This paper examines the hydrological cycle and its implications for the production capacity of two countries, China and the United States. While it takes a macro-level view, it illustrates the relevance of understanding the circularity of nature as exemplified by the hydrological cycle, for urban and regional circular economy considerations. Taking the circularity of nature as a starting point is a departure from common circular economy conceptions, which take an anthropocentric perspective rather than a nature based one. We calculate the amount of solar energy available for freshwater evaporation and the allocation of freshwater to its key uses in the domestic, industrial, and agricultural sectors. Our calculations indicate that the capacity to generate economic output can be accurately described by the embodied solar energy distribution that determines the availability of freshwater for allocation to different uses. This illustrates the need to take environmental/physical conditions more fully into account in economic development decisions at every level, from local to regional, national, and global. We begin our analysis with a review of circular economy concepts and argue that they reveal a limited understanding of the circularity of nature evident in energy and material cycles and their economic capacity implications. Achieving further expansions of economic capacity may increasingly depend on an improved understanding of nature’s circularity, especially when competing resource pressures and land-use constraint exacerbate economic capacity limits. Our findings suggest three particularly important lessons for decision makers: first, the efficiency increases needed to realize growing economic output will require circular economy models that consider the efficient processing capacity of nature rather than relying solely on technological solutions; second, the non-use of resources may be as valuable or more than their use; and third, price policies can be effective in steering resource use and non-use in the right direction.