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Supply Is Not Exclusively, or Even Mainly, A Physical Phenomenon

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Here’s a letter to a correspondent:

Mr. Chap Oxley

Dear Mr. Oxley

Thanks for your e-mail.  I don’t share your worry that “land’s natural fixed supply” means that population growth poses a “grave hazard.”

While I agree that efforts to create land out of water-covered areas won’t yield much extra land, I disagree that land is fixed in supply.  It is not fixed, at least not economically.

Most obviously, skyscrapers and other multi-storied buildings increase land’s economic capacity.  On the mere two acres of land occupied by the Empire State Building, the number of people who work simultaneously is upwards of 3,400 [2] – roughly 100 times the number of people who could work on only the surface of those two acres of Manhattan.

Land’s economic capacity expands also in other, less obvious ways.  The same acre of land that in 1950 annually yielded 25 bushels of wheat has, economically, become two acres of land by today annually yielding 50 bushels.  So the creation and improvements of tractors and other farm machines increase the supply of land.  Likewise with the creation and improvements of fertilizers, pesticides, and genetically modified seeds and livestock.

Yet another innovation that effectively increases the supply of land is refrigeration: by preserving food longer, refrigeration turns any given physical yield from land into an increased economic yield – which is economically identical to increasing the physical amount of land.  Ditto for transportation improvements that get food to consumers faster (and, hence, fresher) and with less damage and loss.

One more example: modern computers.  By keeping the demand for paper lower than otherwise, computers increase the supply of land relative to the demand for pulp-yielding trees.  And by enabling people to meet by teleconferencing, the amount of land devoted to supplying surface transportation effectively grows relative to the demand for land used for surface transportation.  (Of course, the supply of land is also increased by affordable air travel.)

The economic supply of land, like that of any other resources you can name, is not a physical phenomenon.  As long as people are free and inspired to innovate – and as long as input and output prices are free to adjust to changes in supply and demand – the economic supplies of even the most ‘fixed’ and ‘nonrenewable’ resources will expand.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

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