Environmental economics, as it is taught in universities and practiced in government agencies and development banks, is overwhelmingly microeconomics. The theoretical focus is on prices, and the big issue is how to internalize external environmental costs to arrive at prices that reflect full social marginal opportunity costs. Once prices are right, the environmental problem is "solved" -- there is no macroeconomic dimension. Cost/benefit analysis in its various permutations is the major tool for estimating full-cost prices. So in practice as well as theory we remain within the domain of microeconomics. There are, of course, good reasons for environmental economics to be closely tied to microeconomics and it is not my intention to argue against that connection. Rather, I ask if there is not a neglected connection between the environment and macroeconomics.

"In practice we all start our own research from the work of our predecessors, that is, we hardly ever start from scratch. But suppose we did start from scratch, what are the steps we should have to take? Obviously, in order to be able to posit to ourselves any problems at all, we should first have to visualize a distinct set of coherent phenomena as a worthwhile object of our analytic effort. In other words, analytic effort is of necessity preceded by a preanalytic cognitive act that supplies the raw material for the analytic effort. In this book, this preanalytic cognitive act will be called Vision. It is interesting to note that vision of this kind not only must precede historically the emergence of analytic effort in any field, but also may re-enter the history of ever established science each time somebody teaches us to see things in a light of which the source is not to be found in the facts, methods, and results of the pre-existing state of the science."

The vision of modern economics in general, and especially of macroeconomics, is the familiar circular flow diagram. The macroeconomy is seen as an isolated system (i.e., no exchanges of matter or energy with its environment) in which exchange value circulates between firms and households in a closed loop. What is "flowing in a circle" is variously referred to as production or consumption, but these have physical dimensions. The circular flow does not refer to materials recycling, which in any case could not be a completely closed loop, and of course would require energy which cannot be recycled at all. What is truly flowing in a circle can only be abstract exchange value -- exchange value abstracted from the physical dimensions of the goods and factors that are exchanged. Since an isolated system of abstract exchange value flowing in a circle has no dependence on an environment, there can be no problem of natural resource depletion, nor environmental pollution, nor any dependence of the macroeconomy on natural services, or indeed on anything at all outside itself (Daly 1985).

Since analysis cannot supply what the preanalytic vision omits, it is only to be expected that macroeconomics texts would be silent on environment, natural resources, depletion and pollution. It is as if the preanalytic vision that biologists had of animals recognized only the circulatory system, and abstracted completely from the digestive tract. A biology textbook's index would then contain no entry under "assimilation" or "liver. The dependence of the animal on its environment would not be evident. It would appear as a perpetual motion machine.

Things are no better when we turn to the advanced chapters at the end of most macroeconomics texts, where the topic is growth theory. True to the preanalytic vision the aggregate production is written as Y = f(K,L), i.e., output is a function of capital and labor stocks. Resource flows (R) do not even enter! Nor is any waste output flow noted. And if occasionally R is stuck in the function along with R and L it makes little difference since the production function is almost always a multiplicative form, such as Cobb-Douglas, in which R can approach zero with Y constant if only we increase K or L in a compensatory fashion. Resources are seen as "necessary" for production, but the amount required can be as little as one likes!