Sizing the earth: Recognition of economic carrying capacity

ECOLOGICAL ECONOMICS ELSEVIER

Ecological Economics 12 (1995) 13-21

Sizing the earth: recognition of economic carrying capacity Kurt R. Wetzel a,., John F. Wetzel b a 4806 WoodlandAue., Duluth, MN, 55803, USA b Wtsconsin Department of Natural Resources, 3550 Mormon Coulee Road, La Crosse, W1 54601, USA

Received 18 November 1992; accepted 27 March 1994

Abstract This paper argues that the biophysical properties of a finite earth and the realities of economic transformation determine the economic carrying capacity of our planet. Economic carrying capacity takes the form of maximum global economic welfare derivable from the sustainable throughput flows of the ecosphere. This is fleshed out by development of a welfare return curve plotted as a function of economic scale; the latter is measured by entropic throughput. The economic-ecological connection is made by employing the Ehrlichs' equation, P A T = Impact, as the dual entity being measured on the abscissa. This curve shows an initial acceleration which eventually flattens, reaches a maximum (carrying capacity) and is followed by declining welfare. The shape of this curve is determined by the rising costs associated with the ecosystemic impact of increasing throughput rates as required by a growing economy. The primary thrust of the argument is that not only are economic scales that exceed throughput sustainability definitionaily impossible to maintain in the long run, but because of declining welfare, they are not even desirable in the short run. Historical movement along this curve is discussed, reflecting growth in the global economy. An analysis of rising impact costs and the serious mistake of advocating growth to meet these costs is given, employing the notion of a social trap. Also investigated are several additional causes and likely results of pending economic overshoot. Among these are inter-generational penalties of reduced welfare potential from a planet degraded by economic overgrowth. Several overshoot avoidance prescriptions are offered as well as a discussion of stasis and contraction. Keywords: Economic carrying capacity; Economic scale; Environmental impact; Sustainability; Welfare

I. Introduction As the global economy expands, the biophysical r e a l i t i e s of a finite p l a n e t a r e b e c o m i n g a b u n d a n t l y e v i d e n t in t h e f o r m o f p e n d i n g r e s o u r c e d e p l e t i o n s a n d in the g r o w i n g n u m b e r s a n d severity o f e n v i r o n m e n t a l crises. T h e n a s c e n t r e c o g n i -

* Corresponding author.

tion o f this r e a l i t y u n f o r t u n a t e l y has p r i n c i p a l l y b e e n c o n f i n e d to the p u r v i e w o f p o p u l a t i o n biologists, ecologists a n d a t m o s p h e r i c scientists. A n d a l t h o u g h the c a u s e s a n d i m p l i c a t i o n s of d e p l e t e d r e s o u r c e s a n d o v e r - s t r e s s e d sinks a r e largely economic, this d i s c i p l i n e has g e n e r a l l y i g n o r e d the c e n t r a l a n d i n c r e a s i n g l y u r g e n t issue o f o p t i m a l scale - how large t h e e c o n o m y o u g h t to be relative to a finite p l a n e t . In the a b s e n c e o f such c o n s i d e r a t i o n a n d following historical p r e c e d e n t ,

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K.R. Wetzel, J.F. Wetzel / Ecological Economics 12 (1995) 13-21

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mainstream economists have generally assumed that economic growth is always desirable and that the primary task of their discipline is not only to understand the workings of the economy, but to promote growth by application of theory to both public policy and private strategy. It is now urgent that the economics community join other disciplines in questioning and assessing the merit of this assumption. In this paper we attempt to further this process by integrating some basic concepts of the biophysical sciences with economics: population, carrying capacity, environmental impact, entropy, land/resources, economic scale and economic welfare. What we argue is that global economic welfare is subject not only to diminishing returns, but indeed to negative returns, making additional economic growth beyond a certain return-maximum irrational.

