… is from page 24 of Julian Simon’s still-indispensable 1996 book The Ultimate Resource 2:
“[N]atural resources are not finite in any meaningful economic sense, mind-boggling though this assertion may be. The stocks of them are not fixed but rather are expanding through human ingenuity.”
If you doubt the truth of Julian’s undoubtedly true claim, ask yourself: what is it, exactly, that makes petroleum a ‘natural’ resource? Or that makes such of trees? Or of the electromagnetic spectrum? Or of land itself? The unavoidable answer is human ingenuity.
UPDATE: Mark Perry increases the value of this post by mixing it with some of Thomas Sowell’s wisdom.
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{ 48 comments }
The finite nature of land (in the economic sense, including realty as well as all natural resources) is a complete non sequitur. Ceteris paribus, if demand remains static or increases, as the supply of a surplus of a good dwindles, costs rise proportionately, impelling more economical activity i.e. frugality and entrepreneurship. In other words, if we start to “run out” of petroleum, all that means is that the price of gas will rise, meaning people will drive less, less people will drive, and alternatives to petroleum which once might not have been known or considered for whatever reason now become profitable.
I covered the oil and gas industry as an equity analyst in the 1990′s. For decades people have been sounding the alarm about peak oil. The truth is there is as much hydrocarbon as there is earth. We could refine oil from piles of dirt dug up from your back yard.
The difference is that extracting petroleum from piles of dirt from your backyard is super expensive and lifting oil from the porous and permeable rock of the Arabian dessert is very cheap.
Technology has enabled us to recover oil from previously unimaginable depths and the most unlikely places and substances at diminishing cost. Advances in technology continue to enable us to increase world oil reserves. Increasing demand not only drives up price, but the technology to allow us to lift and refine more petroleum at a decreasing cost.
No fuel is as efficient as petroleum. It has no equal. Either self-interested humans will invent it’s equal or they will continue to add to the technological advancements that allow us to access petroleum from this planet.
*LIKE*…Excellent analysis!
That IS Peak Oil – not running out of oil per se but getting to a point where oil is no longer profitable to extract it which effectively the same thing.
Gil, it would serve you well to read the whole comment before you begin typing a response. It also wouldn’t hurt if you did fewer bong hits before undertaking the task.
The problem is that it takes energy to extract oil from hard-to-get sources thus negating the energy from the oil that gets extracted. Cheap energy drives economies not expensive energy.
“We could refine oil from piles of dirt dug up from your back yard.”
How much oil do you expect to get from “piles of dirt dug up from (my) back yard”?
Where is your back yard?
North Carolina.
Does that help you figure out how many barrels of oil could be obtained from the “piles of dirt” in my backyard?
Yes.
It’ll be less than if your backyard were a Canadian tar sand or if your backyard were in Yemen. How much it’ll cost is a function of changing technology.
“It’ll be less than if your backyard were a Canadian tar sand or if your backyard were in Yemen.”
I believe Mark was beginning to see dollar signs, and now you’ve dashed his hopes.
“I believe Mark was beginning to see dollar signs, and now you’ve dashed his hopes.”
No, I think it’s nonsense to say that there is oil in the piles of dirt in my backyard. I doubt there is even enough to pay back the energy of digging up the dirt.
Well done, Mark. You’ve finally managed to wrap your mind around what I said in the post to which prompted your query.
I think this post is maybe feeding off of some ambiguity here. Haven’t read the book, but there is obviously a difference between the number of resources and the amount of a resource. A single “natural resource” (whatever one wants that to mean) is certainly finite, although the market would not necessarily lead to its depletion provided plenty of information concerning the supply, frictionless prices etc. However, I also agree that the number of “natural resources” may be limitless. Our trash may be the precious commodity of the future.
Read the book: http://www.juliansimon.com/writings/Ultimate_Resource/
Agree with Brett about the ambiguity here. There certainly is a finite amount of “stuff” in the world. I’ll also go a step further–it seems like a philosophical presumption to think that human ingenuity is limitless. The result of this presumption here seems to be an overly optimistic neoliberalism. I’d prefer a defense of the free market that isn’t so strangely utopian.
I have to agree that this post is overly optimistic. Don’s right in the sense that there is no lack of material, but as he suggests it’s not a resource until you can consolidate into a useable condition. Dispersal makes this difficult, expensive, and time consuming. There’s plenty of gold in the oceans, but there’s not enough energy to make it worthwhile to extract. Limitless resources requires limitless ingenuity AND limitless energy and I am not sure in reality how limitless these things are.
Read the book.
“Limitless resources requires limitless ingenuity AND limitless energy and I am not sure in reality how limitless these things are.”
I think by using the term, “not finite in any meaningful economic sense”, Julian Simon meant there was no resource that prevents infinite economic growth.
Energy is “not finite in any meaningful economic sense”…in the sense that energy will not keep human beings from becoming infinitely wealthy.
