Economic Theory of Exhaustible Natural Resources:
Surprises for the Geologist.
PD Dr. Jonathan E. SnowInaugural Lecture for the Habilitation degree, University of Mainz, Germany, June 21 2000.
Abstract
Mineral natural resources have a finite extent in the Earth, but form the basic inputs of human economic activity. Does that mean that human existence is finite on this planet? In the 1970's a group called the Club of Rome and consisting primarily of biologists argued that the good times of plentiful natural resources were about to end. Classical economic theory seemed to agree with them. This theory predicts exponentially rising prices as finite resources are exhausted.In fact, real raw materials prices have fallen throughout human history. This is due not to a failed theory, but to human innovation outpacing scarcity during this time. However, prodction and use of raw materials have negative side effects (externalities) that are not registered in their price. In the long run, these may become a greater problem than the scarcity of raw materials themselves.
The surprises?
- Renewable resources aren't (necessarily).
- Exhaustible resources aren't (ever!)
- The monopolist is the conservationist's best friend.
- Minerals in the ground are the same as bonds.
- Human ingenuity is the ultimate resource.
- Natural beauty has an economic value
Introduction: The Club of Rome
The vocabulary of natural resources
Estimation of reserves
Neoclassical Economic Theory
Julian Simon: The Cornucopian
Innovation and sustainability
Externalities