2. The global welfare curve

The horizontal axis of the Global Welfare Curve (Fig. 1) measures the equivalences of environmental impact ( I ) and the product of aggregate economic scale (E), as measured by entropic throughput, and the degree to which productive technology is environmentally benign/malign (T). We have made a best-case assumption (least ecological disruption per unit of throughput) for this latter variable, so that the curve represents optimality - the best of all possible trade-offs between the ecological earth and the economic D (POPULATION) X

i

(AVERAGE WELFARE)

i x

ET

,el

=

IMPACT

Fig. 1. G l o b a l w e l f a r e c u r v e .

world. The E T = I equation is a mathematical formulation of the basic relationship that humans have with the planet through our ability to manipulate the environment by economic activity. It is a recognition that all such activity involves environmental impact, which can be softened by appropriate technology, but never eliminated since all economic activity requires throughput inputs taken from and outputs returned to the environment. Such sourcing/sinking and impact are inescapable concomitants and costs of production, the first pair being primarily economic, the latter being ecologic, depending upon perspective. Thus E T = I is an equivalence, but not an identity, each side being a conceptually unique entity locked into mathematical equality by realities of economic production and the biophysical dynamics of our planet. The E T = Impact formulation is identical to the Ehrlichs' equation, P A T = I m p a c t (Ehrlich and Ehrlich, 1990, p. 58). They have defined affluence (,4) as average resource consumption or average throughput. P denotes population; thus PA is a measure of aggregate economic scale, as measured by throughput, which we have opted to denote by the single term, E. As a measure of throughput, E is a correlate of GNP (or more properly, GWP), the latter being a measure of the value of economic flows. The vertical axis is a measure of the real returns or actual welfare benefits resulting from global economic effort. Though welfare is complex in measurement, in concept it is net economic returns over and above those costs generated by economic activity itself. We have opted to denote aggregate global welfare by the product of population (P) and average welfare (W). There is no explicit temporal dimension on the quadrant; however, movement up the front side of the curve generally corresponds to historical economic realities, though stasis and contraction are equally possible. 3. Diminishing returns: The shape of the welfare curve

The graphical relationship between the quantities of these two axes is a welfare return function,

K.R. Wetzel, J.E Wetzel / Ecological Economics 12 (1995) 13-21

the critical maximum point, D, representing economic carrying capacity of a finite earth. It expands upon the biological concept wherein carrying capacity is the maximum n u m b e r of individuals that can be sustained by a given ecosystem, sustainability being a feedback balance between the population size that an ecosystem can support and the impact which that population in turn has upon its own environment. The expansion of the concept to embrace the human condition demands that we consider not only how many people, but also, at what standard of living they are maintained for it is precisely through economic production and consumption and their required throughput that humankind both sustains itself and impacts the global environment. D is that point of maximum welfare that can be maintained by sustainable throughput flows - both sources and sinks - of matter-energy supplied by the environment. New technologies may squeeze marginally more welfare out of each unit of throughput, thus raising the amplitude of the curve, but as maxim u m sustainability is an abscissa point, w, the shape of the curve remains the same. Furthermore, there are entropic limits to economic efficiency so that even the cleverest of technologies yield ever-smaller increments of welfare; and by assuming that the curve already represents the best efficiency limits possible, we have a t t e m p t e d to outflank the ubiquitous appeal to technology as a means to skirt growth limits. It is because the h u m a n economic enterprise is carried out on a finite, ecological earth that the curve necessarily reaches a maximum and then falls. The limiting economic principle is that of diminishing marginal returns: in this aggregate application, the expanding variable is throughput; the shrinking variable is the global ecosystem. This latter is not just a relative decline, but also an absolute reduction since the flow rate of low entropy matter-energy available for economic transformation and for natural processes is a constant sum, so that an expanding economy demands a contracting natural environment. Consequently, as the economy grows and impact rises, an increasing proportion of throughput must be channelled into substitution and repair of ecosys-