Simon’s “economic sense” must be different than the usual economic concept of scarcity. One reason materials are not finite in the first sense, is because they are finite in the second.
“Simon’s ‘economic sense’ must be different than the usual economic concept of scarcity. One reason materials are not finite in the first sense, is because they are finite in the second.”
Yes, I could be misinterpreting what Julian Simon wrote based on what I think makes sense.
What I think makes sense is that he was responding to “Limits to Growth” people who said that eventually the economy would collapse because of running out of resources. I think his point was that we would never “run out” of resources, in the sense that economic growth would stop because of lack of resources.
@Brett, Jameson and Scott:
My impression from reading The Ultimate Resource was that indeed, what we think of individual resources today really will be limitless.
This is not a claim out of ignorance; it is based on the ideas of how markets function. As conditions change, decreases in the availability of goods may increase their prices. These departures (from the status quo) will presumably increase the good’s price. This brings in suppliers (those currently in the market, and others who can be now that the price is higher) participate, make the incentives for the creation of substitutes greater (to sidestep the potential loss of say “oil” with some other material) and reduces the quantities consumers demand of the good in question.
Even if you do not presume human ingenuity is limitless, the existing ingenuity does respond to incentives. The potential of our ingenuity is extremely great, the evidence of how far humanity has come speaks to this. With more minds existing now than ever, each mind’s capacity to reach out to other minds increasing exponentially and the increasing material well-being open to the world, it would be likely that human ingenuity is still growing.
@Scott: You are correct, but only so far as today. The concentration of gold ions in the ocean make its extraction unprofitable today, only because other means to accomplish the collection of gold atoms are less costly _right now_. As ingenuity, technology and our methods improve, it is not impossible for us to rule out the collection gold out of water. Ingenuity can address the issues of limited energy as well — a hypothetical situation could be the use of solar energy to drive some process to accomplish this goal, if advances in chemistry and energy occur that make seawater the least costly method to do so.
I think the theme of the Ultimate Resource was to look at what progress has been made at improving material well being, see how many obstacles have been surmounted and forecasts that the mechanisms which so far have led to progress will continue to work.
@Brett: Aren’t most of the natural resource inventories we have today based on the amount we can get out with today’s, or the projections of, based on what is currently known, technology? I think MJPerry has written some posts about how the amount of some good like fossil fuels are greater in the “today” than ever previously, almost always.
There is reason for this optimism!
What is it, exactly, that makes petroleum a ‘natural’ resource?
It has built over the aeons by natural forces and the easy to get oil requires little energy to bottle thus making the energy derived frm it cheap. Thus the hard to get at oil requires much energy to extract thus making unprofitable or it is profitable only at higher prices then it becomes a luxury. Considering Libertarians like to laugh at wind and solar while gloating only coal and oil can power modern technology they should be the ones most worrying with Peak Oil.
You’re thinking of Pepsi. Oil isn’t bottled.
You’re the love child of Mao’s Dung and Muirdiot, aren’t you? Your empty skull has clearly been whacked by a windmill one too many times. Probably while you stood in the same spot wondering what that periodic thud was.
Methinks1776,
While I disagree with Gil’s thinking, he is asking good questions. There is no need to attack him ad hominem.
Gil.
With progress, society does a really wonderful job of taking limited resources and making them nearly irrelevant. I) don’t dislike wind and solar energy, I object to massive government spending towards unproven science experiments. If the market can make wind or solar viable, let an investor front the cash not my tax dollars. I will happily pay him for cheaper energy once he has made it work. The government doesn’t do a very good job of speculating on technology.
Thank you,
Ed
I didn’t notice a question in that post, let alone a good one. Did you?
“While I disagree with Gil’s thinking, he is asking good questions. There is no need to attack him ad hominem.”
Yes there is.
Gil was asking himself a question and then answering it himself. Bottom line is that govt need not intervene. The market will generate proper allocation over time.
Many people are impatient and what to see their imaginations come to life today.
The wealthy activists are best suited to stop advocating govt mandates and compulsion, but spending of their own wealth to bring their dreams to fruition. They only cause harm to those in the lower tiers of financial classes and make life more difficult as prices are dramatically raised and our dollars o not go as far.
Are you going to dicker over bottles and barrels? If oil becomes expensive because the primary oil sources are “unconventional” then oil-based products becomes expensive in kind: car fuel, plastics, fertilisers, food, etc.. It akin to the “there’s upteem gold in seawater” problem – yes there’s plenty of “unconventional” oil sources but it’s a matter of whether such oil can be economically extracted and put to profitable use.
Gil,
The point is, to pine for solar and wind and hydro does not make economic sense. No one on here is going to tell you they love oil and coal, other than the fact that they conveniently hold an extraordinarily condensed amount of energy for an incredibly low price. You cannot beat petroleum for the number of BTUs per volume and thus its portability. When petroleum hits certain price points, other energy options will become economically viable on their own and eventually people will begin to abandon oil. The costs of doing so right now make this unlikely. There is no way anyone on here has a shrine to oil and coal though. Free markets have no such allegiances.
