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What Plants can tell you about Economics

If you look up at an oak tree, imagine all the process taking place. Water is being moved up the trunk. Water and CO2 are then converted into sugar. Now, compare the tree to a grocery store. The grocery store has inventory being delivered by a truck. It then uses the inventory and resources (like labor) to make money. Plants and Economic firms are very similar because they are both driven by limited resources. Since they are both limited they act in similar ways. Let’s look at their similarities.

Two hands holding a plant in it with a sky background. The article is about plants and lessons of economics we can learn from plants.

Photo by Danilo Prudêncio Silva

A paper by Dr. Bloom and his group offers a set of theorems to lay a framework to think about how plants and firms use resources. The first theorem is that both plants and firms take resources at a low cost then use it to improve them or implement them at a higher economic or biologic value.

This could be seen when a mining company uses the capital to constructs a new mining operation. Ore extracted from the mine will be sold and the company will make a profit. For plants, this would be spending carbon to form a new leaf. The new leaf will capture carbon and convert it into sugar and the plant’s energy will increase.

Theorem two and three of Dr. Bloom’s paper describe diminishing returns and supply and demand. Diminishing returns mean that there is an optimal amount of capital to be invested in getting the highest net profit. Companies can’t utilize all of the capital because it is limited by the resources such as labor. Solar energy drives the sugar making process in Plants. Plants can’t utilize all the solar energy because it will start to shade itself. The plant is limited by space. Supply and demand play into diminishing returns when capital is changed to be optimally used to increase production and profit, demand will adjust.

Theorem four is that resources are optimally allocated and are interchangeable when one resource is limited. Economic firms can interchange capital for labor by hiring new people. Labor and capital can be interchanged by using labor instead of spending money to buy new technology to increase production. Plants are constantly trading resources. Plants need water and CO2 to make sugar. Water comes from the ground and is moved up the plant. CO2 comes from the air through the leaves. When the leaves are open the plant takes in CO2, but at a cost. Water evaporates from the open leaves and the water is lost. Plants open and close pores in their leaves to optimize their resources. They have also adapted to reduce water loss while increasing CO2.

We have just seen that both plants and economic firms are limited by resources and act in similar ways because of their limits. Both have optimized their resources and interchange them when one resource is limited. Next time you’re outside and see a tree think about everything that is going on. Resource are being moved around and interchanged in the tree. The tree invests energy on a leaf to get a better return later. We could all learn from a tree.

Work Cited:

A. J. Bloom, F. S. Chapin, and H. A. Mooney. 1985. Resource Limitation in Plants: An Economic Analogy. Annual Review of Ecology and Systematics. Vol. 16. Pg. 363-392

Elliott Killian

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