A DYNAMIC, HIERARCHICAL APPROACH TO UNDERSTANDING AND MANAGING NATURAL ECONOMIC-SYSTEMS

The study of economic systems, and their guidance towards sustainabili ty, can be enhanced by understanding how natural systems use materials and energy at various levels of system organization, how these levels interrelate, and how interrelationships change. Towards this end, the paper introduces natural economics as an approach to understanding th e dynamics of hierarchical systems. We define the concepts of natural economics to facilitate the description and assessment of system chang e, and present dynamic modeling as a method for empirical research and as a tool for management decision making. We illustrate with empirica l applications the use of dynamic modeling at various levels of system organization. Empirical illustrations range from dynamic models of si mple physical systems of material transport, energy degradation and se lf-organized criticality to models of complex industrial systems, such as US iron ore mining and steel production. The insights derived from the natural economics approach are used to draw conclusions for the s tudy and management of economy-environment interactions.