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temic services, reflecting a rising economic load on the environment. The throughput costs of sourcing and sinking eventually rise faster than economic benefits derived from growth because of parallel depletion and pollution; the latter are effects of all economic transformations as guaranteed by the entropy law, which no technology can ultimately avoid (Georgescu-Roegen, 1971). Such escalating costs of growth are what Daly and Cobb (1989, pp. 70-1, 78-79) term "defensive expenditures," which are necessitated not only by resource depletions and environmental pollution, but also by secondary ecological disruptions, which tend to accelerate with environmental stress. This shifting of an ever-greater proportion of throughput into defensive measures guarantees a complementary decline in welfare as both compete for the same scarce entropic throughput. In short, welfare must eventually decline as throughput rises. A non-linear or negative relationship between welfare and economic scale has also been expressed by Daly and by Daly and Cobb: This [constant or accelerating returns] may have been the case in the past, but for the future it is doubtful. As the growing throughput pushes up against biophysical limits, it provokes a decline in service efficiency (more of the stock must be devoted to the defensive use of repairing life support systems that formerly provided free services) (Daly, 1974, p. 16). Imagine, instead, that there really is an optimum scale of throughput relative to the ecosystem and that economic growth beyond that scale is in reality anti-economic growth (Daly, 1985, p. 292). Further growth beyond the present scale is overwhelmingly likely to increase costs more rapidly than it increases benefits, thus ushering in a new era of "uneconomic growth" that impoverishes rather than enriches (Daly and Cobb, 1989, p. 2). The A - C section of the welfare curve corresponds to the historical emergence of humankind from nature, beginning with the development of agriculture, followed by the progressive development of technology, the accumulation of manu-

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factured capital, the rise of industrial social organization, and a corresponding expansion of population/affluence. The curve begins above zero on the vertical axis since, before the development of agriculture, people were effectively contained within the natural realm and therefore, though they had an interactive effect upon nature, they had definitionally no impact - impact being those changes inflicted upon nature from without by the techno-economic activities of humans. Thus the initial positive ordinate represents the impactless welfare return of pristine nature. During the initial portion of the climb up the front-side of the curve, impact generates accelerating returns. The global wilderness is transformed into fields, pastures, villages, roads and eventually into cities, freeways, airports and industrial parks. In this section of the curve the costs of depletion and pollution are negligible as nature is both abundant and resilient, allowing accelerating returns to scale, as indicated by the increasing slope of the curve between A and C. At the inflection point, C, incremental returns to economic scale begin to taper off until at the maximum, D, marginal returns become zero. This is economic carrying capacity. During this C - D interval stock resources are drawn down: fossil fuel stocks show a general price increase as their extractive energy ratio increases in parallel with their scarcity; the richest and most accessible mineral deposits are exploited; the cost of obtaining ground water increases as aquifers fall or become polluted; habitable and productive land becomes increasingly scarce in the face of exponentially expanding human numbers and desertification. Flow resources become increasingly stressed as an expanding economy pushes them to levels of maximum sustainability. The costs of their exploitation correspondingly increase as we have witnessed in forestry, fisheries and agriculture - the latter in increased need for fertilizers, pesticides and genetic technologies which are some of the costs of degraded soils. Finally, global sinks become increasingly stressed from outputs of an expanding economy: an increasing proportion of economic effort is channelled into environmental cleanups, expensive technologies that attempt to soften throughput impacts (scrubbers,

waste treatment plants, tailpipe and emission devices, long-term leak-proof storage depots for toxic and nuclear wastes, heroic measures to save endangered species, etc.), and into rising medical costs due to the health effects of a degraded environment. At D, these impact costs of economic growth reduce marginal welfare returns to zero. These stresses are not unrelated; fossil fuel depletion will force escalation of overall costs, as all economic activity is energy driven. Overflowing sinks will hasten the yield decline of flow resources as can be witnessed by the detrimental effects on forests and agriculture of acid rain and on fisheries of water pollution. Such ecological feedback will accelerate as carrying capacity is breached. Beyond D, marginal returns to growth become negative - real welfare declines as a function of economic expansion. As the backslope is descended, impact effects accelerate, eventually taking on a dramatic change of character. Ecological thresholds begin to be crossed as the sheer scale of the economy pushes environmental degradation to levels that exceed the buffering capacities of the planet. At some point it becomes painfully evident that earth is much more than merely another factor of production, commonly termed "land" - it is the dynamic, biophysical complex that allows all life to exist on this planet, and at the same time, an incorporation of that life within its dynamic processes. Even with our meager comprehension of the global ecosystem, what is evident is that it is resilient and even tenacious until threshold stress levels are exceeded, at which time its unravelling may tend to cascade - that is, there is the frightening possibility that at some advanced level of ecosystemic stress there may ensue a decoupling of economic-generated impact and environmental degradation by which the latter may enter into an independent freefall. A second characteristic of environmental degradation beyond D is that it is irreversible. Carrying capacity is the point at which further impact exceeds the ability of the biosphere to heal and recover. Just as the front-side of the welfare curve represents an increased stressing of the planet's capability to buffer or absorb the impact

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of throughput, the backslope represents an erosion of the buffering process itself: impact overload inevitably leads to ecosystemic attrition, reducing the ability of the planet to sustain human welfare.

