Economic Principles of Sustainability

Everyone wants to be treated with dignity and respect and accepted for who they are. This is a fundamental law of nature, specifically, human nature. We need positive relationships with other people, and with nature, but we also have individual needs that must be met if we are to have a desirable quality of life. Economics is about meeting our needs and wants as individuals, period.

The fundamental flaw of socialism is that it fails to respect the needs of individuals for liberty as well as justice. The fundamental flaw of unrestrained capitalism is that it fails to respect the need for social justice as well as individual liberty. Sustainable societies must continually strive to ensure both liberty and justice for all. There is no liberty without justice, and there is no justice without liberty.

Economic principles are not simply something thought up by economists. The most basic principles of economics are as real and inviolable as the other laws of nature. The concepts taught in economics principles courses are mostly economic assumptions and analytical methods that support particular economic theories or schools of thought. However, three of the concepts taught in most basic economics classes are core principles that characterize all economies: scarcity, efficiency, and sovereignty.

Economics deals with the efficient allocation or use of scarce goods and services to satisfy individual needs and wants. The first principle of economics is scarcity—meaning there is not enough of some goods and services to meet both the needs and wants of everyone. The principle of economic efficiency is the natural desire of individuals to gain as much satisfaction as they can from the goods and services available to them. The third principle is sovereignty, meaning the liberty or freedom of individuals to make independent choices.

Economic value is determined by scarcity. A lot of important things in life are abundant and thus are freely available to all. Economics, however, is about how individuals make the most efficient use of things that are scarce rather than abundant. Once a person’s basic needs are met, additional goods and services are about wants rather than needs. If something becomes more abundant or less scarce, it will diminish in economic value because more people will have all they need.

The principle of scarcity also applies to the ability of producers to provide things that meet the needs or wants of consumers. As producers attempt to produce more from a given natural or human resource—an acre of land or an hour of labor—at some point their ability to produce more will diminish, meaning the resource cost of additional production will increase.

To make economically efficient choices, individuals must not only be free to choose but also have accurate information regarding the benefits they are likely to receive from the alternatives available to them. They must also be able to choose without outside persuasion, coercion, threats of force from others. From the alternatives available to them, sovereign consumers will then choose an assortment of goods and services that most efficiently meets their individual needs and wants.

Sovereignty and efficiency not only apply to consumers’ choices but also to the allocation of the scarce natural and human resources used to produce goods and services for consumers. From the alternatives available, sovereign producers will choose to use assortments of productive resources that best suit their abilities to produce things of the greatest value to consumers.

The efficient allocation of scarce resources means choosing assortments of goods and services that will maximize the benefits of consumers relative to the natural and human resources used to produce them. Sustainable economies must make efficient use of nature's limited resources not only to meet the individual needs of people of the present but also to leave equal or better opportunities for those of the future.

As with the ecological and social principles of sustainability, the core principles of economics also apply to social and ecological relationships. Social value, like economic value, is determined by scarcity. If a person has no friends, a new friendship may greatly improve their quality of life. No two friendships are of equal social value. However, as a person gains more friends, beyond some point, each new friendship tends to add less to their quality of life.

In addition, each new friendship requires additional time and energy. People naturally invest their limited time and energy in personal relationships that are expected to result in the greatest social value. Sustainable social relationships are also relationships of choice rather than necessity. Dependent relationships invariably degenerate into exploitation and oppression. These same principles are valid for all types of personal relationships—within families, social groups, communities, and societies—the relationships just become less personal.

Finally, the principles of economics also apply to our relationships with nature. As natural resources become less abundant, they become more valuable—not only in economic value but also in ecological value. However, most things of nature become ecologically valuable long before they become economically valuable. Sustainable relationships with nature must be ecologically efficient, rather than economically efficient.

People have a basic human need to connect with nature, as individuals. People need to be free to choose when and how they relate to nature. Some may spend days or weeks in wild places, others just hike, walk, or camp in the woods or by a lake or stream, and others just visit parks or green spaces from time to time. Some choose to spend their lives protecting the things of nature.

The principles of economics are equally valid for social and ecological relationships. However, choices must be based on social and ecological values rather than economic values.

John Ikerd