Why Julian Simon is both right and wrong

[This is the followup to my earlier article about Julian Simon.]

Now I’ll restate this line of thought into a theory that will appear again and again in the book: More people, and increased income, cause resources to become more scarce in the short run. Heightened scarcity causes prices to rise. The higher prices present opportunity, and prompt inventors and entrepreneurs to search for solutions. Many fail in the search, at cost to themselves. But in a free society, solutions are eventually found. And in the long run the new developments leave us better off than if the problems had not arisen. That is, prices eventually become lower than before the increased scarcity occurred. (From The Ultimate Resource 2, Chapter 3)

This is perhaps the key passage in Chapter 3 of Simon’s book. It highlights a key part of the drive that has led humanity to develop a dizzying array of technologies, achieve the longest lifespans, the most comfortable lifestyles and the healthiest populations in history. It also illustrates why Paul Erhlich lost his infamous bet with Julian Simon.

Unfortunately, the copy of the book on the internet I’ve been using seems to have Chapter 3 cut short, so I don’t have the reasoning there that takes Simon from the problems of defining “natural resources” discussed in Chapter 2 and the passage above to his conclusion that resources are not finite. However, an article of his published at the Cato Institute, does shed some light:

…the term “finite” is not only inappropriate, it is downright misleading when applied to natural resources. The mathematical definition of “finite” is quite different from a useful economic definition.

For instance, the quantity of services we obtain from copper should not be considered “economically” finite because there is no way of counting them appropriately. We should also consider the possibilities of using copper more efficiently, of creating copper or its economic equivalent from other materials, of recycling copper or even obtaining copper from sources beyond planet Earth.

Therefore, a working definition of the total services that we could obtain from copper now or in the future is impossible to construct. (emphasis added)

There is also his reply to critics in which he says:

Finiteness by itself is not testable, except insofar as the fact that no one is able to state the absolute size of the relevant system (our cosmos) demonstrates the absence of finiteness in its dictionary sense. But the relevant evidence we have available – decreasing prices and increasing substitutability – is not what one would expect from a finite system. (emphasis added)

And:

Nothing I have written is intended to suggest that during any particular period there may not be too much use of any resource, renewable or non-renewable; indeed, I expect temporary overuses (for example, overuse of forest resources in various countries in various centuries) just as I expect boom-and-bust cycles in all other human endeavors. But this is a matter of management and adjustment in dealing with, and riding out, the ups and downs, rather than a matter of ultimate finiteness.(emphasis added)

From this I posit that Simon’s argument can be boiled down to the following:

  • As reserves of resources run down, the resulting price rises spur the search for new sources of them, for more efficient ways of using them and for ways of substituting other resources for them.
  • The long run trend (for centuries) has been for the price of resources to continue falling. Temporary shortages have often led to discoveries that leave humanity better off than before those shortages occur.
  • We do not know, ultimately, what resources are available to humanity in the long run. All we know is what resources are available now/in the forseeable future, given current technology.
  • We don’t know whether the universe is finite or not, and we cannot thus state that the resources available to us are finite. The long run trend of falling prices and greater abundance of resources seems at odds with the assumption of finiteness.
  • Since we do not know what resources will be ultimately available to us, we cannot say they are finite in any meaningful sense.

There are several problems here:

  1. We do know that the earth is finite. This is an incontrovertable fact. There is a finite amount of energy reaching earth from the sun each year, and a finite amount of matter falling to earth each year from outer space. Until we can exploit extra terrestrial resources at least as easily as we currently exploit the resources on earth, i.e. until we can escape the confines of earth as easily as we can escape the confines of a continent, this really does limit how many people the earth can support and the standard of living those people can enjoy. That seems unlikely to happen for at least a century — on that timescale the most I’d expect is colonies on the moon and a manned trip to mars.
  2. The trend for falling resource costs is a matter of a few centuries — this is a short time compared to (a) recorded history (b) the existence of humanity. We know that civilisations in the past have thrived and then collapsed. It seems likely that some of them died because of resource shortages.
  3. For the process of resource discovery and creation to keep us from “running out”, it must produce new resources at or above the rate at which we consume them. If we’re to rely on this process to prevent disaster, we must therefore posit that there will always be sufficient resources that can be reached via the process within the timescale required to stave off disaster, at every point in time. It seems to me unlikely that this can be guaranteed.