Of course, if I were one of the ones attempting to destroy the oil economy, my focus would be to make it very expensive. There are many socialists who rejoice with glee the increased cost of oil, damn the effects to common people. The ends always justifies the means.
And there will always be oil in the ground, because the costs of extraction will eventually make it trade places with other (some yet to be engineered or made viable) sources of energy. It will be there and nobody will bother trying to get at it.
Actually I’d prefer it the other way – a magical alternative to oil becomes more cheap with time making oil optional at first then pointless later on before oil gets cringeworthy expensive.. I’m sure many people would be hanging themselves if oil got so expensive that solar and wind power were looking viable. After all, if petrol was to literally quadruple in price tomorrow and stay that way then riding a pushbike become the most economically best option for me though I don’t think that would be a good thing.
“I’m sure many people would be hanging themselves if oil got so expensive that solar and wind power were looking viable.”
Well, hanging wouldn’t be my first choice, but I’m not worried, as wind and solar will never by viable at any price, due to some fairly simple physical limits on the continued expansion of their use.
And the resources needed to produce the solar plants and wind turbines are limited in much the same way as oil. As demand grows, so will demand for the resources needed to build the structures. Limited by costs. Wind and solar will remain higher in costs for quite some time. Especially as govt further bans it’s uses. Lowered demand will further decrease it’s values making it, still, less costly.
There may be a finite amount of stuff in the universe, but humans don’t consume “stuff.” When hydrocarbons are blown up, the matter doesn’t cease to be. Humans consume the utility of matter, changing it from one form to another in order to extract the use out of it. That utility is not bound by the objective quantity of the things in which humans find utility. As ingenuity increases, usefulness increases. Perhaps, as some above have said, ingenuity is not actually boundless. But it doesn’t look like we’re going to run out of it any time in the near future. And, at any rate, we’d have to reach “peak ingenuity” before we ever reached “peak natural resources.”
“Considering Libertarians like to laugh at wind and solar while gloating only coal and oil can power modern technology they should be the ones most worrying with Peak Oil.”
Which “Libertarians” “gloat” that “only coal and oil can power modern technology”?
Did I have to include nuclear power as well?
No, you didn’t have to include nuclear power. I’m not aware of any Libertarians who have said that only coal and oil, or coal, oil and nuclear, can power modern technology.
If they did, it’s curious that the wouldn’t mention natural gas, which is apparently far more abundant than thought even a decade ago.
Don,
I’m currently reading Adam Smith’s “Wealth of Nations” and I find you comment to be so striking as true yet wrong. Adam Smith continually refers to corn (defined as the chief cereal not American Indian corn) as the true wealth of a nation. While that might be a good judge of value in his time, progress is the wealth of ours.
The only true mistake I see in your post is the failure to acknowledge the collaboration as the current aspect to progress. As a study of Mathematics and Computers myself, these to elements are of little economic value when isolated but when recent developments are applied to other fields they revolutionize society.
Thank you,
Ed
P. S.
Bring back the preview button.
I was thinking about human beings as a resource the other day. I was watching ants and spiders and it occurred to me that in nature, wherever there is an abundance of some life form, there is always a predator to exploit that abundance. So…
1. There will never be “over” population, because population is balanced by predation… and human population is no exception.
2. The rise of large, complex, political organizations is positively correlated with the rise in human population. Why? Because politics is predatory behavior.
3. Choose. Be the predator or be the prey. Or live well away from large populations.
Randy… you’re up late… It sounds like you’ve been toking….
So what predator will feed on us?
Politicians. Was I not clear?
““[N]atural resources are not finite in any meaningful economic sense,….”
http://www.juesatta.com/wp-content/uploads/2010/09/starvation.jpg
And the caption would say,… read it with a bit of a British accent and it works a bit better ” OH GREAT..that’s wonderful to know Mr Simon. Your clever words certainly makes all 1.5 billion of us feel better… thank you for that. I’m glad you think we are the ultimate resource…would you mind if I chewed on your arm just a bit? “
Lying POS muirdouche, lying apologist for banker and stockholder bailouts,
Why don’t you convert the “national parks” that your limousine liberal buddies jet around to into farm land that could feed the hungry? What have you done for these people in the picture having been exposed to it, you heartless jerk?
I’m lying? What you think that picture was photo shopped….sandre you are an angry unhappy person…. you should get a dog.
Lying Muirdouche says.
I’m lying?
Resounding yes.
For instance look at how you responded to me, again with unrelated comments and questions –
What you think that picture was photo shopped….sandre you are an angry unhappy person…. you should get a dog.
You are unhappy person. Have you ever posted a happy uplifting comment on this blog, ever? I want to see it.
It’s sad, not that you don’t get it, but that it seems you never will.
George Reisman also has many valuable insights regarding resource economics: http://www.youtube.com/watch?v=kuc7SlA2R_o
Gosh, I wish I would have had that inofrtmiaon earlier!