In episode 150 of the InFi podcast, I responded at length to the following tweet:
I covered a lot of ground—quickly—in the episode, and so I thought it would be worthwhile to expand upon my argument here on the blog. I will divide the content among three separate posts. In this first one, I’ll challenge the premise that humanity only has “strictly finite resources” to work with. In the second post, I’ll argue that even if we stipulate that the economy only has finite resources, we would still want a market economy (not socialism) to allocate them efficiently. And finally, in the third post I’ll challenge the other main premise of the tweet, namely the notion that capitalism requires “endless, exponential growth.” This popular claim fundamentally misunderstands profit and interest in a market economy.
The Issue of Natural Degradation
When critics of capitalism lament the overburdening of the earth, often they have in mind the stress on natural ecosystems. This could include overfishing, air and water pollution, and—in more recent decades—the threat of global warming or the more generic phrase “climate change.”
On the narrow issue of climate change, I refer interested readers to my more technical work on “the social cost of carbon.” But for our purposes here, let me make a general point about the economy and the environment: Despite the stereotype that market-oriented economists are defenders of Big Business and don’t care about the environment, the reality is that as hardcore a free marketeer as Murray Rothbard championed the right of homeowners to seek injunctions against factories pumping soot into the air or chemicals into the river. Libertarians favor property rights, not the prerogatives of industry. It was ironically government intervention against the British common law tradition that tramped on individual property rights in favor of promoting “industrialization” (which was viewed as progress in the 19th century).
When It Comes to Resources, Not Even the Sky Is the Limit
But putting the environment aside, in general the original tweet is simply mistaken in asserting that we are bound by finite resources. For one thing, absent some major calamity, humans will eventually harvest resources from outer space.
Furthermore, even if we restrict our focus to planet earth, we still have the growing portion of economic output that is in digital form. When it comes to novels, movies, video games, financial services, mathematical proofs, and scientific discoveries, there really isn’t a meaningful cap in what we can produce.
Even Terrestrial Physical Resources Are Best Viewed as Limitless
But let’s be fair and restrict our focus yet again, this time to physical output produced on Earth. Even here, there is no meaningful limit. Consider: the most hardcore socialist has no problem in calling solar power a “renewable resource,” in contrast to coal, oil, and natural gas which would be considered “finite” or “exhaustible.” But strictly speaking, our sun will eventually run out of hydrogen, and so in that sense is a “finite resource.” Yet we can see why it would be silly to frame the matter that way.
But if we concede that the sun—though in a technical sense finite—can economically be considered as a perpetual source of energy, likewise it is economically more accurate to view the stockpile of crude oil in a similar manner. For example, in the early 1980s if you looked up the total amount of “proven reserves” of crude oil on the planet, and then you divided that number by the annual rate of oil consumption, you would estimate that humanity had about 30 years’ worth of oil. In that mindset, it made sense that so many activists and public figures in the 1980s were urging Americans to wean themselves from foreign oil and to look for other ways to move around and heat their homes.
But something funny happened: Over the next 30 years, humanity kept on consuming barrels of oil. Even so, as of 2010, far from running out, at that point humanity had a greater number of barrels of proved crude reserves than it did in 1980.
The explanation is that “proved reserves” is not the same thing as “total number of physical barrels somewhere in the earth’s crust.” Rather, “proved reserves” means an estimate with 90% confidence of oil that humans have located and that can be extracted profitably under current market conditions. As the world’s buffer of proved reserves starts to dwindle, it becomes profitable for the oil companies to spend more money on research to find new deposits, and/or to invest in more intensive extraction equipment to work on existing deposits.
So rather than imagining all of the world’s crude oil sitting in a giant swimming pool and being drawn down one barrel at a time, a better analogy would be the boxes of cereal in a household pantry. Someone might look at the contents and say, “Yikes! At current rates of consumption, we’ll run out of Cheerios in three days!” But a more helpful framing would be to say, “We need to run to the store tomorrow and get more cereal.”
For a final example, consider that most of the earth’s surface is water. I have interviewed people who are developing floating, modular cities. It wouldn’t be economical for large numbers of people to live on the ocean right now, but that’s partly because we still have barely scratched the surface when it comes to land-based development. Especially when mass-produced AI-driven robots become available, it will certainly be technologically feasible for the planet to support 100 billion people who could enjoy a higher material standard of living than First World countries of today.
Conclusion
The featured tweet above is wrong on both premises and in its (implicit) conclusion. In this first of three posts, I have shown why it is unhelpful to view the world as one of finite resources. For all practical purposes, the current constraint on economic output is the limits of our imagination, as Juliam Simon explained in his classic book, The Ultimate Resource.
But even if I’ve failed to persuade the reader in this post, in Part 2 I’ll argue that even if the world is best viewed as one of finite resources, that’s all the more reason to embrace the market economy as the best mechanism for allocating them.
Dr. Robert P. Murphy is the Chief Economist at infineo, bridging together the dependability of Whole Life insurance policies with the benefits of blockchain-based finance.
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