Kent Klitgaard

Towards a Methodology for Biophysical Economics

Kent Klitgaard and Eric Kemp-Benedict

Biophysical economics has evolved in the absence of a well-enunciated methodology. This paper suggests such a methodology by tracing the roots of biophysical economics, and by posing several crucial epistemological and practical questions for the future progress of the discipline. We offer tentative answers by drawing on the scientific methodology literature in economics and the social sciences. Biophysical economics is grounded in some core propositions: economies are open systems far from thermodynamic equilibrium that generate a positive flux of entropy and that can be maintained only by a flow of energy and materials; and wherever a monetary flow exists in the economy, there are necessarily energy and material flows in the opposite direction. However, these principles do not address the role of the economy as a human institution. A persistent theme, also common to classical economists, Georgescu-Roegen and Herman Daly, reflects the core principle: the economy is embedded in society, which in turn is embedded in nature. As such, social science approaches should be consistent with, but not subsumed within, the methods of natural science. Biophysical economics should explore the internal limits imposed by the institutional structure of economy and society as well as the biophysical limits imposed by nature.