[Guide to the Market Economy] Resources

Simon Said Resources Would Not Run Out, and He Beat Ehrlich in the Bet… “As Science and Technology Advance, Existing Resources Are Replaced by New Ones”

In 1980, the American economist Julian Simon, author of The Ultimate Resource, proposed a bet to a group of environmentalists who claimed that resources would be depleted. His argument was simple: if resources were truly running out, natural resource prices would soar, so why not bet on the direction of those prices? At the time, gloomy predictions about the future were widespread, with the Club of Rome having published its report The Limits to Growth.

Will Resource Prices Rise?

Simon, an optimistic economist and skeptical environmentalist, believed that resources would not be depleted. Naturally, he bet that natural resource prices would fall. So confident was he that he even let the other side choose the specific commodities to be included in the wager.

Paul Ehrlich, then a professor of population studies at Stanford University, accepted Simon’s bet. Ehrlich was famous for his pessimistic view of the future, reflected in his book The Population Bomb. From his perspective, there was no way natural resource prices would decline.

Ehrlich selected five resources for the bet: copper, nickel, tin, chromium, and tungsten. Each of the two men staked $200 on each item. The term of the bet was 10 years. When 1990 arrived, contrary to general expectations, it was Simon—not Ehrlich—who had won. The prices of the five natural resources had fallen by nearly 60% on average, with chromium down 5% and tin down as much as 74%. As a result, Ehrlich had to pay Simon $576, representing the difference in the prices of the five commodities over the 10-year period compared with their initial prices at the time of the bet.

The reason concerns about resource depletion often fail to explain reality is that they focus only on the finiteness of resources. Over the long run, however, new science and technology produce substitute materials, resolving the problem of finite resources.

Did the Stone Age End Because Stones Ran Out?

The Stone Age did not end because stones became scarce. It came to an end not because there was a shortage of stone, but because stone was no longer needed. Humanity began using bronze, an alloy of copper and tin, as a new resource in place of stone. The same is true of the beginning of the Iron Age. It was not because copper had run short, but because a new metal—iron—became usable. Human technology has continuously advanced, moving from stone to copper and then from copper to iron in the making of tools.

What happened in the past is still being repeated today. What counts as a resource and what does not is determined by human science and technology. In the past, we used copper telephone lines to make calls; then at some point we began using fiber-optic cables, made primarily of glass. And these days, we increasingly use wireless communication with no physical lines at all. This is no different from humanity’s earlier transition from the Stone Age to the Bronze Age and then to the Iron Age.

Science and technology not only turn what was once not a resource into a resource, but also improve the efficiency with which existing resources are used. For example, technologies that reduce electricity consumption continue to be applied to home appliances such as washing machines and refrigerators. If you go to an electronics store, you can see the yellow energy-efficiency labels on products, divided into grades from 1 to 5. This shows how technological progress helps prevent the wasteful use of resources and contributes to environmental conservation.

Science and Technology Determine Resources

An optimistic attitude is not a reckless prediction based on vague faith that things will somehow turn out well. Simon closely analyzed scientific and technological progress and arrived at a highly rational conclusion about the future prices of resources. While most people were calculating when humanity would run out of resources if growth continued at its current pace, Simon focused instead on the ongoing advance of science and technology.

If we are concerned about resource depletion and environmental destruction, we should not be satisfied—as many environmentalists are—with merely reducing use, sharing, switching, and recycling. True environmentalists should, instead of worrying about when resources will be exhausted, seek growth more actively and pay closer attention to scientific and technological development. As long as humanity continues to advance science and technology, the environment will not be damaged and resources will not be depleted.

■ Food for Thought

The Stone Age did not end because stones became scarce. It came to an end not because there was a shortage of stone, but because stone was no longer needed. Humanity began using bronze, an alloy of copper and tin, as a new resource in place of stone. The same is true of the beginning of the Iron Age. It was not because copper had run short, but because a new metal—iron—became usable.

Sung-no Choi, President, Center for Free Enterprise (CFE)

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Original title: [시장경제 길라잡이] 자원

Author: Sung-no Choi

Date: 2019-02-04

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=14&idx=11438