The neoclassical and ecological economic approaches

Concerns over population were expressed by Thomas Malthuswhile John Stuart Mill predicted the desirability of the stationary state of an economy. Mill thereby anticipated later insights of modern ecological economists, but without having had their experience of the social and ecological costs of the Post—World War II economic expansion. InMarxian economist Sergei Podolinsky attempted to theorize a labor theory of value based on embodied energy ; his work was read and critiqued by Marx and Engels.

The neoclassical and ecological economic approaches

Arnsperger and Varoufakis argue that three axioms constitute the paradigmatic core of neoclassical economics: Terminology, analysis and conception of the economy According to neoclassical economics, the central economic problem is the limited nature of social resources. Due to this scarcity, economics as science should study the organization of an economy in order to establish welfare by the optimal allocation of resources.

Simply put, the economy can be understood as an exchange economy in which rational actors with exogenously determined resource allocations interact in markets. Those actors trade with each other since the interaction generates mutual utility. Productivity is seen as the source for the functioning of the economy and the determinant of the wealth of a nation.

In the neoclassical conception of the economy, individuals can choose between different alternatives and the aim The neoclassical and ecological economic approaches their decisions is to maximize their own utility.

In order to reach an optimal outcome, economic subjects base their decisions on a comparison of costs and benefits whereby marginal units — pursuant to the postulates of marginalism — serve as important factors.

In this context, the abstract concept of the homo economicus is often used. It represents an ideal individual who acts rationally, i. By aggregating all the individual utility functions, aggregate demand can be derived.

On the market, the latter meets aggregate supply. By means of the price mechanism, which itself is not further modelled, supply and demand converge towards an equilibrium where supply equals demand and where the market is cleared.

This property makes the price mechanism an optimal instrument of allocation. Elaborating on the prerequisites of such a price mechanism, in his definition of neoclassical economics, Arne Heise3 highlights the axiom of gross substitution according to which all goods and services are generally mutually exchangeable.

Only by means of this axiom can it be assured that the price mechanism works as an instrument of allocation and that the market equilibria can exist. As long as there is no market failure — e. This is called a Pareto-efficient state, since no party can improve its own situation without worsening the one of others.

While microeconomics mainly analyses the behaviour of households and firms on different markets and types of markets, macroeconomics focuses on economic aggregates such as the gross domestic product, the unemployment rate or the inflation rate as well as on the interaction of markets in particular the commodity market, the labour market and the money market.

Macroeconomic analyses of key economic aggregates are increasingly based on microeconomic foundations. The argument underlying the need for such microfoundations is that the rules for individual decision making do not remain stable, for example, in the case of a policy-induced change of the economic conditions cf.

The particular form of modelling of neoclassical economics offers the statistical and mathematical tools for the testing of mathematical models and economic phenomena. The approach focuses on the development of quantitative methods for empirical data analysis.

Ontology As already mentioned above, there is no single definition of neoclassical economics since it became increasingly diverse and since other approaches were integrated into the perspective.

Nevertheless, according to neoclassical understanding, the central economic problem remains the scarcity of resources. According to Arnsperger and Varoufakisthere are three axioms which can be found in all neoclassical models and sub-schools and therefore constitute the paradigmatic core of neoclassical economics: The first axiom, methodological individualism, implies that processes at the macro level can only be ascribed to the actions of individuals at the micro level.

Therefore, all economic phenomena can be described and explained by referring to individual actions. Furthermore this implies that only the individual can be the source of moral values: Hence the influence or the setting of values by external institutions such as religion is rejected.

This description can on the one hand be interpreted as an ontological fixation on individuals which means that the existence of economic phenomena and structures that cannot be ascribed to the individual emergence is rejected.

On the other hand, the axiom can be understood methodologically.neoclassical economists in academia, commerce, and government, ecological economics will be challenged to avoid a pre-occupation with natural capital valuation exercises at the expense of its distinguishing emphasis on sustainable scale.

ecological economics, outlining for each issue the neoclassical position and the ecological economics alternative.

The neoclassical and ecological economic approaches

We end with a call for a structuralist approach that. Neoclassical economics is an approach to economics focusing on the determination of goods, outputs, and income distributions in markets through supply and demand.

Within an economics context, the neoclassical and ecological schools have explored the topic vigorously, and based on their individual beliefs, recommend different policy ideals to ensure that sustainable development is indeed realised.

This paper discusses the major tenets of ecological economics—including value pluralism, methodological pluralism and multi-criteria policy assess-ment. Ecological economics offers viable alternatives to the theoretical foundations and policy recommendations of neoclassical welfare economics. Ecological economics approaches economics from a perspective that places the economy as a subset of the environment.

Environmental economics tends to look at market-based natural resource use, management, and the impacts of environmental policy on the market with a notion that economic growth can continue beyond the confines of the .

Ecological economics - Wikipedia