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On the Finiteness of Resources

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Commenting on Mark Perry’s post [2] that makes the same Simonesque point that I make here [3] – namely, that humanity’s  stock of ‘natural resources’ is not finite economically over time – one morganovich writes [4]:

this seems like sort of a tricky exercise in semantics.

there is only a certain amount of coal in the ground, no matter how good we get at extracting it. if you took the whole earth and broke it up into piles of it’s constituent components, there would be X amount of coal. the amount we can use will always be kX where k<1.

The point is not that the number of atoms (or molecules, or whatever other physical form or substance you wish to name) available on earth to human beings is not finite or unable to be enlarged.  Of course these things are finite.  Instead, the point is that “resources” is not, ultimately, a physical concept; it’s an economic concept.  And to be limited physically is not necessarily to be limited economically.

What is and isn’t a resource is determined by human ingenuity.  Likewise, human ingenuity determines how much “utility” – satisfaction; gratification; pleasure; relief-of-felt-uneasiness (call it what you will) – can be gotten at any moment in time from any given unit of physical stuff.  As long as human ingenuiity is free to create, there is no necessary practical limit to the amount of any ‘natural’ resource that is available for humans to use productively.

Consider petroleum.  Is its stock strictly limited?  For a physicist the answer is yes.  But not so for an economist, who asks different questions than does the physicist.  The economist asks: “How available is this particular substance – petroleum – for the continuing satisfaction of human desires?”

Suppose a brilliant physical scientist invents a very low-cost means of powering cars, airplanes, boats, and electricity-generating plants with seawater, and also a means to turn seawater into plastics and lubricants – indeed, a means to replace all uses of petroleum.  The available economic supplies of petroleum would fall quickly to zero.  Petroleum would become worthless; it would no longer be a resource.  It’s physical presence in the earth – as measured by weight or volume – wouldn’t change.  But its status as a resource would change.

Now consider a different scenario.  The brilliant scientist invents not a means of turning seawater into a near-perfect and dirt-cheap substitute for petroleum, but, instead, a low-cost means of quadrupling the amount of energy that can be extracted from each ounce of petroleum.  Economically the stock of the ‘natural resource’ we call petroleum is thus multiplied by four.  Both history and some not-terribly far-fetched economic theorizing tell us that there is no reason to believe that petroleum (or any other resource) is finite in an economic sense.

UPDATE: morganovich e-mailed me to point out that the rest of his comment (referenced above) at Carpe Diem goes on to make a point similar to the one I make above.  I apologize to him for reading his full comment too quickly.  (I especially like his point there about the amount of energy in a glass of water.)

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