4. Movement along the frontslope and impediments to stasis

Although the front-side rise of the welfare curve corresponds to historical development, at any point along this curve society has the option to eschew further growth in favor of either a steady-state economy or a move back down the slope via economic contraction. Depending upon the relative changes of the two ordinate variables, population and average welfare, the latter may either rise, fall or stay unchanged during either economic stasis or contraction. The wise society will therefore lead such change with voluntary population decline via birth control, resulting in a higher probability of improving the average person's economic well-being. The above is essentially a quantitative analysis of movement along the front side of the curve. It is important to realize that there is a complementary qualitative analysis. Because the rise up the welfare curve corresponds to the historical development of technology, accumulation of manufactured capital, and the rise of social structures conductive to economic efficiency; it is often hypothesized that any movement back down this same curve would result in historical regression. In fact this is blatantly wrong - there being no reason to believe that we would give up these developments as a result of simply restricting throughput. Secondly, though the size of the economy may shrink or remain constant, product and design novelty, scientific discovery, and technological innovation can continue to increase economic quality. In this sense neither contraction or stasis of scale need entail economic stagnation. If throughput is either reduced or held constant, the patent office need not be closed. Daly (1991a, p. 249) makes this point most forcefully in his distinction between economic growth and economic development, the former

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referring to increased rates of throughput, the latter to increased product quality: " W h a t is being sustained in sustainable development is a level, not a rate of growth, of physical resource use. What is being developed is the qualitative capacity to convert that constant level of physical resource use into improved services for satisfying wants." Although it would seem irrational to engage in economic growth to which the marginal welfare returns are negative, there are compelling reasons to believe that carrying capacity may be exceeded. First, there is currently an enormous human population with a proclivity of doubling every forty years and which has a built-in momentum in the form of being disproportionately young and fecund; this may push us over the maximum by sheer weight of numbers. There may seem to be a prima facie discrepancy between rising population and the overshooting of carrying capacity, but these need not be inconsistent as even marginally subsistent living standards will act as a short-run mortality buffer: humanity suffers extreme poverty before experiencing rising death rates. Secondly, most environmental thresholds are subject to lag times so that the economy, pushed by an expanding population, will almost certainly overshoot the maximum for some time before environmental backlash and resulting negative returns occur. The point at which the economy moves beyond a scale of sustainable use into natural capital depletion may not easily or immediately be ascertained, and we have unwisely opted to employ this imprecision as an excuse for unimpeded, and indeed reckless, growth. In a culture that is based upon mineral stock extraction, there seems to be little distinction between the exploitation of natural capital stocks that yield ongoing resource flows and geologic stocks that do not - both being utilized as the latter. Finally, from the point of view of mainstream economic thought, growth is no longer just an instrument for making people's lives better, but has become an end in itself. This psychologically decouples impact costs and welfare benefits, thereby not only allowing, but even encouraging the irrational growth to which there are negative

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real returns. This excessive concern for aggregate growth has migrated from the economics departments of our universities into the culture at large, until it has become the dominant attitude of both private individuals and public officials who shape economic policy. This blind, social allegiance to economic growth is at the heart of the remaining causes of potential economic overgrowth. The current system of national accounts tends to place more emphasis on measures of aggregate economic activity (GNP) than on economic welfare. Indeed, there are few extant measures of the latter (Daly and Cobb, 1989, pp. 401-455). This accounting practice again tends to decouple economic activity from real benefits - or wrongly assumes that they are linearly related. Daly and Cobb (1989, pp. 370-371) explain, "As long as the G N P is thought to measure human well-being, the obstacles to change are enormous. If, however, it becomes clear that increase in GNP may accompany decline in economic welfare, and that improvements in economic welfare may accompany decline in GNP, then the desire to increase the scale of the economy will be reduced." In lieu of throughput quotas and population limits, and in a complex economic environment wherein relative economic positions vary widely, individuals will continue to engage in economic investment as a means to enhance their relative personal position, even though such growth yields negative aggregate welfare returns. More generally: though the market achieves aUocative efficiency among competing resources (relative scarcity), it does not address the issue of optimal aggregate scale (absolute scarcity), and if left unchecked will tend toward irrational growth (Daly, 1991b). In the absence of understanding that negative welfare returns are, at some point, inherent to the relationship between the size of the planet and the scale of the economy, there will be extreme political pressure on the public sector to maintain economic growth. Without this understanding, declining welfare might ironically become the very agent of that pressure. Indeed, we are falling into a classic social trap, a situation wherein the combined actions of people worsen their collective situation, yet from the perspective

