by JakeS
Tue Aug 18th, 2009 at 03:47:00 AM EST
The empty world
During the 19th century, and well into the 20th, economic conditions were shaped by the relationship between capital and labour. If one had access to capital and could mobilise a labour force, the raw materials for production were largely free for the taking (although on occasion the people living on top of them had to first be removed...).
This one might call the "empty world:" Humans were an insignificant force in the grand scheme of things, and did not materially affect the availability of raw materials.
Naturally, the economics of the empty world do not revolve around the physics and economics of natural resources. Rather, the economics of the empty world revolve around the ability of capital to command labour, or of labour to command capital. The exceptions were mostly the kind of strategic resources that were made scarce less by lack of availability than by a tendency among imperial powers to hoard them from their geopolitical rivals (rubber, cotton, guano, etc.).
The full world
In the latter half of the 20th century, this changed radically: Industrial production had by then increased to the point where the availability of raw materials had become a point of crucial importance. The iconic resource crisis (although this went largely unrecognised at the time) was probably the oil shock following the peak of the Texas oil production.
This one might call the "full world:" A world in which the limiting factor on production is some combination of labour, capital and raw materials. Specifically, there is a hard ceiling on the availability of some raw materials - a point beyond which they will not be available at any price, for the simple reason that they are not physically present in the relevant amount.
Naturally, the economic models that were developed in, and adapted to, the empty world are unlikely to suffice in the full world.
promoted by whataboutbob
The most obvious point of departure for developing an economic theory for a full world seems to be the way different kinds of resources impose different constraints on economic activity.
Different kinds of resources
Broadly speaking, I would divide raw materials into three groups:
- Renewable resources: As long as they are not exploited to the point of permanent degradation, renewable resources naturally replenish themselves within a reasonable time frame. If left to their own devices, they will tend to approach some semi-stable level, or show some sort of semi-stable cyclical behaviour. They are, in the usual case, hard to stockpile in any great quantity - most physical and chemical substances that are easily formed are also easily degraded. Forests, wind, incident solar radiation, agricultural land and fish stocks are all examples of renewable resources.
- Reusable resources: Reusable resources are those which may be reclaimed from the products that they are used in the production of. These are typically fairly easy to stockpile - the ability to survive industrial processing without being rendered worthless upon reclamation usually means that they will not easily degrade. However, they will also typically not form in any appreciable quantity on any economically interesting time scale. Metals are the prime example of this class of raw materials.
- Consumable resources are those resources which can - for all practical purposes - be used only once before they are destroyed forever, and do not form in any appreciable quantities on any economically interesting time scale. These may sometimes be stockpiled and sometimes not, but once used they can never be recovered or replaced. Fossil fuels is the most prominent example, but I am sure that there are others as well.
It is worthwhile to note that renewable and reusable resources can be turned into consumable resources through incompetent or irresponsible management: A tropical forest, once clear cut, does not re-grow on any time scale that is meaningful to human civilisation. Similarly, aluminium that is burnt and scattered to the wind with the ash is in practise irrecoverable.
These three groups of raw materials impose different constraints upon the production of goods. Renewable resources constrain the rate at which goods can be produced, but does not - in principle - constrain the amount of goods that can be produced in total. Reusable resources constrain the total amount of the resource that can be in use at any given time, but does not - in principle - constrain the rate at which goods can be produced. Finally, consumable resources constrain the total amount that can ever be produced.
From this discussion, it should be fairly obvious that configuring an economy to rely on consumable resources (except as a purely transitional stage) is prima facie insanity. Further, mismanaging renewable and reusable resources in such a fashion as to render them into consumable resources is the highest of economic treason towards one's fellow man.
Different kinds of resource shocks
An economy running on empty-world principles can expect to run into a series of resource shocks, as the economic models which assume effectively infinite supplies of raw materials collide with the physical reality of finite supplies.1
However, different kinds of resources will provoke different kinds of shocks.
Renewable resources will give some warning when they are over-exploited - fish stocks decline, forests yield less timber, cropland deteriorates, and so on.
Normally, when this happens there is still time to pull back extraction to a sustainable level in a planned and orderly way - as has been done with fishing and whaling quotas, which have restored many of our threatened and depleted fish stocks to some measure of viability.
Reusable resources will typically give less direct warning of their imminent scarcity than renewables. But in many cases there will be a reserve that can be reclaimed from our waste heaps, which will hopefully suffice to breach the gap during the transition to a complete full-world economic doctrine.
At any rate, as long as we do not behave in a truly treasonously stupid fashion, total availability of reusable resources will not be lower than it is today.
Finally, consumable resources will give just as little direct warning as reusable resources, and the economic consequences of their scarcity are far more dangerous if we are critically dependent upon them: Once availability enters terminal decline, no power on the planet will restore our access to this class of resources. They will simply not be available at any price.
Consequently, I would expect consumable resources to give the nastiest price shocks: At the limit, prices can rise to infinity almost overnight. Reusable resources will never give this kind of price shock, as they can always be cannibalised from existing goods - which have a finite (if perhaps uncomfortably high) price.
Renewable raw materials are something of a combination: If a sound policy of conservation is adopted, they will give price shocks similar to those of reusable resources. Whereas if unsound policies are adopted, they will convert into consumables, with all the resulting potential for disastrous price shocks.
An aside
A logical extrapolation would be to the concept of an "overfull world," in which the access to raw materials becomes the only limiting factor to the production of goods (this is substantially what Krugman discusses here (via), although he does not say so in quite so many words). I am convinced that most of the preceding discussion will readily carry over into the overfull world.
- Jake
1Some politicians and pundits continue to labour under the delusion that "our way of life is not negotiable." One could point out that the laws of nature are not proposing to "negotiate" on the subject of resource scarcity, any more than the laws of nature will pause to "negotiate" your rate of descent from a very tall building if, midway down, you regret jumping off the roof (nor - and more to the point - will the laws of nature "negotiate" on the subject of your abrupt cessation of descent at the bottom of the building).
