This post has generated a bit of push-back, some of it by people whose opinions I deeply respect. The push-back, to summarize, is that, ignoring the relatively insignificant amounts of land created by claiming land from the sea and other bodies of water, the supply of land is indeed fixed.
I agree that the physical amount of land is close to being fixed (and can be thought of as practically being absolutely fixed). But supply is an economic concept, and so the supply of land – the economic amounts of land made available for various human purposes – is not fixed.
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When introducing the concept of supply to my principles-of-microeconomics students, I talk for a bit about Rembrandt paintings. Ignoring any previously unknown paintings by that late, great Dutch master that might be found in someone’s attic or in a long lost chest, and ignoring also the prospect that some Rembrandt paintings might be destroyed, the mathematical number of original Rembrandt paintings is indeed fixed. Rembrandt hasn’t painted anything since, at the latest, 1669.
Yet the supply of original Rembrandt paintings is not fixed. This supply can increase even if no new Rembrandt paintings are discovered or found. (It can also decrease, even without any loss or destruction of known Rembrandt paintings.)
How can the supply of original Rembrandt paintings possibly increase? The answer is that supply is not a physical or mathematical concept; it is an economic concept. Supply refers to the willingness of owners to part with ownership rights to whatever it is they own. If owners (for whatever reason) become more willing to part with their ownership rights, then supply increases. If owners become less willing to part with their ownership rights, then supply decreases.
If most people come to regard Rembrandt as having been an amateurish hack and, hence, come to prize viewing and owning original Rembrandts much less intensely than before, then current owners of Rembrandt paintings will become more willing to sell their Rembrandts. The person who yesterday wasn’t willing to sell her Rembrandt for less than $50 million is today willing to sell her Rembrandt for (say) $10 million. That’s an increase in supply of that particular Rembrandt painting. And especially if all, or even many, current owners of Rembrandts act similarly – that is, become willing today today to sell their original Rembrandts at prices lower than they were willing to accept yesterday – the supply of Rembrandt paintings increases. (As we economists say, the supply curve of Rembrandt paintings shifts to the right.)
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Admittedly, this Rembrandt example is a bit difficult to get one’s mind around (and not merely because of the highly unlikely prospect of people coming to lose their appreciation for Rembrandt originals). But recognize that attics, flea markets, and antique shops are full of original paintings by people who are now dead yet whose paintings no one is willing to pay any more than a pittance to acquire. Even if, as is surely true in many cases, the number of paintings by any one such unknown artist is smaller than is the number of paintings by Rembrandt, the supply of that unknown artist’s painting is higher than is the supply of Rembrandt paintings.
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Now back to land. Suppose that a technological breakthrough allows the entire world to be fed generously and deliciously from the use of only 100 acres of land in total – say, 100 acres of some specially situated land in Delaware. Owners of nearly all of what was, until the advent of this breakthrough, agricultural land become willing to sell or to rent their land at prices per acre lower than they were willing to accept before this amazing and happy technological advance in food production. Alternatively, land buyers or renters who are willing to pay per acre the same price for land as the landowners received before the technological breakthrough will find landowners willing to sell to them (the land buyers) many more acres than these owners were willing to sell at that price before the technological breakthrough.
Students of economics will recognize that the events described in the preceding paragraph are depicted by a rightward shift in the supply curve. The supply of land increases, even though the number of acres of land on the face of the earth hasn’t changed. Land becomes less precious, less scarce, less valuable, less pricey, more abundant relative to the demand for land.
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Supply and demand analysis is a tool of comprehension. It itself is a human mental construction whose usefulness depends upon the amount of insight it conveys net of the amount of reality that it hides or distorts. So while I believe now that thinking of supply in this way is correct (that is, on net useful), I don’t deny the possibility that someone might convince me that the above-described manner of defining and using the concept of “supply” is inferior to other ways of defining and using the concept of “supply.”