of each individual, there are strong incentives to maintain that very behavior (Cross and Guyer, 1980, pp. 29-32, 133-137). In this specific case of an impact trap, the situation is exacerbated: the appropriate agent of collective action, namely government, which ought to be charged with development and enforcement of policies for trap avoidance, shares and promotes the social value of growth that has become collectively harmful. The most effective solution in this case is widespread education leading to popular and effective political debate, which questions and debunks growthmania.

5. The backslope and loss of temporal neutrality Movement down the backslope is complicated by the phenomenon of irreparable environmental damage, resulting in a ratchet effect whereby one can descend, but not reverse direction and rise back up the slope, qualifying the temporal neutrality of the curve. On a permanently degraded planet humanity enters an impact trap wherein each point on the backslope is intercepted by a secondary fallback curve, G - H - E , effectively reducing the welfare potential of the original A - B C - D - E curve. Thus future welfare is irreversibly sacrificed to the interests of present overgrowth. Because the time dimension is critical in teasing out the subtleties and complications of overshoot, an analysis within the confines of two dimensions cannot be as rich as employing a 3-D examination. Nevertheless, there are useful and important insights that can be gained employing a two-dimensional welfare curve. All i m p a c t / t h r o u g h p u t levels beyond carrying capacity, w, are inherently unsustainable, as w is the maximum level of throughput which can be maintained by use of sustainable entropic flows. Beyond w, throughput demand, being greater than flow supply, entails the reduction of natural stocks, even in a steady-state economy. Any venture down the backslope must eventually result in a retreat down a secondary fallback curve to a new, sustainable scale less than w. How far carrying capacity is ultimately reduced depends upon the degree of environmental degradation, this in

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turn being a function of the two overshoot variables, time and throughput scale. The danger is that once economic scale is in a state of overshoot, we will become entangled in a complex feedback loop involving falling welfare, high economic expectations, and declining natural capital, which may lure us further and further down the backslope before extreme environmental degradation forces a retreat via a fallback curve, and sustainability is reattained. Hence we come full circle: the widening rift between appetite - whether material greed or hunger - and possibility is the instrument by which we unwisely exceed carrying capacity in the short term and by which its unforgiving boundary is eventually reimposed. The further society descends the backslope and the longer they remain in overshoot, the greater becomes the probability of contraction down a secondary curve via disaster: the natural system suddenly and dramatically overpowers the economic system by environmental backlash, rising death rates, and collapsing social structures. Some Third World countries appear to be presently on the backslope and are finding it extremely difficult to socially engineer a graceful descent down a fallback curve. Systemic poverty - encompassing excessive population, high birth and death rates, falling welfare and environmental degradation - places rigid limitations on social policy. They look to the First World for aid and example. Unfortunately the response has been largely inappropriate because few First or Third World economists understand the essential problem - it is impossible to grow out of an impact trap; contraction is the singular escape. And in a society that has only subsistence levels of living standards, the only appropriate variable for contraction is population via birth rate reduction. In turn, the only effective methods for this are through cultural changes, which are invariably more difficult than quick-fix development projects. Overshoot in First World countries is largely being powered by overconsumption, the avoidance of which involves trade-off choices between wealth, population and distribution. The temptation is to champion ever increasing economic growth to deal with these choices and to institute

