Princeton University Press Princeton New Jersey (1996)
This book originated in my interest in the economics of population. When (starting about 1969) my studies showed that population growth does not hinder economic development or reduce the standard of living, critics asserted that adding more people to the planet causes natural resource scarcities and environmental decay. Hence I was forced to broaden my inquiries. That’s how the first edition of this book came to be written.
Ironically, when I began to work on population studies, I assumed that the accepted view was sound. I aimed to help the world contain its “exploding” population, which I believed to be one of the two main threats to humankind (war being the other). But my reading and research led me into confusion. Though the then-standard economic theory of population (which had hardly changed since Malthus) asserted that a higher population growth implies a lower standard of living, the available empirical data did not support that theory. My technical 1977 book, which is the predecessor of this volume, is an attempt to reconcile that contradiction. It arrived at a theory implying that population growth has positive economic effects in the long run, though there are costs in the short run.
The all-important point in this personal history: It was the facts that changed my mind about population growth, after I started out with the accepted belief. It was not some wider, pre-existing set of beliefs that brought me to this point. Indeed, the facts and my new conclusions about population economics altered my wider set of beliefs, rather than the converse.
The Ultimate Resource
|Publisher||Princeton University Press|
|Media type||Print (Hardback & Paperback)|
|Pages||734 (1996 edition)|
|ISBN||0-691-00381-5 (Revised 1996 edition, pbk)|
The overarching thesis on why there is no resource crisis is that as a particular resource becomes more scarce, its price rises; this rise of price creates an incentive for people to discover more of the resource, ration and recycle it and, eventually, develop substitutes. The “ultimate resource” is not any particular physical object but the capacity for humans to invent and adapt.
The work opens with an explanation of scarcity, noting its relation to price; high prices denote relative scarcity and low prices indicate abundance. Simon usually measures prices in wage adjusted terms, since this is a measure of how much labor is required to purchase a fixed amount of a particular resource. Since prices for most raw materials (e.g. copper) have fallen between 1800 and 1990 (adjusting for wages and adjusting forinflation), Simon argues that this indicates that those materials have become less scarce.
Simon makes a distinction between “engineering” and “economic” forecasting. Engineering forecasting consists of estimating the amount of known physical amount of resources, extrapolates the rate of use from current use and subtracts one from the other. Simon argues that these simple analyses are often wrong. While focusing only on proven resources is helpful in a business context, it is not appropriate for economy-wide forecasting; there exist undiscovered sources, sources not yet economically feasible to extract, sources not yet technologically feasible to extract, and misconceived resources that could prove useful but are not yet worth trying to discover.
To counter the problems of engineering forecasting, Simon proposes economic forecasting, which proceeds in three steps in order to capture, in part, the unknowns the engineering method leaves out (p 27):
Perhaps the most controversial claim in the book is that natural resources are infinite. Simon argues not that there is an infinite physical amount of, say, copper, but for human purposes that amount should be treated as infinite because it is not bounded or limited in any economic sense, because:
- known reserves are of uncertain amounts
- new reserves may become available, either through discovery or via the development of new extraction techniques
- more efficient utilization of existing reserves (e.g. “It takes much less copper now to pass a given message than a hundred years ago.” [The Ultimate Resource 2, 1996, footnote, page 62])
- development of economic equivalents, e.g. optic fibre in the case of copper for telecommunications
The ever-decreasing prices, in wage-adjusted terms, indicate decreasing scarcity, in that it takes less time for the average worker to earn the money required to purchase a set amount of some commodity suggest, Simon claims, an enduring trend of increased availability that will not cease in the foreseeable future, despite continued population growth.
A plurality of the book consists of chapters showcasing the economics of one resource or another and proposing why this resource is, for human purposes, infinite.
Simon argues that for thousands of years, people have always worried about the end of civilization brought on by a crisis of resources. Simon lists several past unfounded environmental fears in order to back his claim that modern fears are nothing new and will also be disproven.
Some of the “crises” he notes are a shortage of tin in the 13th century BCE; disappearing forests in Greece in 550 BCE and in England in the 16th century to 18th century CE; food in 1798; coal in Great Britain in the 19th century; oil since the 1850s; and various metals since the 1970s.
Based on preliminary research for The Ultimate Resource, Julian L. Simon and Paul Ehrlich entered in a famous wager in 1980, betting on a mutually agreed upon measure of resource scarcity over the decade leading up to 1990.
Ehrlich was the author of a popular book, The Population Bomb, which argued that mankind was facing a demographic catastrophe with the rate of population growth quickly outstripping growth in the supply of food and resources. Simon was highly skeptical of such claims.
Simon had Ehrlich choose five of several commodity metals. Ehrlich chose 5 metals: copper, chromium, nickel, tin, and tungsten. Simon bet that their prices would go down. Ehrlich bet they would go up.
The basket of goods, costing $1,000 in 1980, fell in price by over 57% over the following decade. As a result, in October 1990, Paul Ehrlich mailed Julian Simon a check for $576.07 to settle the wager in Simon’s favor.
A large section of the book is dedicated to showing how population growth ultimately creates more resources. The basic argument echoes the overarching thesis: as resources become more scarce, the price rises, creating an incentive to adapt. It suggests that the more a society has toinvent and innovate, ceteris paribus, the more easily the society will raise its living standards and lower resource scarcity.
- Simon, Julian. The Ultimate Resource 2. (1996).