Heterogeneity and Time: From Austrian Capital Theory to Ecological Economics

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Heterogeneity and Time

HETEROGENEITY AND TIME are central aspects of economic activity. By heterogeneity we mean the variety of different entities that are involved in the economic process. In particular, this encompasses all primary resources, all intermediate and capital goods, and all final outputs (consumption goods). This also includes natural resources, stocks of pollutants, and species populations, at least insofar as these influence or are influenced by economic activity. With the term time we want to emphasize that all economic activity is dynamic in a twofold manner. First, the different entities involved in the economic process do not stay constant, but change over time. Second, economic activity does not turn resources instantly into final outputs; the production process and consumption itself takes time.

In our understanding, during the last few centuries, both heterogeneity and time have become increasingly important for the analysis of economic activity as humankind has extracted more and more resources, produced an increasing number and amount of intermediate (i.e., capital goods) and final goods, and seemed insatiable in its consumption wants, leading to the depletion of natural resources and an increasing variety and amount of pollutants emitted into the environment. This is, on the one hand, because the human population has been (and still is) growing drastically and, on the other hand, because technological progress steadily increases humankind's means of extracting, producing, and consuming. As a consequence, economic activity depends more and more on the natural environment either directly, such as by land use and resource extraction, or indirectly, such as by environmental pollution and use of natural degradation capacity.

Thus, heterogeneity increases with the number of resources, pollutants, goods, and production techniques; at the same time, the number of natural systems influenced by human activity also increases. Time becomes more and more important as many natural resources are finite and many wastes and pollutants are durable over long time horizons and accumulate pollutant stocks, such as radioactive waste and greenhouse gases. In addition, for many durable pollutants, the so-called stock pollutants, it is not the flow of emissions that is relevant for environmental damage but the accumulated stock (Baumgartner et al. 2002). As a consequence, we experience significant time lags between pollutant emissions and their consequences. Prime examples are climate change due to the anthropogenic emissions of greenhouse gases and the depletion of the ozone layer, induced by the emissions of a class of artificial chemicals, the chlorofluorocarbons (CFCs).

Due to dissatisfaction with the narrow view of environmental and resource economics on the "environment," the new field of ecological economics emerged in the 1980s. While environmental and resource economics employs the standard paradigm of neoclassical economics and views the environment as a subsystem of the economic system, ecological economics sees the opposite. It emphasizes an encompassing interdisciplinary view on both the diverse interactions between society, economy, and nature and the long timeframe of many environmental problems. As a consequence, heterogeneity and time play a crucial role in ecological economics.

Traditionally in economics, it is the field of capital theory that deals with the dynamics of durable stocks (cf. Bliss et al. 2005). In fact, heterogeneity and time, in the two-fold manner defined above, were first introduced into capital theory by the Austrian School of economics. Thus, in Section II, we first describe how the Austrian School of economics emerged from early marginalism in the 1870s. Although originally influential, Austrian economics fell into oblivion during the 1930s. The consideration of the vertical time structure of production, one of the distinctive characteristics of Austrian economics, experienced a rebirth in the 1970s in two different schools of thought, the Austrian subjectivist school and neo-Austrian capital theory, as outlined in Section III. …