Simon is correct to highlight the existence of the process of resource discovery and creation, and at a highly abstract level he is even right that we don’t know whether the resources ultimately available to humanity are finite or not. But the process is not automatic, and even when running efficiently, it is not guaranteed to provide us with all the resources we might need at a given point in time.

To act as if resources are infinite, when we know that running out is a real possibility and when even our most advanced science and technology tells us we can do no more than an exploratory flight to our nearest planetary neighbour (let alone colonise it, terraform it or get there in the sort of timescale we can travel to other continents) would be irresponsible.

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5 Responses to “Why Julian Simon is both right and wrong”

  1. Patrick Crozier Says:

    Interesting post. I especially liked Simon’s observation that we don’t know what we are going to be doing with our resources in the future.You say that to act as if resources were infinite is irresponsible. Maybe. But does anyone really think like that? I, for one, am all too well aware of the limits of my (financial) resources. I shouldn’t think that Shell, for instance, are any different.

  2. James Says:

    Patrick,Thanks for your comments. One of the messages of Julian Simon’s book, and indeed the inspirtation behind its title, is that he regards humans as “the ultimate resource”, because each new addition to the population has the potential at least to add to our knowledge.Whilst I take his point, I’m not sure I agree that this means we need not worry about population growth. It seems to me there are limits to how quickly the population can safely grow (e.g. it cannot grow quicker than our ability create and discover resources to feed the extra numbers and children won’t contribute to that process until they’re into their teens at earliest), and that there’s a limit to the number of people that can be supported by the resources on the finite planet we live on. Until we can travel between planets as easily as we do between continents now, the earth’s, and possibly, the moon’s resources are all we have. I don’t see such easy space travel being likely to arrive for over a century. Thus, whilst I’m not as pessimistic about population growth as say Paul Erhlich, I don’t think the possibility of “overpopulation” can be ignored. My comment about acting as if resources are infinite was thus aimed at the idea that we don’t need to worry about population growth at all…

  3. Patrick Crozier Says:

    Well, if we do manage to find ourselves over-populated won’t starvation sort things out pretty quickly?I know that sounds brutal but is it really any more brutal than some of the alternatives currently being offered?

  4. James Says:

    <>Well, if we do manage to find ourselves over-populated won’t starvation sort things out pretty quickly?I know that sounds brutal but is it really any more brutal than some of the alternatives currently being offered?<>I’d prefer we didn’t end up facing such a situation in the first place! I also don’t regard the alternatives you’re referring to as necessary.Also, do bear in mind that I’m not convinced that current population levels are unsustainable, or that the projected increases necessarily are. My preferred solution to high growth rates in population is for the world to get richer — birth rates tend to drop as a country gets richer. It would help if various protectionist policies, such as import tariffs and the CAP were abandoned.I also note that growth rates have been falling over the last few decades and the population is projected to plateau around 9-11 billion, if memory serves.

  5. Drone Says:

    <>when even our most advanced science and technology tells us we can do no more than an exploratory flight to our nearest planetary neighbour<>We can do more than that but we don’t spend capital on doing more than that because investors see better opportunities. For example, mining asteroids is an example of something we could feasibly do with current technology, but the investment to do so probably would give worse returns than sticking to mining the Earth.To see Nasa science probes as the technological limits of our capability in exploiting the vast resources off-planet is taking a short term view. Once on-planet resources run down, and thus the prices are driven up, the return to exploiting energy and materials in outer space will rise. If we still have decades of on-planet resources to use, then we can expect an even greater technological capability to be available to exploit the off-planet resources.


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