Mises on Resources: Short, Sweet, Definitive

By Robert Bradley Jr. -- May 6, 2021

“The deposits of mineral substances and their exploitation are not characterized by features which would give a particular mark to human action dealing with them.”

I nominate the above 25 words for the shortest, sweetest statement of energy economics (really economics applied to mineral energies) in history. Properly understood, millions of words could have been spared trying to prove the opposite.

Ludwig von Mises (1881-1973) was the greatest economist of his generation and, indeed, the 20th century. John Maynard Keynes got the accolades, but his theory did not stand the test of time. Milton Friedman, the counterweight to Keynes from the free-market-oriented side, had many contributions that were more quantitative than the much-more-difficult qualitative. And Friedman, the great educator, did not pen a systematic treatise on the corpus of his discipline as did Mises, expositing “an economics that should have been but never was.” [1]

Mises, in short, left economics much better than he found it, more so than any other individual.

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Friedman famously said that there was only good and bad economics, not schools of thought (Keynesian, neoclassical, Austrian). To Mises there was not only this but also real-world economics versus correct-but-irrelevant (and misleading) hypothetical economics.

To Mises, there was not energy economics or health care economics or climate economics or agricultural economics. There was just a qualitative body of necessary causal relations that made sense out of these applied thought.

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What did Mises say about energy, really mineral energies? Not much, because he did not have to add to what he had below, all 373 words worth. The following is excerpted from Chapter XXII, Section 3: Submarginal Land, pp. 641–42.

The useful mineral substances contained in the soil are limited in quantity. It is true that some of them are the outgrowth of natural processes which are still going on and increasing the existing deposits. However, the slowness and length of these processes makes them insignificant for human action.

Man must take into account that the available deposits of these minerals are limited. Every single mine or oil source is exhaustible; many of them are already exhausted. We may hope that new deposits will be discovered and that technological procedures will be invented which will make it possible to utilize deposits which today cannot be exploited at all or only at unreasonable costs.

We may also assume that the further progress of technological knowledge will enable later generations to utilize substances which cannot be utilized today. But all these things do not matter for the present-day conduct of mining and oil drilling. The deposits of mineral substances and their exploitation are not characterized by features which would give a particular mark to human action dealing with them. For catallactics the distinction between soil used in agriculture and that used in mining is merely a distinction of data.

Although the available quantities of these mineral substances are limited, and although we may academically concern ourselves with the possibility that they will be entirely exhausted one day, acting men do not consider these deposits rigidly limited. Their activities take into account the fact that definite mines and wells will become exhausted, but they do not pay heed to the fact that at an unknown later date all the deposits of certain minerals may come to an end.

For to present-day action the supply of these substances appears to be so abundant that one does not venture to exploit all their deposits to the full extent which the state of technological knowledge permits. The mines are utilized only as far as there is no more urgent employment available for the required quantities of capital and labor.

There are therefore submarginal deposits that are not utilized at all. In every mine operated the extent of the production is determined by the relation between the prices of the products and those of the required nonspecific factors of production.

Scholarly Description

In Resourceship: An Austrian Theory of Mineral Resources, (Section 3.1), I interpreted Mises as follows:

In Nationalokonomie (von Mises, 1940), which was expanded into Human Action (von Mises, 1949), Ludwig von Mises briefly addressed the theory and political economy of mineral resources. Mises starts from the fixity feature of minerals that cannot be synthetically produced in human time frames but only found, as it were.

Exhaustibility is causal for human action in a local sense (“Every single mine or oil source is exhaustible; many of them are already exhausted”8). But holistic notions of aggregate supply and future availability are of academic concern and “do not matter for the present-day conduct” of mineral entrepreneurship (von Mises, 1940, p. 581; 1949, p. 637; 1966, p. 641).

Acting man faces a variety of mineral-resource opportunities, meaning that choices are made at any one time between developing certain deposits and not other “submarginal” deposits (von Mises, 1940, p. 580; 1949, p. 637; 1966, p. 641).

Because of #1 and #2, “the deposits of mineral substances and their exploitation are not characterized by features which would give a particular mark to human action dealing with them” (von Mises, 1940, p. 580; 1949, p. 637; 1966, p. 641, emphasis added).

Thus, Mises rejects the notion of a special economic rent possessed by resources that he defines as fixed in the aggregate.

The “geographical dispersion of natural resources” makes “the problems of transportation … a particular factor of production costs” and makes “institutional factors” important (von Mises, 1940, p. 307; 1949, p. 341; 1966, p. 344).

Mises’s theory of minerals is thus opposed to that of Harold Hotelling. There is no unique “theory of exhaustible resources” or mineral-resource economics. The history of minerals to Mises points toward enough prospective abundance so that the macroeconomic does not impinge on the microeconomics of human action. The same marginal economic analysis applied, without a pronounced reservation demand on the part of the seller to differentiate minerals from other goods and services.

By “exhaustion,” Mises meant economic, not physical, exhaustion, along the lines of Jevons who too rejected the notion that “some day our coal seams will be found emptied to the bottom, and swept clean like a coal-cellar” (Jevons 1866, xxix).

Turning to political economy, Mises observed: “Many people are alarmed by the reckless use of the deposits of minerals and oil which cannot be replaced” (von Mises, 1949, p. 383). Challenging the complaint of market failure from mineral overproduction, Mises stated:

It is true that the exhaustion of the oil deposits and even those of coal is
progressing at a quick rate. But it is very likely that in a hundred or five hundred years people will resort to other methods of producing heat and power. Nobody knows whether we, in being less profligate with these deposits, would not deprive ourselves without any advantage to men of the twenty-first or of the twenty-fourth centuries. It is vain to provide for the needs of ages the technical abilities of which we cannot even dream (von Mises, 1949, p. 383).

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[1] Murray Rothbard wrote of Mises’s magnum opus:

Human Action is IT; it is economics whole, developed from sound praxeological axioms, based squarely on analysis of acting man, the purposive individual as he acts in the real world. It is economics developed as a deductive discipline, spinning out of logical implications of the existence of human action.

To the present writer, who had the privilege of reading the book on publication, it was an achievement that changed the course of his life and ideas. For here was a system of economic thought that some of us had dreamed of and never thought could be attained: an economic science, whole and rational, an economics that should have been but never was. An economics provided by Human Action.