Economic versus Thermodynamic Accounting - Thanatia: The Destiny of the Earth's Mineral Resources - page 32

Zimmermann (1951) goes further in denying the objective concept of resources
by stating “Resources are means to ends. Means derive their meaning from the ends
which they serve. Ends suggest purpose. Purpose springs from the human mind,
from the mind of individuals or of groups of individuals. Resources, therefore, reflect
the subjective appraisal of those who purposefully choose means to accomplish given
ends.” He insists that “resources become”, that they are an evolving concept. It
is Bradley Jr. (2007) who makes a sharp division between Thermodynamics and
Economics with “The confounding of Physics with Economics has plagued a real-
world understanding of mineral resources. The phenomenon of entropy and the laws
of Thermodynamics rule in their domain. But there is no economic law analogous to
the physical conservation of matter. There is no law of conservation of value; value
is continually, routinely created by the market process. And this value creation
does not deplete.”
2.4.2 A discussion on the Hotelling and Barnet and Morse
approaches
The less radical contributions of Hotelling (1931) and Barnett and Morse (1963)
have been widely accepted among economists (Tahvonen, 2000). Their message is:
resource depletion is offset by market mechanisms. Hotelling (1931) developed a
theoretical model suggesting that mining companies would extract resources at a
“social optimal rate”, maximising well-being indefinitely.
Their reasoning is that when a resource becomes scarce its price tends to go up
and stimulates new exploration, recycling, extraction, process e ciency, substitu-
tion technologies, dematerialisation and other technical innovations thus compen-
sating shortages. Rising prices, through rising scarcities, are intimately linked to
technical improvements. So according to the aforementioned authors there is no
need to fear about mineral scarcity since the planet is large enough and essentially
unknowable.
Following this reasoning, in the renowned topic Scarcity and Growth 1 , Barnett
and Morse (1963) analysed whether mineral prices and extraction costs evolution
confirm or not the physical scarcity hypothesis. The latter are computed as the
amount of labour and capital required to produce a unit of output 2 . With their
work, Barnett and Morse (1963) (and later Simon (1998)), invalidated the clas-
sical economist's view that with diminishing marginal returns and finite natural
resources, the cost of extraction should increase as demand increases and depletion
occurs. This was done through a detailed empirical study of the U.S., which showed
that costs and prices corrected for inflation, did not augment over nine decades. Yet,
somewhat unexpectedly, production did increase between 1.5-3% p.a. It was argued
that economic theory has internal mechanisms for overcoming shortages and these
1 Scarcity and Growth was the first systematic empirical examination of historical trends.
2 The same indicator was used until: Scarcity and Growth Reconsidered (Smith, 1979b).