The Critical Rationalist Vol. 01 No. 02 ISSN: 1393-3809 26-Nov-1996
(29) The most powerful general theoretical argument against the claim that natural resources are finite comes from the pen of Julian Simon. Simon places the issue of natural resources in the context of the debate on the impact of population growth on the world's resources. Simon's basic point is that the concept of a natural resource can be defined for economic theory only relative to a service that we obtain from it. In this approach, Simon is systematically applying Alfred Marshall's conception of an economic good. Simon thus focuses on the World 2 aspect of a resource. Before a use for oil was invented it was not a resource (in fact, it was a nuisance to farmers). Similarly, petrol was at first regarded as a dangerous by-product of the extraction of paraffin. I guess there is at least ten million tons of copper in the core of the star Alpha Centauri, but it is not a resource (at present) because no one can possibly use it for any service. (This is not to say that it may not become a resource in the future. It is an extreme example to show that the concept of a resource includes the notion of service.) Things become less clear in some respects and clearer in others when one considers such things as beautiful views of sunsets over the Amazon forest. Views, or at least ones that can be appreciated as resources, only come into existence with the emergence of self conscious minds that can frame them and regard them as a product of, but also as independent of, the self. A beautiful view is less clearly part of a means-end scheme than a piece of copper, but E. Gombrich has argued that they are constituted by a theoretical framing of the visual world (Gombrich 1960). Moreover, if people are willing to pay for a view then we can more easily see that they are part of a means-end scheme.
(30) On this analysis of natural resource, the implication of the claim that our natural resources are finite is that the amount (or even types) of services that we can obtain from the world are limited. You can see that we are already moving away from the idea that a resource is identifiable with a lump of matter/energy alone and that we must bring in a psychological interpretation (World 2) that links any given resource material to a goal in such a way that the agent regards the material as a means to the goal. As I have already hinted in the introduction, this psychological element already involves a theoretical component that enables the subject to grasp the goal and the means and their relationship to one another and to the self. Popper argues in Objective Knowledge that all understanding involves the grasping of a World 3 object or relationship (Popper 1972). We can extend this to the understanding that is involved in a subjects' economic behaviour. Understanding a means-end relationship often involves understanding that there are alternative means and alternative goals to choose from. It is impossible to construct this understanding except in terms of the subject's use of theoretical interpretations--that is, World 3 objects.
(31) The involvement of World 3 in the question of scarcity becomes clearer once we review the ways in which the scarcity of a resource (i.e., its services) can be reduced:
(32) All these ways of augmenting resources involve not only psychological (intentional) states (World 2), but the use of linguistically formulated theories (world 3). The discovery and invention of new resources and products can be an extremely theoretical task. The discovery of further deposits of a mineral, for example, often involves the use of astrophysical theories and the theoretical interpretation of satellite and seismic data.
(33) Simon argues that as population growth puts a pressure on the demand for services from resources, the real cost and prices of these resources may increase. But this very pressure creates the incentive for further inventions which not only compensate for the increased demand but increase production to lower costs and prices below their pre-shortage values. (This is the best explanation for the results of extensive historical research. cf. Boserup 1981)
(34) So the argument moves from whether there is a fixed amount of copper in a mine or the Earth etc., to whether there are diminishing returns in the long run given (a) the growth of our total imaginative capacity (World 2) and (b) the growth of our inventions and in general our World 3 objective knowledge. Both of these increase with increases in population, since the more people there are, the more minds there are to work on problems of scarcity and add to our objective knowledge.
(35) We have shown that it is the volume of services we obtain from a resource that is the most meaningful index of the quantity of a resource. Having established this, it becomes possible to envision the uninterrupted physical depletion of a non-renewable resource in a never ending process in which the total volume of services obtainable per unit of physical resource increases practically forever. (The only limit might be the atomic nature of matter. But what might be more important than physical quantity is accessibility for use. The last remaining atoms of the resource may just become less frequently available for use in any given project.)
(36) This is how Simon (1986, p. 55) sums up his position with respect to his predecessors:
It is important to notice that there need not be diminishing returns over time to additional people, because the stock of technology with which people may combine their creative talents grows with time. Kuznets makes an argument for increasing returns on two grounds: (a) the stimulative effect of a dense environment, and (b) "interdependence of knowledge of the various parts of the world in which we human beings operate" (Kuznets 1960, p. 328); for example, discoveries in physics stimulate discoveries in biology, and vice versa. Kuznets discounts the possibility of diminishing returns because "the universe is far too vast relative to the size of our planet and what we know about it" (Kuznets 1960, p. 329). Machlup suggests that every new invention furnishes a new idea for potential combination with vast numbers of existing ideas "...[and] the number of possible combinations increases geometrically with the number of elements at hand" (Machlup 1960, p. 156). It is this latter idea of an increasing number of possible permutations of the available elements of technology as the stock increases, when combined with the idea of a reduced likelihood of duplicate discoveries as the number of possibilities increases faster than the number of potential technology producers, that seems most compelling to me.
(37) The implication is that the number (or amounts) of resources also can increase geometrically in parallel with the inventions. (It is important to bear in mind that Simon's complete theory is fairly elaborate and I can only hint at its full structure here.) Simon's theory does actually explain the price trends of (non-monopolistic) mineral resources. However, it must be granted that the form of the explanation is schematic, for it cannot predict or explain price data precisely (say, the price of gold 2 months from now) by deducing them from the model plus initial conditions, but it is, nevertheless, a valuable and testable alternative theory. Indeed, this is typical of economic theories and constitutes no demerit. It shares its schematic character with its rival, the hypothesis of finite resources. However, unlike its rival, the elaborate theory in to which the assumption of infinite resources is placed has a high level of testability. (To be completely fair, some resource-finitist models have made definite predictions, but often it is not clear how the prediction is logically derived from the theory, assumed initial conditions and other background knowledge. Indeed, it is not even clear what the background knowledge is. Cf. Meadows et al. 1974)
(38) Let us return to the more general question. A sceptic might ask why he should accept the idea that the number of possible combinations of inventions grows geometrically with the number of elements. He might suggest that a geometric combinatorial increase might still be finite. Inventions, he could say, are like melodies: one can easily get the impression that the class of possible melodies is infinite, but though large it is far from infinite in size. I believe that the best way of answering him is to explore the theoretical content of inventions, that is, their World 3 aspect. This will show how it is possible for an invention to be applied in a literally infinite number of different ways in production, not only with other inventions but alone. It will become apparent that it is misleading to say that the number of possible combinations of inventions increases geometrically with increases in the number of elements at hand. Even keeping the number of basic inventions constant, the number of ways in which inventions might be combined is infinite. This fact is obscured by looking at inventions as simply physical objects that one adds together in different groups or permutations of order. This sees inventions as simply World 1 objects. Popper's notion of an autonomous and causally active world of abstract entities, World 3, is, I think, the only way to understand how the potential of our inventions and hence our resources is infinite.
The Critical Rationalist Vol. 01 No. 02 ISSN: 1393-3809 26-Nov-1996
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TCR Issue Timestamp: Tue Nov 26 17:14:18 GMT 1996