Does Nature Have Economic Value?

Ecological economists know the price of everything--and the value of nothing.


Each year, nature provides ecosystem services to humanity worth about $33 trillion. Or so a group of distinguished ecological economists concluded in a 1997 article from the journal Nature. Were they correct? "I think on the contrary that nature has no economic value," boldly asserts University of Maryland philosopher Mark Sagoff in a recent article in the journal Environmental Values.

Sagoff begins with philosopher John Locke's observation about the comparative value of an acre of land in Great Britain and one in America. Both could produce twenty bushels of wheat with the same effort and so "are, without doubt, of the natural intrinsic value." However, the one in Britain was cultivated, yielding 5 pounds in value, whereas the one in America was left uncultivated and, as a consequence, was "possibly not worth a penny." Sagoff's point is that "many ecologically minded economists today describe as 'ecosystem services' or as 'natural capital' what Locke called the 'natural, intrinsic value' of land." Locke, a proponent of the labor theory of value, argued that the value that land produced was largely the result of people mixing their labor with it.

Similarly, Sagoff argues that while modern ecological economists would certainly not endorse the labor theory of value, they do "generally accept the idea that economic value represents or refers to an intrinsic or inherent essence to which they attach normative significance." Such environmental economists take one of two tacks in their quest to establish objective intrinsic values. Some try to estimate the value of ecosystem services based on people's claimed willingness to pay (WTP) for those services. Others argue that value in nature arises from certain factors thought to limit production, such as energy, net primary production, or low entropy resource flows. These positions mirror Locke's labor theory of value, Sagoff asserts, because they encompass "a commitment to the idea that economic value is a measurable quantity—whether physiological (labor), psychological (WTP), or material (low entropy resource flows)." Sagoff agrees with Austrian economist Friedrich Hayek that tying to calculate allegedly objective values using some non-monetary measure is beyond the scope of human knowledge.

For example, while willingness to pay surveys may tell us what individuals say they want, they don't, as Sagoff notes, tell us whether what individuals want is a "value society has reasons to satisfy." In addition, economist Roger Bate makes a salient point with regard to such surveys: There is "a fundamental difference between an actual choice and a potential preference. People may state a preference for many things, but, in actuality, choose something entirely different." If you ask me how much I would be willing to pay for world peace, for instance, I would readily come up with a number. But the fact remains that I contributed no money to organizations such as the Carnegie Endowment for International Peace.

In any case, prices are always low when supply exceeds demand. Air is cheap (free) because we have more than enough of it. (Yet we cannot live for more than a few minutes without it.) To put it another way, prices result from scarcity. In general, the greater the supply, the more demand will be satisfied at lower prices. When total demand is satisfied with available supplies, there is no price. As examples, Sagoff argues that markets correctly place negligible prices on natural capital and ecosystem services for water, timber, pollination, and biodiversity.

Along those lines, consider that nature's hydrological cycle provides vastly more freshwater than humanity needs. We annually use about one-fiftieth of the amount that precipitates over land. In this case, Sagoff is certainly right that, in the aggregate, the hydrological cycle drops vast quantities of what is essentially distilled water on the land for free. While he does note that it takes some expensive infrastructure to move water around, he fails to acknowledge that such local scarcities mean that water has a price. On the other hand, he does debunk the urban legend often peddled by environmental economists that New York City spent more than $1 billion on ecosystem services by buying land in the Catskills to preserve its watershed rather than build a water filtration plant.

With regard to timber and forests, Sagoff points out that agricultural and silvicultural productivity has increased so much that vast amounts of land has actually reverted to nature. In other words, human ingenuity continues to outpace and replace the relatively low productivity of natural capital. Temperate and boreal forests are expanding worldwide. In January, the real price of lumber was the lowest in history.

Sagoff also acknowledges that insects provide vital ecological services including pollination—although most cereal crops are pollinated by the wind. Sagoff entertainingly points out that no one would hire someone with a bellows to blow pollen around in a Kansas wheat field since wheat farmers get all of the wind they need for free. Sagoff's argument is that insect pollinators are essentially as ubiquitous as the wind. Markets, however, tell us that bees provide services for which orchard owners and farmers pay beekeepers an estimated $150 million per year. Sagoff also cites a 2006 study which found that dung beetles provided $380 million in services to ranchers by burying cow manure in pastures. This value was calculated assuming that dung beetles disappeared. But there is no scarcity of dung beetles. In fact, by populating their pastures with cattle, ranchers have created "dung beetle Heaven." These creatures are "paid" copious quantities of cow manure for their work, just as pollinating insects are "paid" for their efforts with nectar from the flowers of fruits, vegetables, and nuts planted by farmers. On the other hand, some species of dung beetles can become scarce when they are eaten by people. In those cases, it pays farmers to learn how to raise them as delicacies.

Finally, Sagoff looks into the economic value of biodiversity. "No one has suggested an economic application…for any of the thousand species in the USA listed as threatened," writes Sagoff. Actually, the number of species listed as endangered or threatened with extinction at the U.S. Fish and Wildlife Service is 1319 species. But what is the economic use for the Peck's cave amphipod? Or the Delhi Sands fly? The rock gnome lichen? The admittedly much cuter Delmarva Fox squirrel? Again, Sagoff points out that biodiversity is ubiquitous. He cites biologist David Ehrenfeld who wrote, "We do not know how many [plant] species are needed to keep the planet green and healthy, but it seems very unlikely to be anywhere near the more than a quarter of a million we have now." It should also be noted, however, that Ehrenfeld declares, "For biological diversity, value is. Nothing more and nothing less." In other words, according to Ehrenfeld, biodiversity has moral value, not monetary or biophysical value. Sagoff agrees with this stance.

But what about climate change? By adding greenhouse gases to the atmosphere, humanity may be dangerously destabilizing the planet's climate. Surely the market places value on protecting the climate? Sagoff disagrees, arguing that the climate is a "lumpy" good which cannot be easily divided into pieces and sold in units. But is that right? Greenhouse gases are no more "lumpy" than trees or fish. It is notionally possible for governments to set a cap on the amount of such gases that may be emitted and then sell permits for the right to emit (greenhouse gas lump could be divided into lumps the size of one ton and traded among firms and individuals). Sagoff acknowledges that such a scheme might work but claims that it "does not represent free and willing exchange but a way to make centralized command-and-control regulation more cost-effective." Would he make the same argument when governments privatize fisheries using tradable quotas? Limiting greenhouse gas emissions could be reconceived as closing a previously wide open climate commons by distributing property rights among possible users.

In the end, Sagoff does not heartlessly advocate condemning species to oblivion, cutting down all the trees, poisoning pollinators, or sullying lakes, rivers, and aquifers. His point is that ecological economics are misconceived, that ecological conservation and protection cannot be justified on strictly economic grounds. Claiming that nature provides $33 trillion in ecosystem services is unpersuasive, given that most of nature's services greatly exceed demand and are thus provided for free. "We recognize that the preservation of the beauty, complexity, and integrity of the natural world represents an aesthetic opportunity, a spiritual duty, and a moral obligation," asserts Sagoff. While he is surely right, making the protection of nature a moral issue will make it that much harder for people of different ethical and aesthetic views to compromise. Nevertheless, appealing to ersatz economic calculation is, as Sagoff declares, "the most self-defeating path environmentalists can take." Instead, ecological economists should devote more time to bringing more of the natural world within the ambit of the market system. As Sagoff concludes, "The solution is to structure property rights to turn liberty into prosperity, not to put scientists in charge."

Ronald Bailey is Reason magazine's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.