CAIRN-INT.INFO : International Edition

Environmental economics appeared in the 1960s, along with the growth in public environmental awareness, as a direct response to the rise of ecological and human health problems related to pollution (Spash 1999). By the late 1960s and early 1970s, the promise of material wealth for all through economic growth and post-World War II optimism in the abilities of science and technology were faltering. Pollution from agro-chemicals, DDT and radiation from nuclear bomb testing were amongst the problems highlighted. Economic growth was strongly debated and increasingly criticised as positively misleading in terms of the consequences for human society (e.g., Mishan 1967, 1969a; Meadows et al. 1972; Daly 1974; Hirsch 1977; Scitovsky 1976; Schumacher 1973). In order to understand the predicament of human kind, the challenge appeared to be to create a totally new approach to economics.
The contributions of economists, during the rise of modern environmentalism, developed around a distinct set of connected research agendas with pollution at the centre. First, there was the relationship of environmental problems to the growth economy, with its massive inputs of materials and energy, justified as necessary to meet the ever expanding wants of the consumer. Second, there was the, apparently perplexing, question of how an economic system that was meant to create wealth, and well-being for all, was instead creating social and ecological harm as a normal part of business practice? Third, there was the need to measure those harms (as social costs…


Today, environmental economics is the response of the neoclassical economic school to the ecological crisis, but at one time its leading contributors regarded it as a revolutionary development that would change the conduct and content of economics as a discipline. Understanding and addressing environmental pollution was core to that potential paradigm shift. In tracing the history of conceptualising pollution as an externality and market failure this paper covers the development of ideas by Marshall, Pigou, Pareto, Coase, Stigler, Samuelson, Ciciacy-Wantrup and Kapp. Pollution externality theory is shown to have incorporate an elitist ethics and liberal market ideology. As a market failure pollution was deemed a minor correctible error of the price system. Monetary valuation of social and environmental harm became the means of justifying optimal levels of pollution. Neoliberal theories of spreading property rights further watered-down potential interventionist aspects. Bio-physical realism, in the work of Kneese, Ayres and d’Arge, and social realism in Kapp’s theory of cost shifting were lost once environmental economics adopted a deductivist mathematical formalism. Kapp’s alternative theory is based on a classic institutionalists economic understanding of cost shifting and power relations. It advocates a public policy response in the form of objective social minima achieved via regulation and planning. This theory has until now been successfully supressed to prevent a potential revolutionary paradigm shift in economic price theory.
JEL Classification: A13 B2 B55 D61 D62 H21 H23 P16 P18 P48 Q5 Q52 Q53 Q57 Q58

  • externalities
  • market failure
  • cost-shifting
  • price theory
  • pollution
  • Pigou
  • Coase
  • Kapp
  • paradigm shift
  • environmental economics
  • neoclassical economics
  • institutional economics
  • neoliberalism
Clive L. Spash
Institute for the Multi-Level Governance & Development, Department of Socioeconomics, WU Vienna University of Economics and Business, Austria
Email address:
This is the latest publication of the author on cairn.
You still have to read 98% of this article
Purchase full-text 5,00€ 38 pages, electronic only
(html and pdf)
add_shopping_cart Add to cart
Other option
Member of a subscribed institution ? business Authenticate
Uploaded on on 24/09/2021
Distribution électronique pour Hermann © Hermann. Tous droits réservés pour tous pays. Il est interdit, sauf accord préalable et écrit de l’éditeur, de reproduire (notamment par photocopie) partiellement ou totalement le présent article, de le stocker dans une banque de données ou de le communiquer au public sous quelque forme et de quelque manière que ce soit.
Loading... Please wait