Simon, Is the Supply of Natural Resources Really Infinite

Part III: Environmental Issues

I. Introduction

  • The supply of natural resources is not finite in an economic sense; their future costs can continue to decline.

  • Common belief holds that resources are finite, influencing thoughts on the world's economy and civilization.

    • Example:

      • Limits to Growth group expresses concern about population growth, pollution, and fossil fuel depletion.

  • Misleading conclusions stem from the assumption of finiteness in natural resources.

II. The Theory of Decreasing Natural-Resource Scarcity

  • Example Analysis:

    • Alpha Crusoe on an island with a copper mine illustrates resource scarcity.

    • If Alpha produces many tools, copper becomes scarcer for his descendant, Beta Crusoe.

    • Recycling Potential:

      • If Alpha recycles old tools, obtaining copper will become easier over time.

  • Two-Person Scenario:

    • When Alpha and Gamma Defoe share the island, copper scarcity increases without cooperation or innovation.

    • They may discover new copper lodes or substitute materials, driven by increased costs.

    • Externalities:

      • Innovations by Alpha and Gamma benefit future generations despite not lowering their personal costs.

  • Increased costs lead to more innovations and resource efficiencies, demonstrating technological advancement's role in addressing scarcity.

III. Resources as Services

  • Economists focus on the services that resources yield rather than the resources themselves.

    • Service Examples:

      • Conducting electricity, energy for vehicles, food production.

  • Factors influencing the supply of services:

    • Raw material availability, extraction costs, recycling potential, needed quantities, energy transportation costs.

  • The economic focus should be on costs of services (e.g., cooking pots) rather than material costs (copper). As substitutes emerge (iron, aluminum), the increased cost of copper becomes irrelevant.

IV. Are Natural Resources Finite?

  • The term "finite" can be misleading regarding natural resources from both practical and philosophical perspectives.

    • Mathematics vs. Economic Definitions:

      • Finite in mathematics can refer to counted quantities, yet the quantity of natural resources cannot be precisely measured.

  • Example from Energy Forecasting:

    • Predicting oil and gas quantities is akin to guessing the number of beans in a jar without knowing the jar's size.

  • Key Insights:

    • Way resources are defined shapes discussions and decisions—many cannot claim finite without properly delineating the resource context.

V. Summary

  • The assertion that resources are finite is fundamentally flawed; it relies on narrow definitions and misconceptions.

  • Simon's Argument:

    • Humans are resources, and ingenuity expands capacity.

    • Scarcity drives innovation, leading to sustainable resource management.

  • Technological advancements and resource management are continuous and improve our capacity to support larger populations.

  • Implications of Carrying Capacity:

    • Disagreement over human population limits reflects the contrasting views of ecologists and economists regarding fixed vs. adaptable capacities.