Environmental disruption and social costs: a challenge to economics

TLDR: The challenge to economics is due to the complexity of the causal chain which gives rise to environmental disruption and the magnitude of the social costs as discussed by the authors, and therefore, traditional economic theory is ill equipped to deal with phenomena which are the result of interdependencies and effects of which markets and prices take no or only partial account.

Abstract: SUMMARY Environmental disruption and social costs have long been neglected or kept at the periphery of conventional economic theory. This is not surprising. They are largely extra market phenomena and traditional economic theory is ill equipped to deal with phenomena which are the result of interdependencies and effects of which markets and prices take no or only partial account. The challenge to economics is due to the complexity of the causal chain which gives rise to environmental disruption and the magnitude of the social costs. These defy any treatment in terms of such traditional concepts as ‘externalities’, GNP, etc.—and, moreover, put in question the validity of our traditional measures of efficiency and optimalization by economic units or subsystems of the economy. The answer to this challenge will have to be found not by means of formal welfare criteria but in terms of concepts defining a substantive rationality reflecting actual human needs and requirements of human life. While conventional economic theory has so far refused to accept this challenge its status and relevance as a discipline in the future will depend upon its willingness and ability to develop new modes of thinking more appropriate for the problems caused by environmental disruption and social costs.