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immigration restrictions to reduce population influx from the Third World (Hardin, 1974). Such practices will, however, prove fruitless as environmental decline, whether the result of excessive population or economic overgrowth, will not respect the artificial borders of nations. Unless unified action is taken, society may slip into a global Third World. Here the option for outside intervention or aid is closed and the chances of moving gracefully down a secondary fallback curve is highly unlikely. In short, the singular and universal way to avoid the backslope is by achieving global steady states of both population and economic scale. If society does manage to halt its slide down the backslope and attain a steady-state economy, H, on a fallback curve, it is in a much worse planetary condition than on the original A - D frontside curve - each lower fallback curve representing a more extensively degraded environmental reality. For any welfare benefit level, z, its cost has increased by y - x of added throughput, relative to the optimal A - C welfare curve. This is not only an additional cost, but more accurately a generational penalty, visited upon future generations by the prodigal abuse of the earth by their forebears. Just as the ratchet effect of the backslope qualifies the temporal neutrality of the welfare curve, there is a second manner in which this neutrality is mitigated, this being the contingent aspect of acceleration along the curve. It took humanity ten thousand years to reach the present point estimated to be approaching the maximum, D. With a population doubling rate of about forty years and an economic doubling rate of somewhat less, we could breach the carrying capacity of the planet in less than a generation and find ourselves suddenly and bewilderingly on the backslope.

6. N e e d f o r s u s t a i n a b i l i t y

Given the exponentiality of growth, both economic and demographic, and the nearly universal and singular appeal to economic growth as a means for solving humanity's problems, it is

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mandatory that such growth be re-evaluated in the context of a finite, ecological planet and that sustainability become the new economic goal. The desirability of population growth is being questioned, though this change in social values has been slow and inconsistent in filtering down to the decisions of individuals where it has meaningful effect. Economic growth, however, still remains the prevailing goal of society at all levels. The profound structural changes required to exit this growth curve first requires a fundamental shift in concept - primarily that economic growth has ecological limits beyond which economic expansion generates poverty and ecological havoc rather than wealth and human well-being. Such a paradigm shift must be nurtured and advanced in both academia and the popular culture before it will gain the currency necessary to attain the status of policy. And in this debate we are reaching a critical juncture: how the inevitable chain of environmental stresses and crises - the initial series of which we are presently experiencing will be interpreted and dealt with. If the rising costs of such ecological backlash brings forth renewed calls for more growth, there is little hope; if they are interpreted as warnings of overgrowth, there is a much greater chance that a steady state can be attained without catastrophe.

7. Conclusions In the tradition of Fisher, Boulding and Daly, and as revealed in the analysis of the generational penalty, the welfare curve incorporates the concept that throughput - and by correlation, G N P - is an economic cost, not a benefit (Daly, 1985, pp. 288-289). This is partially recognized by mainstream economists to the extent that accounting measures designed to evaluate economic performance are distanced from a gross measure of economic activity, GNP, by a series of deductions and depreciations, with a rationale that a good economic evaluation focuses upon the "yield" of the economy over and above its internal and external costs. Unfortunately, the current infatuation with growth discounts such costs and irrationally equates rising G N P with economic

success. As the welfare return curve may be generalized as a plot of economic success as a function of economic scale, and if we employ G N P as a measure of that success, we are effectively plotting economic scale against itself, resulting in a 45 ° line which bisects the quadrant - the implications of which are that all economic growth guarantees a tautologous positive return and that carrying capacity is unlimited. It highlights a hidden and false assumption of neoclassical economics: that planet earth is economically infinite. The source of this myopia is largely historical in that the economics discipline began and has flourished on the front-side, B - C segment of the welfare curve. During this period the returns to growth have tended to mimic the self-reflective success of incestuously employing G N P itself for that measure. As we move into the C - D portion of the curve in which the return rate flattens, economists are interpreting this as an internal challenge rather than acknowledging external limits - what they believe is needed is manipulation of standard economic variables to maintain growth as opposed to realizing that the scale of the global economy is approaching planetary return limitations. Global human carrying capacity and aggregate economic welfare potential must be recognized as equivalent or identical concepts even though they have evolved from different disciplines. This ecological-economic synthesis, embodied in the welfare curve, is a planetary constant as real as any geographical fact. It is a derivative of the size and biophysical processes of the earth, which we fail to recognize at our peril.

Acknowledgments We thank William Rees for taking the time to read and constructively criticize an earlier submittal of this paper. His concerns and insights were incorporated throughout, making its final form a much stronger effort. Preliminary drafts were also reviewed by Steve G u t r e u t e r and David Urich. Graphical assistance was provided by Jennifer Sauer and typing was provided by Angela Kotlarz.

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