Why Julian Simon is both right and wrong

[This is the followup to my earlier article about Julian Simon.]

Now I'll restate this line of thought into a theory that will appear again and again in the book: More people, and increased income, cause resources to become more scarce in the short run. Heightened scarcity causes prices to rise. The higher prices present opportunity, and prompt inventors and entrepreneurs to search for solutions. Many fail in the search, at cost to themselves. But in a free society, solutions are eventually found. And in the long run the new developments leave us better off than if the problems had not arisen. That is, prices eventually become lower than before the increased scarcity occurred. (From The Ultimate Resource 2, Chapter 3)

This is perhaps the key passage in Chapter 3 of Simon's book. It highlights a key part of the drive that has led humanity to develop a dizzying array of technologies, achieve the longest lifespans, the most comfortable lifestyles and the healthiest populations in history. It also illustrates why Paul Erhlich lost his infamous bet with Julian Simon.

Unfortunately, the copy of the book on the internet I've been using seems to have Chapter 3 cut short, so I don't have the reasoning there that takes Simon from the problems of defining "natural resources" discussed in Chapter 2 and the passage above to his conclusion that resources are not finite. However, an article of his published at the Cato Institute, does shed some light:

...the term "finite" is not only inappropriate, it is downright misleading when applied to natural resources. The mathematical definition of "finite" is quite different from a useful economic definition.

For instance, the quantity of services we obtain from copper should not be considered "economically" finite because there is no way of counting them appropriately. We should also consider the possibilities of using copper more efficiently, of creating copper or its economic equivalent from other materials, of recycling copper or even obtaining copper from sources beyond planet Earth.

Therefore, a working definition of the total services that we could obtain from copper now or in the future is impossible to construct. (emphasis added)

There is also his reply to critics in which he says:

Finiteness by itself is not testable, except insofar as the fact that no one is able to state the absolute size of the relevant system (our cosmos) demonstrates the absence of finiteness in its dictionary sense. But the relevant evidence we have available - decreasing prices and increasing substitutability - is not what one would expect from a finite system. (emphasis added)

And:

Nothing I have written is intended to suggest that during any particular period there may not be too much use of any resource, renewable or non-renewable; indeed, I expect temporary overuses (for example, overuse of forest resources in various countries in various centuries) just as I expect boom-and-bust cycles in all other human endeavors. But this is a matter of management and adjustment in dealing with, and riding out, the ups and downs, rather than a matter of ultimate finiteness.(emphasis added)

From this I posit that Simon's argument can be boiled down to the following:

• As reserves of resources run down, the resulting price rises spur the search for new sources of them, for more efficient ways of using them and for ways of substituting other resources for them.
• The long run trend (for centuries) has been for the price of resources to continue falling. Temporary shortages have often led to discoveries that leave humanity better off than before those shortages occur.
• We do not know, ultimately, what resources are available to humanity in the long run. All we know is what resources are available now/in the forseeable future, given current technology.
• We don't know whether the universe is finite or not, and we cannot thus state that the resources available to us are finite. The long run trend of falling prices and greater abundance of resources seems at odds with the assumption of finiteness.
• Since we do not know what resources will be ultimately available to us, we cannot say they are finite in any meaningful sense.

There are several problems here:

1. We do know that the earth is finite. This is an incontrovertable fact. There is a finite amount of energy reaching earth from the sun each year, and a finite amount of matter falling to earth each year from outer space. Until we can exploit extra terrestrial resources at least as easily as we currently exploit the resources on earth, i.e. until we can escape the confines of earth as easily as we can escape the confines of a continent, this really does limit how many people the earth can support and the standard of living those people can enjoy. That seems unlikely to happen for at least a century --- on that timescale the most I'd expect is colonies on the moon and a manned trip to mars.
   
2. The trend for falling resource costs is a matter of a few centuries -- this is a short time compared to (a) recorded history (b) the existence of humanity. We know that civilisations in the past have thrived and then collapsed. It seems likely that some of them died because of resource shortages.
3. For the process of resource discovery and creation to keep us from "running out", it must produce new resources at or above the rate at which we consume them. If we're to rely on this process to prevent disaster, we must therefore posit that there will always be sufficient resources that can be reached via the process within the timescale required to stave off disaster, at every point in time. It seems to me unlikely that this can be guaranteed.
   

Simon is correct to highlight the existence of the process of resource discovery and creation, and at a highly abstract level he is even right that we don't know whether the resources ultimately available to humanity are finite or not. But the process is not automatic, and even when running efficiently, it is not guaranteed to provide us with all the resources we might need at a given point in time.

To act as if resources are infinite, when we know that running out is a real possibility and when even our most advanced science and technology tells us we can do no more than an exploratory flight to our nearest planetary neighbour (let alone colonise it, terraform it or get there in the sort of timescale we can travel to other continents) would be irresponsible.