In the 1970s, Paul Ehrlich, a neo-Malthusian biologist, argued that excessive consumption was producing shortages of natural resources. Economist Julian Simon responded that, for the foreseeable future, the operations of the market and of human ingenuity would be so successful that not only would shortages be avoided, but prices of natural resources could actually be expected to fall.
Simon bet that the price of any set of raw materials would be lower ten years from now than it was today. Ehrlich and his supporters took up the challenge and, in October 1980, chose five metals: chrome, copper, nickel, tin, and tungsten.
Simon won the bet as, by October 1990, the composite price index of these five metals had fallen by more than 40 percent. Simon was humble in victory, however, noting that because metal prices are volatile, he could quite easily have lost. His theory was that raw material prices would trend down in the long-run, not necessarily in a period as short as ten years.
Now, David McClintick and Ross B. Emmett have taken the Simon-Ehrlich bet one step further, by testing Simon’s long-run hypothesis. In “Betting on The Wealth Of Nature” (PERC Reports, at www.perc.org/publications/percreports/sept2005/betting.php), they have tracked a composite index of the prices of Ehrlich’s five metals from 1900 to 2000.
They find, first, that this index was approximately 50 percent lower at the end of the century than at the beginning. However, they also find that the index was, as Simon suspected, highly volatile. Generally speaking, from 1900 to 1920 it was falling (but with a spike in the late 1910s); from 1920 to the late 1970s it was rising (with a major “bump” in the early 1950s); and from 1980 to 2000 it was declining (with a spike in the mid-1980s).
So, both of Simon’s hypotheses were confirmed: (i) human ingenuity can overcome the effects of increasing demand; and (ii) that ingenuity will take time to manifest itself.