On the Fourth Day of Christmas
Technical/engineering notions of what an exhaustible resource is focus on the physical properties of the “resource” only. A typical physical definition would be a material which does not have prospects for increasing in available quantities over any meaningful time frame. Thus, technical forecasts look at quantities of known reserves, and look at expected consumption of that material given current prices and technologies to ascertain how many years left “we” have to consume such materials.
This stands in stark contrast to the economic notion of an exhaustible resource. A truly exhaustible resource is one whose real prices will rise with time as increments of the resource are used. The physical quantities of the material remaining are simply not a meaningful concept for a variety of reasons:
- We have neither the ability nor incentive to try to measure the total amount of most physical resources that might be available.
- For example, if you have a sufficient number of trees in your backyard to warm your home for 100 years, why would you need to go out to Montana to count how many trees are out there?
- There is simply no way to know how much of any resource might be available from all sources – including ambient air, the oceans, the moon, and beyond.
- Even if we had a limited amount of the resource, better technology enables us to extract a larger share of the existing resources that were thought to have been previously inaccessible. There is no reason to think this process could not continue.
- In terms of human consumption, it might actually be the case that there is a virtually unlimited amount of the resource (even if there is a fixed physical quantity overall) because the material is so abundant relative to how much we consume, that we can effectively consider the resource non-exhaustible. We could increase our annual extraction by 100,000 times over the next thousand years and still have only extracted 1% of the total volume of the earth’s natural materials – and that excludes our ability to harness the virtually limitless amount of energy that could be harnesses from the sun, ocean tides, thunderstorms, wind, etc.
- Increasing efficiency with which materials are used has, and can, effectively extend the useful life of any fixed quantity of materials in the ground. For example, if right now there is expected to be “only” 60 years worth of copper in the ground, if we become twice as efficient in our use of copper, that existing stock expands to 120 years, and that does not even account for extending the useful life of the undiscovered copper. Further, if materials can be recycled with substantial decay, then there is little reason to think we would ever run out of them.
- There is little reason to believe that materials cannot be created with a sufficient application of energy – which for the purposes of human civilization is infinitely available so long as the sun is burning. For example, oil can be created by growing plants and organic matter. Many metals can be manufactured from other abundant sources with an application of enough energy.
But most important, we are living in an age of infinite substitutability. We do not care about the material resources themselves – what matters are the services derived from those resources. Given this, human ingenuity will continue to allow us to get the services we desire using less and less of a particular physical material, if at all. Take a look at what future applications of ceramic technology might bring to just get a glimpse of the possibilities. In short, it is simply absurd to think that we are running out of resources, or even if we were running out of them, that it would pose any substantial challenge to the human race. Over the next series of posts, I will show you a sampling of how “scarce” valuable resources have become. I’ll show for approximately 100 years and using simple reflating techniques to convert past nominal prices into today’s real ones. More on those ideas in a future post, but starting tomorrow, I would simply like to present the data.