to give priority to environmental necessity over profit. However, as demonstrated above this is only possible if environmental necessity is congruent with profitability, a highly unlikely case. By working within the existing capitalist system, both institutional and neoclassical approaches will not find the solutions to the ecological crisis, for they assume that the system has the ability to adapt to crises. As shown above, for Marxists, when the system adapts to crises it does so in ways which deepen the crises in the long-term. Moreover, for Marxists, the liberal democratic state is limited because it represents the general interest in the form of an externality above the population. Being external from the community entails that the state can be appropriated by a minority. As such, in capitalist societies the state will inevitably be skewed in favor of business because the government needs business cooperation to implement policies and also fears unstable economic downturns. Thus, the state will invariably adapt to the needs of business. As shown previously, business is concerned first and foremost with profitability and as such will advocate for policies which favor profitability. Thus, interventionist measures will not work to protect the environment, if that protection conflicts with profitability. Consequently, the institutional and neoclassical approaches are inherently flawed in their prescriptions for they do not consider the power structures in society from this perspective. In addition, Marxists point to the fact that many ecological problems date back to pre-industrial times, and thus the interventionist tendency to blame the technology of production or the system of valuation, ignores the crux of the problem which is the underlying social system.

For Marxists the solution to the existing ecological crisis is markedly different from that of the other schools of political economic thought. First, Marxists condemn the assumption that capitalism is part of human nature. Marxists assert that capitalism is a specific historical and social form which relates to a specific understanding of material conditions. An understanding of how society conceives and connects to nature is fundamental to changing the processes by which ecologies are destroyed. Secondly, since the ecological crisis is rooted in the social spheres of existence, the solution must involve the transformation of the historical relationship between humans and nature to a relation between nature and society which is ecologically sustainable. The struggle for ecologically rational production must be part of the struggle to overcome capitalist exploitation and the capitalist expression of nature and labor in the commodity form. Eco-socialism is the expression for this understanding, and seeks a fundamental transformation of society. Eco-socialists contend that eco-revolution will become feasible only when people decide that their present social arrangements are intolerable, when people believe a better alternative is possible, and when people believe that the system can be pointed in their favor. For eco-socialists, if society continues on its eco-destructive path, it is only a matter of time until ecological concerns gain explosive urgency when the system can be changed through revolutionary form. Unfortunately, until the conditions for eco-revolution exist, those who are concerned about the environment will have limited avenues for protecting nature other then personal commitments to "green" forms of consumption.

With respect to the environment, eco-socialism, Marxism, and Marx, have all been criticised from external economic approaches. These criticisms are largely based on the evident and obvious failure of the communist states with respect to the environment. These critics claim that the 70 year socialist experiment of Russia and the 45 year experiment of Eastern Europe were disastrous for the environment, leaving a legacy of excessive land and air pollution and insurmountable damage to waterways such as the draining Aral Sea and nuclear pollution in White Sea. Thus, critics claim that Marx, by focusing on contradiction, was led to an overly optimistic environmental view of the classless society arising out of revolution. There are many counterarguments to present against this naïve criticism of Marxism. One counter argument is that Soviet Union was not an unadulterated application of Marxist ideology. The Soviet states and the communist states which exist today ignore a fundamental element of Marx—that free development is a necessary condition for the realization of a classless society. None of the communist states to date had freedom as a criterion of their political systems. Thus, the ecological destruction prevalent in these states probably has less to do with socialism and more to do with the fact that the governments, who ran and run theses states, totally neglect the needs of their society and place supply side production targets above all else.

Also, Marx’s materialism had been superficially criticized for its Baconian domination of nature that focuses on production and exploitation. These critics often claim that Marx regarded "nature as a free gift" like his neoclassical contemporaries, thus he gave no value to the environment. However, these claims are a superficial misinterpretation of Marx. As discussed, a closer reading of Marx indicates that his theories are premised on a sensitivity of nature, and an understanding of nature as having no value in capitalist societies, but this does not mean that nature has no use value or intrinsic value for Marx specifically. In fact, and as shown above, Marx and his followers have much to add to an understanding of the environment-economic relationship. Marxism has advantage over the neoclassical or institutional schools precisely because the theory resets on an understanding of society. Marx never lost sight of the necessary relation of material conditions to natural history. The application of Marxism provides a framework of questioning which seeks to understand the essence of the ecological crisis in addition to the appearance of the ecological problem.


In conclusion, with respect to the environment-economic relationship the neoclassical, institutional, and Marxists schools of thought remain within the framework set out by their predecessors. As demonstrated, the neoclassical approach amounts to a market-based understanding of the environment-economic relation and focuses on a value-based method which assumes the ethically unchallengeable preferences of separate and autonomous individuals whose collective decisions impact the environment in accordance with hypothetically derived utilities. The institutional perspective rejects the individualism and reductionism of the neoclassical approach, and recognizes that the market is one institution among many in society. For institutional theory, the real interdependence between ecological systems and the economy creates a dynamic through which social values, cultural norms and institutions are formed and change. In general, the institutional argument seeks to imbed the economy within the environment in order to modify the market mechanism towards ecological sustainability and equitable community well-being. Finally, the Marxist approach takes much from its founder, Karl Marx, in terms of an ecological and social understanding of the environment-economic relationship. Marxism substantially enlarges the investigation of the relationship to one in which the market is questioned and analysed in terms of its appearance and essence. Moreover, a Marxian approach reveals the contradiction between capitalism and ecological sustainability, thus rejecting the analyses and solutions offered by the neoclassical and institutional schools. All of these approaches offer a way of understanding the environment-economic relationship, and an appreciation of each one is necessary for a holistic analysis and an articulate challenge to the ecological crisis present in the world today.

Further Reading



Medalye, J. (2010). Neoclassical, institutional, and marxist approaches to the environment-economic relationship. Retrieved from


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