Until the late 1960s, the consumption of materials, energy and natural resources was widely assumed to grow at the rate of economic growth. This gave rise to growing concerns about Earth's natural resource availability, notably in the Club of Rome's report on 'Limits to Growth' (Meadows et al. 1972). This report modeled a linear, deterministic relationship between economic output and material input. As a consequence of worldwide economic growth, mankind would face widespread resource exhaustion, which in turn would negatively affect economic and population growth, human health and welfare.
The arguments put forward by Meadows et al. were a modern restatement of much older views originating with Malthus and Ricardo. They predicted that scarcity of natural resources (including land) would eventually result in diminishing social returns to economic efforts, thus limiting the possibility of increasing economic welfare in the face of population growth. The best end result would be a steady state, with a constant population, bounded by the carrying capacity of the earth. The notion of scarcity was critically examined by Barnett and Morse. They state:
Advances in fundamental science have made it possible to take advantage of the uniformity of energy/matter, a uniformity that makes it feasible, without preassignable limit, to escape the quantitative constraints imposed by the character of the earth's crust. A limit may exist, but it can be neither defined nor specified in economic terms. Nature imposes particular scarcities, not an inescapable general scarcity. (Barnett and Morse 1963, p. 11)
In effect, they suggest that progression in human knowledge opens up new substitution possibilities and advances the technology of extraction, use and recycling, all of which prevents resource scarcity from becoming a constraint to economic activities. Simon (1981) has in this respect referred to human knowledge as 'the ultimate resource'.
Barnett and Morse (1963) postulated that growing scarcity would necessarily be reflected in higher prices for resources, yet their study revealed no indication of rising prices for mineral resources in the USA since the mid-19th century. The price of zinc in the USA relative to the consumer price index (the price of all other consumer goods) provides an example (Figure 18.1). Despite wartime fluctuations, prices remained relatively stable, showing no sign of growing scarcity. This can be explained economically in terms of the effect of price mechanisms on resource markets. The price for a (mineral) resource is determined by four interrelated factors: (a) demand for the mineral; (b) supply available from known reserves (those deemed profitable to develop); (c) supply from recycling; and (d) supply of, and demand for, substitutes. Even under conditions of fixed technology, price increases tend to be compensated by falling demand and increasing supply as more reserves (both of virgin and of recycled materials) become economically exploitable. The development of technology for exploration and extraction is also stimulated by price increases, actual or anticipated. All these factors have tended to keep resource prices declining over the long run.
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