How Julian Simon Revealed the Earth’s Most Valuable (and Abundant) Natural Resource…
And How Paul Ehrlich Wanted to Get Rid of It
All trade depends on natural resources – the stuff with which goods are made and services are provided. Everybody knows the Earth has a limited amount of natural resources. And everybody knows the Earth has (or is in the process of getting) an unlimited amount of people.
The world’s population was 3.64 billion people 50 years ago. Since then, it has grown to 7.28 billion. Therefore, we will soon exhaust all of the Earth’s natural resources. There won’t be enough food, water, fuel, minerals, or even standing room only.
We’re running out of everything!
Everybody knows that.
Except everybody who looks around the world can see that it’s not true. Global population may be twice as large, but global GDP is nearly 4.3 times greater than it was in 1969.
Global GDP has grown from about $18.5 trillion to about $80 trillion, according to World Bank estimates adjusted for inflation. We have double the number of people, but they’re producing quadruple the goods and services.
If we’re “running out of everything,” this is an unusual way of showing it.
Which brings us to two unusual men, Julian Simon and Paul Ehrlich. Half a century ago, they got into an argument. Ehrlich said the Earth’s natural resources were being exhausted. Simon said, “Like hell they are!”
The argument began as a food fight. Ehrlich claimed that Earth’s limited natural resources could no longer support enough food production to sustain the Earth’s expanding population. Simon claimed that free-market price signals indicated no shortage of natural resources.
Simon and Ehrlich made a wager on 10-year commodity price trends to prove who was right. Simon was. Ehrlich said Simon was right for the wrong reasons. And the argument is still going on, even though Simon died in 1998.
Ehrlich and Simon were well-matched opponents: Both were born in 1932, both were raised in New Jersey, both were from Jewish families, and both were Ivy Leaguers – Simon graduated from Harvard and Ehrlich graduated from Penn. They both earned PhDs, and both were college professors.
However – let us note – neither of these men was an expert on human population or demographics, nor did either have any expertise in natural resources.
Make your bets in the commodity market any way you want, but never bet against people.
Simon’s BA was in experimental psychology. Ehrlich’s was in zoology. Ehrlich’s doctorate was in entomology, specializing in lepidoptera (butterflies). Simon’s doctorate was in business economics, and he owned a successful mail-order and advertising company. Ehrlich taught biology at Stanford. Simon taught economics and business administration at the University of Illinois and the University of Maryland.
So what we have here is not a quarrel between specialists with their narrow viewpoints, but an intellectual argument… a fight about ideas. And – as the motto of this magazine says – ideas matter.
Ehrlich started it with his 1968 book The Population Bomb. As if the title isn’t panicky enough, the opening sentences read:
The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate…
Well, that didn’t happen. But unfortunately, it isn’t just good ideas that matter. Bad ideas matter, too. And Ehrlich’s idea was not only to raise an alarm, but to put forth some alarming ideas of his own – such as a “Department of Population and Environment,” which “should be set up with the power to take whatever steps are necessary to establish a reasonable population size in the United States and to put an end to the steady deterioration of our environment.”
(Imagine a “Penis Security Administration,” or “PSA,” sending you through body scanners while you have sex to make sure you’re using a condom and aren’t doing it outdoors where it might cause “deterioration of our environment.”)
His book was a huge hit, selling over two million copies, and Ehrlich appeared on The Tonight Show with Johnny Carson.
Simon, a ferocious libertarian optimist, took umbrage and spent the next decade writing articles, think-tank studies, and academic papers countering Ehrlich’s furious Malthusian pessimism. (Another difference between the two – and you may have guessed it – Ehrlich had one child, Simon had three.)
In his 1798 book, An Essay on the Principle of Population, Thomas Malthus argued that, “Population, when unchecked… increases in a geometrical ratio [while] means of subsistence… could not possibly be made to increase faster than in an arithmetical ratio.” In other words, there’s no end to the number of babies that can be made, but you can only plant so much wheat before you run the plow into the side of the house.
It was a brilliantly self-evident idea that left a number of 19th century cutting-edge thinkers – John Stuart Mill, David Ricardo, Charles Darwin – smacking themselves on the forehead for not seeing it first. But, like many brilliantly self-evident ideas (free love, New Coke, GE Capital), it wasn’t so brilliant.
In 1981, Simon published his book, The Ultimate Resource, rebutting Ehrlich’s The Population Bomb. (These intellectual arguments move slowly – Ehrlich’s sequel, The Population Explosion, rebutting Simon, was published in 1990.)
The thesis of The Ultimate Resource (backed by many facts and much clear thinking) is that there’s no such thing as an exhausted resource. When a resource becomes scarce, its price goes up. The higher price causes people to use the resource more efficiently, find a new way to obtain the resource, or invent a substitute.
For example, whale oil was once a valuable natural resource – used for the oil lamps that lit most homes and as the main ingredient in soap. Whale oil was so valuable that whales were hunted almost to extinction. And yet, we never ran out of whale oil. That is, we never noticed that we ran out of whale oil – because cheaper and more useful (and less fishy-smelling) vegetable and petroleum oils were replacing whale oil even before it became scarce. The “ultimate resource” isn’t a thing… It’s the amazing creativity of human beings.
Meanwhile, in 1980, Simon and Ehrlich made “The Bet.” Simon proposed that Ehrlich should select $10,000 worth of any five publicly traded commodities that did not have government price controls ($2,000 worth of each). Then after 10 years, they would calculate the price of those commodities in inflation-adjusted dollars. If the price of the commodities rose above $10,000, Simon would pay Ehrlich the difference. If the price fell below $10,000, vice versa.
Ehrlich picked chromium, copper, nickel, tin, and tungsten. (It’s interesting that, starvation-obsessed as he was, Ehrlich didn’t choose any food commodities.)
Between 1980 and 1990, the world’s population grew by 800 million and global living standards rose, but the prices of the selected commodities declined anyway. Tin sank 72%. Even copper – during this advent of the “wired” era – went down by 3.5%.
In October 1990, Simon got a check in the mail from Ehrlich for $576.07. But the check came with no apology or concession of defeat.
Simon’s critics said that due to inflation and monetary instability during the 1970s, commodity prices were at a high point in 1980. They said Simon got lucky.
I say, bullshit.
And subsequent research backs me up (or rather, backs Simon up).
The Cato Institute, a libertarian think tank, has a project called HumanProgress.org. To put the Human Progress’ mission in Cato’s own words:
Evidence from individual scholars, academic institutions, and international organizations shows dramatic improvements in human well-being throughout much of the world… these improvements have been especially striking in developing countries. Unfortunately, there is often a wide gap between the reality of human experience… and public perception, which tends to be quite negative about the current state of the world and skeptical about humanity’s future prospects.
To rectify the widely held misperceptions about the state of humanity, we have gathered empirical data from reliable sources that look at worldwide long-term trends.
In a paper released at the end of last year, Cato scholar and Human Progress Founder Marian Tupy and Brigham Young University economist Gale Pooley describe what they call “The Simon Abundance Index.” Tupy and Pooley created the index by expanding the original wager made by Simon and Ehrlich to include a basket of 50 “foundational commodities” – energy, food, materials, and metals – and by using price data from 1980 to 2017.
Even though the population of the world increased by 69.3% during those 37 years, the price of the 50 commodities declined by 36.3%.
Tupy and Pooley’s conclusion: “Every additional human being born on our planet appears to make resources proportionately more plentiful for the rest of us.”
Make your bets in the commodity market any way you want, but never bet against people.